Revenue Gap

As blog readers will know, Governor Newsom, in vetoing spending bills he didn't like, cited the fact that state revenues were coming in below projected levels. At the time of his vetoes, we only had data for the first two months of fiscal year 2022-23. We now have data for the first quarter from the state controller and it continues to be true that revenue is below forecast levels. The key tax source that accounts for the gap between actual and forecast revenues is the state income tax which is heavily dependent on top income bracket earners. There has been a continued flow of stories about layoffs and job freezes in the high tech sector, where many of these individuals are located. It might be noted that the forecast levels, in real terms (adjusted for inflation) were below the levels of last year. So, the forecast was not overoptimistic when it was made.

Unused borrowable resources, which the state can use to fund deficits, are down somewhat from forecast levels but well above where they were last year. They still remain at record high levels - over $84 billion - enough to act as a cushion against recession. Generally, the economic indicators for the state and nation remain in an unusual array. Vacancy rates are very high, although they recently declined. But there are still complaints of labor shortages. The unemployment rate is quite low. Real GDP was reported to be declining. Possibly, there will be data revisions of GDP but there is no doubt that the numbers will at least show a slowing down. The Federal Reserve continues to raise interest rates to cool the economy and reduce inflation. Thus, we might tip into a clear recession due to the tightening of monetary policy.

You can find the controller's cash statement for September at https://sco.ca.gov/Files-ARD/CASH/September2022StatementofGeneralFundCashReceiptsandDisbursements.pdf.

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