Tax receipts up in California, but corporations pay less than expected

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Tax receipts beat expectations for the second straight month in California, a piece of good news among other worrisome indicators for the state’s economy.

General fund revenues were 5.9% higher than budget estimates in May, according to a monthly report from the state controller’s office. In April, they were 4% higher than estimates.

Retail sales taxes were above estimates in May by 9%, or $305.9 million, indicating consumers are shopping more than state budget officers expected. Income tax revenues were up by 0.4%, while corporate tax revenues were $11.1 million, or 3.9%, lower than expected.

‘Many indicators show that our state is still moving towards recovery, but a prolonged budget deadlock could needlessly endanger that progress,” said Controller John Chiang, in a statement. ‘The Legislature can do no greater service to California’s economy than to deliver a balanced, sustainable and on-time state budget.’

The governor’s office also revealed in May that the state had $2 billion in unexpected tax revenue, based on separate accounting from the Department of Finance.

The controller’s May cash update came with other positive news: New auto registrations through February were higher than they were in the same period in 2010, fewer foreclosures were initiated in the first quarter of 2011 than in the first quarter of 2010, and the state has more jobs. However, median home prices and single family home sales were lower in April 2011 than they were in 2010.

But it’s not time to get too optimistic about the state of California’s finances, said Jean Ross, director of the California Budget Project.

‘Certainly, cash in the bank is always good news, but economic news is still touch and go,’ she said. ‘But it’s not going to fix the problem,’ she said, referring to the state’s budget gap.

More worrisome, Ross said, is that corporate tax receipts are down again. She says the state is collecting less money from corporations because of three tax breaks awarded to corporations in 2008 budget negotiations set to go into effect this year and next. Her group and the California Teacher’s Assn. lobbied hard for Proposition 24, on the November 2010 ballot, which would have rolled back those tax breaks, but were defeated.

The Legislative Analyst’s office estimated that the breaks would cost the state $1.3 million, but Ross says the decreased tax receipts show that those estimates were too low.

‘Corporate tax revenues have been down even though profit reports are up,’ she said. ‘What that tells me is that they underestimated the cost of this.’

A fuller picture of the state of the California economy in May should emerge Friday, when the state Employment Development Department releases job numbers for that month.

-- Alana Semuels

Photo: Shoppers in Santee Alley, downtown Los Angeles. Credit: IK’s World Trip via Flickr

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