California tax revenue surges $14.3B above expectations, freeing money for COVID relief
California has collected $14.3 billion more in taxes than it expected to in January, Gov. Gavin Newsom’s office announced, painting an even rosier state budget picture than he outlined at the start of the year.
“California’s improving revenue picture is another sign of the growing light at the end of the tunnel as we recover and rebuild from the pandemic,” Newsom said in a statement. “In partnership with the Legislature, we’ve ensured much of these revenue gains are providing immediate relief for individuals and families through the Golden State Stimulus, and for struggling small businesses.”
The state is using a significant portion of the higher-than-expected tax revenue to send $600 payments to low-income Californians and to provide $2 billion in grants for businesses hurt by the pandemic through the state’s Golden State Stimulus economic relief policy.
The gains are on top of an already flush budget projection from January. California has a budget surplus after state officials anticipated a much steeper economic downturn at the start of the pandemic and cut from schools, state worker salaries and other areas to make up for it.
At the time, state budget analysts had more limited revenue information than usual because tax deadlines were extended from April to July to give filers more time during the pandemic.
Ultimately, most economic pain from COVID-19 hit the state’s lowest earners who disproportionately work in sectors hit hard by the coronavirus. The state’s highest earners were left mostly unscathed. The state collects the bulk of its taxes from its wealthiest residents and businesses, meaning revenues didn’t drop the way analysts predicted they would.
Now, Newsom and lawmakers have plenty of money to craft a budget that not only avoids more cuts but pours more money into the state’s safety net.
The state has so much money it might actually have to send some back to taxpayers for the first time since 1986 under a law that aims to restrict government spending.
Despite the increased revenue, Newsom and state officials have not acted to restore the state worker salaries cut last summer, although Newsom has laid out plans to restore those wages by July.
Last week, Newsom said that he will propose additional money for business relief in his revised 2021-22 budget proposal due in May. He and lawmakers must agree on a new budget by the end of June in time for the 2021-22 fiscal year, which begins in July.
Despite the surplus for the 2021-22 fiscal year, Newsom in January characterized the state’s budget future as “tenuous.” His office predicts that despite the unexpected windfall this year the state will face budget deficits as soon as next year.
This story was originally published March 22, 2021 at 2:06 PM with the headline "California tax revenue surges $14.3B above expectations, freeing money for COVID relief."