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State's Tax Revenues Drop Again

January marks the second consecutive month that receipts fall below forecast. Economists point to sluggish recovery.

February 14, 2004|Jeffrey L. Rabin | Times Staff Writer

State tax revenues dropped sharply in January, falling $626 million below forecast and raising concerns that California's economy may not be rebounding as fast as officials had hoped when they approved the current state budget.

January marked the second month in a row that tax receipts came in below forecast. State government receives most of its money from sales, income and corporate taxes.

But total general fund revenue last month was $7.2 billion, 8% below what lawmakers anticipated last summer.

If the trend continues, the state could end this fiscal year with a larger budget deficit. That would increase pressure on Gov. Arnold Schwarzenegger and the Legislature to make additional cuts in state spending, raise taxes or resort to more borrowing.

H.D. Palmer, spokesman for the state Department of Finance, said budget watchers should "remain calm."

The steepest decline in January revenues was in sales-tax payments, which were $457 million below expectations.

Palmer said the drop occurred, in part, because the Jan. 31 deadline for fourth quarter sales-tax payments fell on a Saturday. As a result, payments from retail businesses were not processed until the first five days of February.

"A couple of days can make a big difference," Palmer said. Administration officials believe "this will pretty much even out" when the state reports February's tax collections.

For the first seven months of the fiscal year, general fund revenues totaled $42.58 billion. That is $877 million, or 2%, less than forecast.

Overall, sales-tax collections were 4.1% below expectations from July 1 to January 31. Income tax receipts were 1.2% weaker. But corporate taxes were up 1.9%.

Joseph Hurd, senior economist at the UCLA Anderson Forecast, said California's economy is not rebounding quickly. "There is not much bounce anywhere in the state," Hurd said. "The economy has been growing, but not employment."

Sluggish job growth means personal income tax receipts -- the largest source of state tax revenues -- are not growing as much as projected by Sacramento.

UCLA senior economist Michael Bazdarich said lawmakers should be cautious. "It's not a time to be expecting the economy to bail out the budget," he said. "Our economy is sputtering. We just haven't seen any signs of a pickup."

Schwarzenegger and state lawmakers are relying on slightly stronger growth in jobs and personal income than forecast by UCLA economists.

Bazdarich said he has "not seen much signs of life in the job numbers."

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