Still Pouring In

We have been noting, month by month, that the state has been receiving revenue (mainly tax revenue) running well ahead of estimates made when the current year's budget was adopted. Through March, revenues exceeded forecast values by $16 billion, according to the state controller's latest report.*

When the governor presented his budget proposals in January, he revised up the estimated revenue. Even so, revenues exceeded the revised estimate by $7.6 billion. 

Eyes on the Prize**

Much of the overage in receipts continues to come from personal income taxes which suggests that stock market capital gains are the root cause. The AI boom has likely been an important factor. Estimates of sales tax receipts have proved to be pretty accurate which suggests that the underlying forecast of economic activity has been pretty accurate.

As blog readers will know, the governor did not choose to reflect concerns that the AI boom could go bust when he made his January budget proposals. He said that if some correction was needed, they could always be made at the May revise. AI has busted yet, and now there is also the uncertainty created by the Iran situation. Gasoline prices and other energy-related costs could dampen consumer spending. But the governor - with his eye on the White House in 2028 - probably can gamble that even if Bad Things happen, they will happen on his successor's watch.

Now it's true that when extra revenue comes in, a lot of it is automatically earmarked for K-14 thanks to Prop 98 as amended. But the state has $87.5 billion in unused borrowable resources. So, whatever happens, I would be surprised if the governor comes out with an austere May revise. And even if he did, the legislature would likely not go along with it.

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*https://www.sco.ca.gov/Files-ARD/CASH/March2026StatementofGeneralFundCashReceiptsandDisbursements.pdf.

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**Apparently, they decided not to translate the English title: Young Man in a Hurry: A Memoir of Discovery. But at least they didn't call it Sein Kampf.