Hitting the Target

In the recent past, we have gotten used to state revenue forecasts falling below actual results due to unanticipated capital gains in personal income tax receipts from AI. We now have one month's cash report for July - the first month of the current fiscal year. Revenues were a bit ahead of the forecast made when the state budget was enacted last June. But the overage is not from income taxes which fell a bit short of forecast estimates. Corporation taxes were the main source of the overage. And the sales tax ran a bit ahead of forecast values, and by more than pure inflation would suggest compared to the same time last year. So the general economy, as opposed to the world of finance, seems to be doing OK.

It's only one month, of course, but if this becomes a trend, it would mean no unpleasant surprises from the state for UC while the governor finishes out his term, i.e., until January. (There is always room for federal surprises, however.)

The July 2026 controller's cash report is at:

https://www.sco.ca.gov/Files-ARD/CASH/July2026StatementofGeneralFundCashReceiptsandDisbursements.pdf.

State Cash Report

The story of fiscal 2025-26, the year that ended last June 30th, was one of underestimating state revenues, as the latest report from the state controller illustrates.*

On the other hand, disbursements were more or less accurately forecast when the state budget for 2025-26 was enacted and overestimated at the time of the May revise.

The state still has a significant reserve of cash in various accounts, so the prospect of the state handing out IOUs anytime soon, as in the Great Recession, is nil. All of this can be seen on the table below:

We don't yet have the budgetary summary numbers from the Dept. of Finance for the current year 2026-27. Xavier Becerra, the de facto incoming governor (since California no longer elects statewide Republicans) will spend his first 6 months under the Newsom-enacted budget. The budget he will present in January 2027 for 2027-28 will largely have been put together by the Newsom team, given the pressures of timing. So, if he has very different priorities from Newsom with regard to UC - and there is no indication that he has - that would be a surprise. Surprises, if they occur for UC, are more likely to occur from changes in economic activity and the stock market than from political turnover in Sacramento.

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*https://www.sco.ca.gov/Files-ARD/CASH/June2026StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Still Ahead

The latest cash report from the state controller for May 2026 (11/12ths of the current fiscal year), shows receipts modestly ahead of projections made at the time the governor's May Revision was presented. They are way ahead of the projections made almost a year ago when the current state budget was adopted, well over $25 billion ahead. The income tax is mainly the source of the overage, presumably due to capital gains on AI-related stocks.

All of this news is background to the ongoing legislative efforts to pass a budget. Because of various rules regarding legislation enactment, the legislature needs to adopt something called a budget today to meet the constitutional requirement of enacting a budget by June 15.

You can find the last cash report at:

https://www.sco.ca.gov/Files-ARD/CASH/May2026StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Last Cash Before Revise

The governor will present his May Revise budget proposal later today. As noted in a prior blog posting, yours truly will be on an airplane at the time so any analysis of the proposal will be delayed. However, we do have the state controller's cash report through April, the big month for income tax receipts. And the story of above-forecast revenues continued.

Revenues for the current fiscal year through April, i.e., through the first ten months, were $12.1 billion above what the governor projected in January, and $23.7 billion above what was projected at the start of the fiscal year.

The major contributor to both excesses over projections was the personal income tax, so stock market gains. Both projections got the sales tax about right, so the underlying economy was performing about at levels estimated.

Finally, the state is sitting on $87 billion in unused borrowable resources, so there is lots of internal liquidity.

We'll see how the governor and legislature react to these developments shortly.

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The state controller's report through April is at:

https://www.sco.ca.gov/Files-ARD/CASH/April2026StatementofGeneralFundCashReceiptsandDisbursements.pdf.

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Note: There is one dark spot with regard to revenue and that is from the cap-and-trade program that provides revenue for various programs, notably the high-speed rail. Revenues from cap-and-trade are falling below projections. The rail project is proving embarrassing for the governor's non-campaign for president and threats to revenues for it don't help. See:

https://lao.ca.gov/handouts/resources/2026/Amendments-to-Cap-and-Invest-050626.pdf.

Already Ahead - Part 2

We noted in a prior posting that income tax revenue for the state had exceeded the governor's January budget estimate even before the full month of April had passed.* We now have the full month - see above - which shows the complete excess. We should get a full cash statement on all tax and other revenue for the state in the next few days.

Note that the governor's May Revise budget proposal is scheduled for May 14.

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*https://uclafacultyassociation.blogspot.com/2026/04/already-ahead.html.

Already Ahead

April is the big income tax month and a lot of people pay up at the April 15 deadline. As the chart above shows, although the month is not complete, we are already ahead of the governor's projection - made at the time the January budget proposal was made - for April income tax receipts. We are also not far from the point when the governor will be submitting his May Revise budget. The continued above-projection figures for tax receipts will likely influence that submission and how the legislature looks at it.

The daily budget tracker for April is at https://sco.ca.gov/2026_personal_income_tax_tracker.html.

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.

Get It While You can

The state controller's cash report is out for the first seven months of fiscal 2025-26 and - guess what? - revenues are running ahead of the forecast made at the time the current state budget was passed to the tune of $15 billion. Indeed, revenues are running ahead of the updated forecast made last month when the governor made his budget proposal for next year to the tune of $6.9 billion.

Now, we all know that much of this overage seems to be fueled by AI spending, which filters into tax revenues by way of the stock market and capital gains. And we all know that it could be a bubble and that - if it is - revenues will slump when it bursts, i.e., we could have a repeat of the dot-com boom/dot-com bust. If that happens, revenues will drop and a crisis will occur. 

We know, in addition, that the Legislative Analyst's Office keeps warning of a "structural" budget problem in the years to come. And blog readers will know that even with the governor's optimistic forecast for the economy, we are currently running a deficit (total reserves of the general fund are being drawn down).* We know from the dot-com boom/bust episode that if the state is not socking away a lot of cash at the peak of the cycle, a downturn will be especially painful.

With all of that knowledge, however, it is unlikely that the legislature is going to accept austerity now when it sees extra revenue coming in. And the governor, who is running for president and is termed out, seems unlikely to want to play Dr. No. If he can just make it to next January without a fiscal mess developing, he can say it didn't happen on his watch, and leave whatever problems that follow to his successor. 

So, the best advice yours truly can give to UC lobbyists is "Get It While You Can" - because every other interest group will be seeing what I see.

Or direct to https://www.youtube.com/watch?v=mtj9w2gYzV4.

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*https://uclafacultyassociation.blogspot.com/2026/01/the-no-hassles-while-im-in-office-state.html.

Extra Cash Continues

The state controller's cash report for the first half of fiscal year 2025-26 continues to show revenues running ahead of estimates made when the budget was enacted to the tune of over $10 billion. As we noted when we examined the governor's January budget proposal, this extra revenue is essentially what permitted him to submitted a no-hassles proposal for FY 2026-27.

The state's unused borrowable cash reserves have fallen since last year at this time, but are still at a hefty $86 billion. So, the governor will not exit his office when his second term ends with the kind of crisis that Arnold Schwarzenegger had when he left and the state was having trouble just paying its bills.

The latest controller's report is at:

https://www.sco.ca.gov/Files-ARD/CASH/December2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Continued Receipts Above Estimate

The state controller has issued her monthly cash report for the current fiscal year through October. Receipts are running $6.3 billion above forecast levels. Almost all of the overage is coming from the personal income tax, suggesting it reflects the AI stock market boom and estimated capital gains. Sales tax receipts are in line with forecast levels suggesting the economy is performing at around projected levels.

Unused borrowable resources are down from a year ago indicating a drawdown of available reserves, but they are still at a very high level of $85.8 billion (down from $97.4 billion). So we are nowhere near the kind of budget crisis that hit the state during the Great Recession of 2008.

While the Legislative Analyst's Office continues to worry about structural budget problems in the outyears and what might happen if we have a bubble that bursts in the stock market, there will at least be members of the legislature who will observe the immediate happy results in formulating next year's budget.

The latest cash statement of the controller is at:

https://www.sco.ca.gov/Files-ARD/CASH/October2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Ten Percent

According to the state controller, revenues for the first quarter of fiscal year 2025-26 ran ten percent above estimates made at the time the state budget was enacted.

Almost all of the overage came from the state's personal income tax. Sales tax came in more or less as anticipated.* So that suggests that the underlying economy was performing as expected, but that capital gains - and withholding reflecting those gains - was pushing up revenue.

The Legislative Analyst's Office (LAO) notes the discrepancy between forecast withholding and actual:

Source: https://lao.ca.gov/LAOEconTax/Article/Detail/756.

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Within that hypothesis is the possibility that AI enthusiasm is creating a financial boom reminiscent of the dot-com boom of the late 1990s (which also enhanced state revenue - until it suddenly didn't).**

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*https://sco.ca.gov/Files-ARD/CASH/September2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

**https://jasonsisney.substack.com/p/astonishing-september-tax-withholding.

Some Extra Cash

The latest cash report from the state controller for the first two months of fiscal year 2025-26 shows about $2 billion more has come into the general fund than was forecast when the budget was enacted.

Much of it is coming from the personal income tax.

One might note that such extra cash might tide UC/UCLA over while frozen grants are being litigated.

Just an observation...

The cash report through August is at:

https://sco.ca.gov/Files-ARD/CASH/August2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Nothing to See Here - Really!

Usually, when you are told there is nothing to see, there is something. And usually, when the state controller's monthly cash report comes out, we take note of it within a reasonable time.

In the case of the July report - just one month into the 2025-25 fiscal year, there really was nothing exciting to see. Of course, one month does not a year make. But revenues came in more or less as forecast in July. State unused borrowable resources are down from what they were a year ago, in part because we have run down various reserves related to the General Fund. But that is old news.

You can see the July 2025 cash report at:

https://sco.ca.gov/Files-ARD/CASH/July2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Cash Report for the Last Fiscal Year

The state controller's report for all of 2024-25, the fiscal year that ended on June 30 shows revenues to the general fund running over $3 billion ahead of projections for the May Revise and over $9 billion ahead of the projections made a year ago when the budget for 2024-25 was enacted. There was a lot of shuffling of cash between the general fund account and other reserves during the year. 

Note that cash accounting differs from the modified accrual accounting used for the state budget. So in particular the fact that LA County income tax payments were allowed to be deferred to fall 2025 likely means that some of the revenue receipts that would normally have arrived in April 2025 will show up on a cash basis in the fiscal year that began July 1, 2025. Still, the Regents, when they review the budget at the meetings that start today, should be somewhat happier knowing revenues were underestimated rather than the reverse.

The budget estimates for the enacted budget on the accrual basis have not yet appeared on the Dept. of Finance website.

The controller's figures are at https://www.sco.ca.gov/Files-ARD/CASH/June2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Looking for Cash? - It's There (Now)

The last controller's cash statement is available as the legislature looks to pass a budget by June 15th. It covers the first 11 months of the current fiscal year and continues to show a lot of cash on hand. Compared with what was expected last year when the legislature passed the current budget, the state received an extra $10.6 billion in revenue. Even compared with the projections made last month for the May Revise, revenues are ahead by $629 million. Unused borrowable resources stand at over $91 billion. So the argument between the legislature and governor is focused on projections of not-so-good-times ahead more than the immediate situation.

As we have noted in prior posts, at the moment, the legislature seems to be rejecting any (nominal) budget cut for UC. Whether that remains a firm position should become clear in the next few days.

You can find the controller's report on the current fiscal year through May at:

https://www.sco.ca.gov/Files-ARD/CASH/May2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Lots of cash now but maybe not in the future

The April cash report from the state controller continues with the paradox of more revenue coming into the state than anticipated and yet projections for a budget squeeze next fiscal year.

Revenues for the first 10 months of the year (July through April) were $4.4 billion ahead of the forecast made last January when the governor presented his budget proposal for 2025-26. They were $8.8 billion ahead of the projections made last June when the current budget was enacted.

Virtually all of this overage is coming from the state's personal income tax which suggests what we are seeing is capital gains from the stock market based on gains in 2024, i.e., before the current stock market gyrations began in response to tariffs, etc.

Note that because of the fires, taxpayers in LA County did not have to file in April so there probably would have been more overage had the fires not occurred. Taxpayers who owe money in LA County have no particular incentive to file early, but those due refunds had such an incentive. 

The state has well over $90 billion in unused borrowable resources so we won't see the kind of IOU/warrant financing we saw in the past if the economy does go south next fiscal year. The governor is due to unveil his May Revise budget proposal next week. 

You can find the controller's report through April 2025 at:

https://sco.ca.gov/Files-ARD/CASH/April2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

Preview

Jason Sisney of the Legislative Analyst's Office (LAO) provides a partial preview of state revenue collection for the fiscal year through April in his blog. He focuses on income tax receipts. We should have a fuller picture in a few days when the state controller's report on the fiscal year through April comes out.

Sisney's preview continues the story of revenue exceeding projections, but fear of a potential downturn related to tariff wars and other uncertainties that are constraining the budget. His report is below (from an email):

In Total, April Income Taxes Beat Projections. Preliminary tax agency data shows that California’s personal and corporate income taxes, combined, generated $23.4 billion of revenue in April, net of refunds. This exceeds the forecast for the month—included as part of the Governor’s January 10 budget proposal—by $488 million (2.1%).

2025 Estimated Payments Lagged Projections. 2024 final return payments to the Franchise Tax Board (FTB)—related to 2024 economic activity (before the current federal administration took office)—generated the April gains. 2024 final return payments were $1.6 billion (29%) above projections for the month. By contrast, most other income tax categories were weaker than projections, including the first quarterly estimated personal income tax payments of 2025, which were $245 million (8%) under target.

Some Los Angeles County Payments Will Come in October, Not April. Considering that the January forecast assumed timely receipts from Los Angeles County filers, whose income tax deadlines were extended to October due to the wildfires, April totals can be viewed as fairly healthy. More Los Angeles taxes that ordinarily would have been received by FTB in April are likely to show up in October instead, presumably to be booked mostly to the 2024-25 fiscal year. Even with the Los Angeles County delay, total income taxes in April 2025 were $2.7 billion (13.0%) more than received in April 2024, including withholding from employees’ paychecks, which was $410 million (5.3%) above April 2024 levels.

2024-25 State Revenue Strength To Date. For the 2024-25 fiscal year to date, California’s income taxes are $3.8 billion (3.0%) above projections as of the end of April. As of the end of March, income tax gains were offset by sales taxes running more than $300 million below projections. The first few billion of added General Fund tax revenues in 2024-25 may be required to go to schools to pay down Proposition 98 “maintenance factor” due to last year’s action to suspend schools’ minimum funding guarantee. Other revenues—principally federal cost recoveries for prior years—were running above projections as of March, likely due to earlier-than-expected receipts of some of those funds.

Recession Risk Now Significant. Due to the new federal administration’s various economic decisions, recession risk now is elevated. Weaker tax revenue growth in 2025-26 appears quite possible, if not likely. Coupled with cost increases being reported by state departments, this probably will increase projected state deficits significantly beginning in 2025-26. Big augmentations of the state budget above levels proposed in the Governor’s January budget plan appear unlikely. State budget cuts, funding delays, borrowing, and other budget-balancing measures almost certainly will be required beginning in 2025. Federal budget actions in the coming months are expected to worsen existing state budget deficits, such that state backfills of federal cuts generally will not be feasible.

May Revision Imminent. Pursuant to state law, the Governor must submit the annual May Revision of his proposed budget to the Legislature on or before Wednesday, May 14. New revenue and spending projections and updated proposals to balance the 2025-26 budget are expected.

More Cash/More Caution

The state controller now has reported on cash receipts through March, i.e., the first nine months of the fiscal year. Cash keeps coming in ahead of projections. Unused borrowable resources remain well north of $90 billion.

Revenues to the state's general fund were $4.2 billion ahead of the projections made just last January when the governor made his budget proposal for next year. They were $10.1 billion ahead of what was projected last June when the budget for the current year was enacted.

Of course, that's not cash free and clear, since under Prop 98 a good chunk of the overage will go by formula to K-14. But better overage than underage, particularly for UC which is pushing for more than the governor wants to give.

So what's the problem at this point? It's the outlook and, more precisely, the uncertainty about the outlook. Income tax receipts make up the bulk of the two overages. And such receipts are backward looking, i.e., based on what people - mainly high-income people - owed based on past incomes. Trump-shock - tariffs, etc., - makes forecasting difficult. Capital gains from the stock market looking forward may not be there to the extent they were pre-shock. Another complicating factor is that tax returns and estimated tax payments from LA County that were normally due in April don't have to be filed for several months due to the fires.

You can see the controller's figures through March at:

https://sco.ca.gov/Files-ARD/CASH/March2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

More Cash

The state controller continues to report cash flowing into the state above forecast estimates.

Receipts in the period July-February of the 2024-25 fiscal year were ahead of the estimates made in January by $4.2 billion and ahead of the estimates made last June when the current budget was passed by $10.6 billion.

In both cases, the bulk of the overage comes from the personal income tax and probably reflect capital gains from the stock market during the past calendar year. 

The overage should be helpful to UC in making the case for its budget request for the coming fiscal year. But as we have noted in past posts, Medi-Cal is apparently running ahead of projections in cost and there is general concern about where the economy is going, uncertainties from the political situation in DC, etc. In addition, the governor's proposal calls for pulling down reserves which in common English means running a deficit (although not in the strange language of California budget-speak).

The controller's figures are from:

https://www.sco.ca.gov/Files-ARD/CASH/February2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.

It would be nice...

...if the cash coming into the state above and beyond the estimate made last June when the budget was passed resulted in more funding for UC. According to the state controller, in the current fiscal year through January, the state received $9.7 million more in revenue than had been forecast, most of it from the personal income tax. This overage persisted even though the fires in the LA area likely reduced inflows from that region in January itself. Indeed, there was also an overage of more than $3 billion compared to the forecast the governor used for his January 2025 budget proposal.* 

All of that in normal circumstances would help UC in its lobbying at the legislature for more than the governor proposed.

Unfortunately, what might be normal in Sacramento may be offset by abnormality in DC and uncertainty about everything from federal aid for dealing with the effects of the fires to the many other inflows of federal monies to the state. There is also added uncertainty created by the fire-related decision to delay the deadline for tax filings from LA County, which complicates revenue forecasting.

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*https://www.sco.ca.gov/Files-ARD/CASH/January2025StatementofGeneralFundCashReceiptsandDisbursements.pdf.