California’s FYE 6-30-13 Deficit Already $2.7 Billion Above Projections

California’s FYE 6-30-13 Deficit Already $2.7 Billion Above Projections

California revenue is up from a year ago. Unfortunately, California revenue is not up as much as expected, while spending is up way more than expected.

Please consider California Finances in November 2012 by state controller John Chiang.

November’s tax receipts fell 10.8% short of expectations contained in the 2012-2013 State Budget, although they were above the year-ago level. Total revenues year to date are now 2.6% less than anticipated at this time, with shortfalls among all of the major sources.

Expenditures are 4.9% above estimates contained in the Budget, with assistance to local governments driving the overage.

Total revenues were $806.8 million below projections in November, with corporate taxes accounting for a significant amount of this divergence. Compared with a year ago, total revenues year to date were up by 2.5%, with an impressive gain in income taxes offset-ting shortfalls in the other revenue sources.

The difference between actual and estimated numbers is larger on the spending side. For the first five months of the fiscal year spanning July through November, actual disbursements exceeded projections by $2.2 billion, or 4.9%. Education and health care accounted for the majority of the difference.

Here are a couple tables I put together from the report.

Fiscal Year 2012-2013 Revenue To-Date

Fiscal Year 2012-2013 Spending To-Date

Spending Problem, Not Revenue Problem

Here are a couple images from the report showing want any rational person knew anyway: California has a spending problem, not a revenue problem.

November 2012 vs. November 2011

Key Revenue Facts

  • Total Revenue is up $608.3 million from a year ago. Unfortunately, total revenue is down $806.8 million vs. expectations.
  • Income tax is up $367.0 million from a year ago. Unfortunately, income tax is down $842.5 million vs. expectations.
  • Corporate taxes are down 160.1% from a year ago and $187.8 million vs. expectations.
  • Sales taxes are the only bright spot, up $386.1 million from a year ago. Yet, sales taxes are only up $99.0 million from expectations.

Corporate taxes are skewed by early payment in November. However, the overall bottom line shows rampant optimism. And that is just the revenue side.

Bottom Line

  • Fiscal year-to-date, in spite of healthy growth in revenues, California revenue came in 2.63% lower than expected.
  • Fiscal year-to-date, California managed to spend 4.87% more than budgeted.
  • Total receipts were down a mere 1.60% only because non-revenues were 21.43% greater than expected.

6.46% in the Hole

Taking into consideration the jump in non-revenue, California is 6.46 in the hole, for July through November.

Fear-Mongering and Tax Hikes

Is this a spending problem or a revenue problem?

The answer should be clear, but thanks to fear-mongering by governor Jerry Brown, fear-mongering by teachers’ unions, fear-mongering by police and fire unions (and fear-mongering by every other public union in the state), California voters were stupid enough to pass Proposition 30.

The proposition hikes California’s sales tax to 7.5% from 7.25%, a 3.45% percentage increase over current law. It also “temporarily” hikes income taxes for seven years, on four high-income tax brackets for taxpayers with taxable incomes exceeding $250,000, $300,000, $500,000 and $1,000,000.

The top income bracket in California is now 13.3% tax rate on taxable income over $1,000,000–a percentage increase of 29.13% over current “millionaires tax” policy of 10.3%.

Proposition 30 Will Backfire

I confidently predict Proposition 30 will backfire.

Indeed,  proposition 30 will be the final straw prompting many millionaires to exit the state. I expect some major businesses will follow as well.

Expect More Hikes in Taxifornia

A US recession started this summer or is on the way now (take your pick). Either way, since California could not bring in enough revenue in 2011, it will fail to do so in 2012, even with those monstrous tax hikes.

Expect unions to ask for still more tax hikes because tax hikes and unions go hand-in-hand. Good luck with that Taxifornia.

About the author: Mike “Mish” Shedlock is a registered investment advisor representative for Sitka Pacific Capital Management. His top-rated global economics blog Mish’s Global Economic Trend Analysis offers insightful commentary every day of the week. He is also a contributing “professor” on Minyanville, a community site focused on economic and financial education. Every Thursday he does a podcast on HoweStreet and on an ad hoc basis he contributes to many other websites, including UnionWatch.

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