California April Tax Revenue Nearly $3 Billion Under Projection

From December 2009 through March 2010, California collected $29.2 billion in state tax revenue, beating its projection of $26.5 billion. The state consequently expected that April, the month when taxpayers pay remaining income taxes, would bring in $10.5 billion. They were nearly $3 billion off:

Economists and finance officials are scurrying to analyze the data to determine what caused the April swoon. Some suspect it sprang from new laws that changed the rhythm of tax payments. It could also reflect the growth in unemployed residents eligible for refunds.

The April collections came almost entirely from personal income taxes. Most corporate and sales taxes have not yet been reported. If they, too, come in below projections, the state’s budget problem would grow worse.

The decline sets Sacramento back as next month’s deadline for passing a budget approaches. Lawmakers face a deficit of $18.6 billion – about 20% of general fund spending – with no easy options left for addressing it, as they have already cut state services severely and temporarily raised income, sales and vehicle taxes.

States have been struggling for two or three years now with revenue estimates that turn out to be overly optimistic. This can create problems because the estimates are used when lawmakers sketch out spending commitments for the state budget. When the expected revenue doesn’t materialize, budget shortfalls open up between planned spending and actual revenue.

More on state taxes and budgets here.