Fall 2023 State Budget Update

By Tom Sheehy

California state government revenues are almost impossible to forecast at this point. At least as it relates to the personal income tax, we simply don’t know how much money the state is going to have. And personal income tax matters because it makes up almost 2/3 of the state general fund budget.

In a normal year, income taxes and returns are due to the Franchise Tax Board on April 15. And then the governor gives his May revision budget update to the Legislature in mid-May, utilizing all of the latest revenue numbers, as well as the population, caseload and enrollment updates. But this May revision was very different because the IRS extension of the deadline for submitting tax returns and tax payments. Essentially the Legislature and the Governor have been flying in the dark without a radar on the state revenue situation.

The October revenue totals reported by the Franchise Tax Board are $24 billion less than what was predicted in the revenue estimate for the Budget Act of 2023. However, some portion of this is likely to be simply a delay in payment and not permanent revenue losses.

H.D. Palmer, a spokesman for the Department of Finance, emphasized that it’s not a final assessment and the state may wind up closer to its target by the time the department releases its routine monthly revenue report in mid-November.

So it’s really complicated for the budget writers to know how much revenue we actually have to spend for the current fiscal year, and it also makes it difficult for the DOF & LAO forecasters to determine how much revenue will be available in the next fiscal year. All of this makes it very complicated for State Budget writers in the Legislature when they come back in January. They’re really going to have their work cut out for them — trying to figure out how to craft a state budget.

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