2009 May 10 Sunday
California Tax Revenues Fall More Than Expected

Mike Shedlock points to the truly amazing California State Controller John Chiang's May 2009 California Budget Summary Analysis (PDF).

The State’s revenues continued to deteriorate in April. Total General Fund revenues were down $1.89 billion (-16%) from the latest estimates found in the 2009-10 Budget Act.

Personal income taxes were $1.06 billion below the estimate (-12.6%), corporate taxes were below the estimate by $831 million (-35.6%) and sales taxes lagged the estimate by $108 million (-19.9%).

Some of April’s sales tax receipts were pushed into early May, but declining taxable transactions still drove sales tax receipts well below the Budget Act projection. While California’s sales tax rate went up April 1, revenues from the new rate will not be seen until May.

Compared to April 2008, General Fund revenue in April 2009 was down $6.3 billion (-39%). The total for the three largest taxes was below 2008 levels by $6.3 billion (-40.3%). Sales taxes were $452 million lower (-50.9%) than last April, and personal income taxes were down $5.7 billion (-43.6%). Corporate taxes were $142 million below (-8.6%) April of 2008

How can sales tax revenue cut in half? Granted, car sales are down by almost that much. But cars are an extreme case. Could be due to the fact that not all goods are taxed. People are still paying for untaxed food. But they aren't buying the taxed goods and services that are more optional.

Cal state spending explodes during good times and then the party ends.

For example, during the dot-com bubble, government spending grew 28% over two years. That growth was ultimately unsustainable, and we didn't have the foresight to save for the recession that followed. During recessions, revenues drop just as the needs for services grow.

How is California's state government managing to function? Simple enough: federal aid has become the biggest source of revenue for the states.

The sales tax had been the No. 1 source of state and local revenue since the mid-1970s, according to the Bureau of Economic Analysis. Before that, property taxes were the primary source. That changed in the first three months of 2009.

Federal grants — early stimulus money plus conventional federal aid — soared 15% in the first quarter to a seasonally adjusted annual rate of $437 billion, eclipsing sales taxes, which fell 2%.

Wages are declining for those who still have jobs. So that cuts spending and tax revenue as well.

George Will points out that state spending has gone up much faster than inflation and population growth.

If, since 1990, state spending increases had been held to the inflation rate plus population growth, the state would have a $15 billion surplus instead of a $42 billion budget deficit, which is larger than the budgets of all but 10 states. Since 1990, the number of state employees has increased by more than a third. In Schwarzenegger's less than six years as governor, per capita government spending, adjusted for inflation, has increased nearly 20 percent.

The needs and demands of California's expanding poor NAM (Non-Asian Minorities) population explain part of the increased expenditures. But I've yet to come across a good analysis of what has caused California's biggest spending increases.

A budget deal between Governor Schwarzenegger and the Democrats in the legislature created some ballot measures that might close part of the budget gap.

Defeat of the measures on the May 19 ballot would chop nearly $6 billion in expected revenue from next year's budget, on top of a projected $8 billion deficit left by shrinking tax collections. Proposals by Gov. Arnold Schwarzenegger and others to close that gap are driving a wildfire of criticism across the state.

Those state ballot budget measures are polling very poorly. So another Cal state budget crisis is less than 2 weeks away. I hope the Obama Administration does not offer loan guarantees when the credit market locks the state out of borrowing more money. It is time for the state legislature to act responsibly and do huge restructurings to cut long term costs.

The Obama Administration is interceding in ways that make the situation in California even worse. Barack Obama is trying to block cuts in wages for unionized state workers

Guess what the Obama Administration is doing? It is telling Governor Arnold Schwarzenegger that it will revoke nearly $7 billion in federal stimulus money unless the state restores legislated wage cuts for unionized health-care workers.

Obama's loyalty is toward the public sector and the unions. He also wants an immigration amnesty that will legalize illegals and make them eligible for more social programs. Plus, the amnesty will only accelerate illegal migration and he'll probably push for more legal immigration. Obama makes California's long term problems worse.

Share |      By Randall Parker at 2009 May 10 02:02 PM  Economics Government Costs

James Bowery said at May 10, 2009 4:33 PM:

you know what I wonder? I wonder what in the Hell Obama and the Democrats do if the Republicans focused their political energy on passing Charles Murray's plan?

No... on second thought: What I really wonder is why more people aren't wondering the above.

kurt9 said at May 12, 2009 11:03 AM:

Steve Sailor had a response to George Will's article on California state spending. I read Will's article and found it 100% spot on and, therefor, fail to see Sailor's argument with it. Sailor, of course, fixed the blame on the hispanic immigrants (as is par for him). I agree with Sailor that untrammeled immigration is causing problems for the U.S. However, to blame the Mexican immigrants for California's troubles is way off base. The Mexican immigrants seem to do just fine in Texas, a state with considerably less social spending, per individual, than California and MUCH less regulation of business and manufacturing. This tells me that CA has a limousine liberal problem, not a Mexican immigration problem. Occasionally Steve blasts at the Asian Caucasian entrepreneurs, who are pretty much the only people doing real economic productive work in California these days. I deal with these Asian Caucasian business owners in my work. As far as I'm concerned, they are the only people doing REAL work in CA. The rest of the state (especially the white liberals) are nothing but parasites. For whatever reason (I leave speculation to others), Steve Sailor has never singled out the limousine liberals as part of the problem in CA. He seems to want to place blame with everyone but them.

Anonymous said at May 12, 2009 1:45 PM:

Wait until the 2010 census occurs and the Calif. legislature is re-apportioned into a permanent Democrat majority. Then they can do anything they want. The amount of additional taxes and abusive nanny-state legislation will become a tsunami. Anybody that can't hide from this stuff will likely leave. Many have left the state already.

The upshot: There will be few real taxpayers left. The state will exist on handouts of printing press money from Fedgov. Then the process continues until the whole country goes down the same path. Weimar 1923 inflation. Maybe.

Randall Parker said at May 12, 2009 9:43 PM:


Texas has more available land for cities to grow into. So it has lower costs of living.

Liberals in California: Mexican immigration will move Texas leftward as well.

Blaming limousine liberals: Our biggest problems are demographic.

Your optimistic take on Texas is a delusion. See my posts about Texas and Hispanics.

kurt9 said at May 15, 2009 2:22 PM:

No Randall,

I have to disagree with you on this.

The reason why manufacturing business is fleeing California is because of the increase in taxes and regulations. Everyone I know personally tells me this. They rarely, if ever, blame the problems on the Hispanic immigrants. It is not the Hispanics themselves who are responsible for this growth of taxation and regulation. It is the limousine liberals, government employees and their unions, and all of the "liberal" political special interest groups. My problem with Steve Sailor is that he seems to want to give these groups a pass.

You are correct that there are problems with untrammeled immigration of the NAM's. However, I think it unreasonable to blame them for the problems that are actually caused by the above mentioned groups.

Randall Parker said at May 16, 2009 9:58 AM:


Lots of people do not think thru the whole chains of causes and effects. Also, lots of people in business do not want to get near issues related to race. That's far too dangerous to speak about.

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