California’s budget gap is likely to grow as state tax collections fall far below projections

Hector Amezcua/

Gov. Gavin Newsom and California lawmakers will probably need to address a larger deficit next year than previously forecast due to an “increasing likelihood” that state tax revenue will be significantly below projections, according to the state Department of Finance.

The department projected that, because of an unprecedented six-month extension in the state’s tax filing deadline earlier this year, California would collect $42 billion in October. That figure represented nearly a quarter of this fiscal year’s total projected personal income tax and a third of the corporation tax.

But, as of Oct. 25, California collected just $18 billion, according to new disclosures from the agency.

Should the revenue collected and tallied by the state in the coming weeks fail to catch up to its forecasts, Newsom and lawmakers will need to fill a wider budget gap than anticipated next year. The 2023 Budget Act signed by Newsom in June projected a $14 billion shortfall in the next fiscal year, which begins July 1, 2024.

A lot was riding on the amount of state revenue collected this month.

The Internal Revenue Service earlier this year postponed the tax deadline from April to October for the vast majority of California residents and businesses because of destructive winter storms. The move pushed back the state’s collection of tens of billions of dollars, making for a riskier and more difficult budgeting process.

The state, amid a new state bond sale, was required to provide a preliminary financial snapshot of October revenues to potential investors ahead of the end of the month.

H.D. Palmer, a spokesman for the Department of Finance, emphasized that it’s not a final assessment and the state may wind up closer to its target by the time the department releases its routine monthly revenue report in mid-November.

The financial disclosure released as part of the bond sale does not include the revenue raised during the last week of October and some tax returns filed before the report may not have been processed yet. Additionally, the IRS on Oct. 16 announced a postponement of the state and federal tax filing deadline to Nov. 16, which means some Californians who procrastinated until the last day may still not have filed their taxes.

“There is still a lot of important data that’s going to come in,” Palmer said. “How much of it is related to timing issues and how much is related to issues with how personal and corporate cash receipts came in under projections is going to be clearer in the coming weeks.”

Newsom foreshadowed this in many of his veto messages earlier this month when he cited fiscal concerns regarding the state’s current and expected budget deficits in the coming year.

State Budget Chairs — Sen. Nancy Skinner, D-Berkeley, and Assemblyman Phil Ting, D-San Francisco — could not be reached for comment Monday.