By Kevin Yamamura
Published: Wednesday, Jan. 23, 2013 – 12:00 am | Page 1A
Last Modified: Wednesday, Jan. 23, 2013 – 7:53 am
After years of budget agony, California is seeing something strange this month: a heap of excess cash.
The state is poised to finish January about $4 billion ahead of what forecasters expected in income taxes, according to the Legislative Analyst’s Office – the biggest one-month overage that state fiscal experts can recall in recent memory.
California also set a single-day record Jan. 16 when the Franchise Tax Board received $2.2 billion in taxes, mostly in payments from the 6 percent of filers who pay quarterly rather than have money deducted from paychecks.
But state leaders shouldn’t get too giddy.
The one-month boom likely comes from a perfect storm of tax changes at the state and federal level, and budget experts urge restraint because a dollar received today could simply mean a dollar less tomorrow. This comes on top of an already volatile tax system that relies heavily on wealthy residents whose income is hard to predict.
With fiscal experts unsure whether the tax burst is real, Gov. Jerry Brown and state lawmakers will be hard-pressed to have serious budget conversations until after his May budget proposal. The extra January money is roughly 4 percent of what the governor expects the state general fund to receive this fiscal year.
Some Democratic allies representing low-income Californians have called for more spending on health and welfare programs, but lawmakers so far have tried to limit spending talk.
“I think the best advice is be patient,” said Jason Sisney, chief forecaster at the Legislative Analyst’s Office. “There were a lot of unusual events occurring in recent months that could be influencing this. These monthly reports need to be regarded with a significant degree of caution.”
One major factor, fiscal experts said, was that top earners took a flurry of income at the end of December, knowing that federal leaders were all but certain to hike their 2013 tax rates. Publicly traded companies such as Wal-Mart and Costco pushed 2013 dividend payments into 2012 to help shareholders avoid a higher tax bill, while some employers paid bonuses in December rather than January.
Taxes on year-end income typically show up this month because final-quarter payments are due Jan. 15.
If the boom is coming from accelerated tax payments, the state could ultimately see less money than expected in the next fiscal year.
“I suspect the single biggest element is the acceleration of dividend and capital gains payments in order to avoid the increases taking effect under federal law,” said Brad Williams, a former revenue forecaster with the Legislative Analyst’s Office who now works as a private consultant.
The Department of Finance and Sisney suspect a second factor could be at play – an unconventional retroactive tax hike on high-income earners that voters approved in November at Brown’s urging.
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