With the UCLA Anderson Forecast coming out tomorrow, and our previous postings about the May Revise proposed state budget, it might be useful to look at where the seeming extra state cash is coming from. According to the state controller's cash reports, the surprise extra revenue for the current fiscal year through April is coming mainly from the personal income tax and the corporation tax.** The former is highly sensitive to the stock market but at this point is largely backward-looking, i.e., it reflects the period before the recent stock tumbles occurred. The corporation tax is also largely backward looking and highly sensitive to the overall state of the economy.
When we look at the sales tax, however, there doesn't seem to be a surprise element, i.e., the underlying economy - reflected in taxable consumption - was about where it was expected to be both when the current year's budget was enacted last July and when the budget for next year was proposed in January 2022.
Therein lies the state's budgetary vulnerability, although it is currently offset by the large reserves that the state has accumulated. Of course, the state's vulnerability is UC's budgetary vulnerability, even if there is a multi-year "compact" in place that is supposed to guarantee future funding.