California continues to display healthy signs of getting back onto its fiscal feet after nearly a half-decade of languishing under poor economic conditions and shortsighted budget management. The latest monthly statistics of the California Department of Finance disclose that state tax revenues for March were more than $900 million more than the governor’s budget forecast of $5 billion.
Almost 90 percent of this hefty revenue increase was evenly split between corporation taxes and personal income taxes. March monthly corporate tax revenues totaled $1.6 billion, which was more than one-third above the state projection. California’s personal income tax revenues were $1.8 billion in March, more than one-fourth greater than predicted.
Year-to-date revenues in all categories gained $1 billion more than the $60.7 billion projected, which is especially impressive when considering that the first annual quarter is generally considered the weakest economic period of the year.
In fact, the only two revenue elements that went down slightly in March were the taxes from alcoholic beverages and tobacco, which is far from bad news in terms of lowering public health costs.
Even more encouraging is that the big revenue increases don’t even include April, which is even stronger than the holidayseason for tax revenues. Once the April figures are in, the Governor’s Office will be on firmer ground for the annual May budget revision.
“Certainly all of this is very good news about the revenue increases, but we still have to be somewhat careful about how we view it,” Finance Department spokesman H.D. Palmer said. “Right now our analysts are still reviewing whether March was a one-month spike or indicates a longer-term economic upturn.”
Palmer pointed out that March tends to be an active month for corporate bonuses, because such payments can still be deducted by employers on the prior year’s income statement. This could indicate such revenues were of a one-time nature.
On the other hand, March is also the final month for payment of fourth-quarter corporate taxes. So those higher revenues may be evidence of greater-than-expected business earnings during the fourth quarter of 2005.
Still, it is important for taxpayers to watch closely that California politicians don’t revert to their usual bad habit of swiftly earmarking unexpected windfalls for programs that continue devouring money year after year, through good times and bad.
That was the mistake that put the state budget into economic intensive care during the latest downturn. If there truly is strong business recovery in 2006, its gains should be used on one-time expenses and to dig the state out of the crushing debt load that harms all of California.