Capitol Alert: California revenues miss mark by 10 percent in July

For the second straight month since Gov. Jerry Brown signed the state budget, California has fallen behind in revenue projections, this time 10.3 percent for the month of July.

The state budget relied on a last-minute optimistic assumption that California would receive an additional $4 billion over the course of the 2011-12 fiscal year. Should the state determine in December that it will fall short, California would impose as much as $2.5 billion in further cuts to higher education, social services and K-12 schools, depending on how much it misses the revenue target.

Controller John Chiang released data Tuesday showing that California received $538.8 million less in July than the $5.2 billion that budget writers projected for the month. Of that gap, only $120 million is due to the big three tax sources -- personal income, corporate and sales.

The remaining $419 million gap comes from an "other" category, which includes the unallocated July share of the $4 billion tax windfall estimate. The state not only missed the windfall target, but also the less rosy targets for corporate and sales taxes that fiscal officials set in May. The state beat its original personal income tax estimate by $89 million, or 2.9 percent.

The state received $39.9 million more this July than it did in July 2010. Tax rates on cars, vehicles and income were lower this July than one year ago after lawmakers did not extend temporary tax hikes as Brown had wanted.

"While July's revenues performed remarkably similar to last year's, they still did not meet the budget's projections," Chiang said in a statement. "While we hope for better news in the months ahead, every drop in revenues puts us closer to the drastic trigger cuts that could be imposed next year."

Typical fiscal forecasts assign targets for each revenue source based on recent state cash flows and economic indicators. But when lawmakers and Brown reached their budget deal in June, they did not assign the $4 billion to any particular categories. They based it not on a new economic analysis, but on the fact that cash revenues were higher in May and June than expected.

"It was basically looking at how cash is coming in, and taking a revision working with the Legislature on what we think is going to be coming in," said Ana Matosantos, director of the Department of Finance, in a press conference June 30.

Finance spokesman H.D. Palmer said his department has different data showing the state did not miss its sales tax target by the controller's estimate of $139.4 million (12.5 percent). It was not yet clear where Finance will land on the July share of the $4 billion tax windfall assumption.

He cautioned against assuming the state will pull the trigger on the additional cuts this year.

"A lot of things still have to happen that are going to have a far greater impact relative to what happens to the trigger," Palmer said. "The biggest is when we revise our economic and revenue forecast in the fall."