April Taxes Hated Everywhere ... Except Sacramento

It has become an annual ritual in Sacramento: watching the daily tally from millions of taxpayers handing over their cash, a tally that largely sets the course for many of the year's political and policy debates in California.

And as those tax dollars start to trickle in to the California Franchise Tax Board, the general consensus is that the state is headed for another year of better-than-expected revenues. After years of deep fiscal holes, the state treasury will likely soon be home to a mound of moolah that's a few billion dollars higher than expected in projections made by Gov. Jerry Brown.

"April may give us an indication of how many billions we are talking about," said Jason Sisney of the independent Legislative Analyst's Office (LAO) and one of California's leading fiscal experts.

So far this year, projections from both the LAO and the governor's budget team show a windfall of at least $2 billion in the fiscal year that ends on June 30. While unexpected, it was hardly a surprise; California's economy has gradually been revving back up from its recession depths, and Brown has made conservative fiscal forecasting one of his trademarks since returning as governor in 2011. In other words, Californians are earning more and paying more in taxes ... but the governor has kept expectations so modest that the windfalls have almost become predictable.

Still, it's good news. Through the end of February, cash revenues collected by state agencies totaled $633 million more than forecast. Early March data, said LAO's Sisney, show cash totals ahead of projections by "hundreds of millions."

Which brings us to April, one of the two biggest months for the state to collect enough tax revenues to fund a projected $113.3 billion general fund for the fiscal year that begins on July 1. (The other big month: June, based in part on changes made during the depths of the budget crisis to the system for quarterly tax filers.)

The governor's proposed 2015-16 state budget expects that April tax returns will bring in almost $12.3 billion from personal income taxes. That's the projection of the month's net proceeds, which means the state has to subtract refunds from the money that comes in. But in terms of just cash that comes in the door, look for the totals to peak right around the magic date of April 15. In 2014, the biggest single day was actually April 16 -- where the one day's gross tax collections amounted to $2.7 billion.

So all of this means more money for all kinds of programs (or, some would hope, tax refunds), right? Probably not. And here's where things get complicated. For months, budget experts have been warning that a windfall will do little to boost available revenues for lots of state services. Under the complex formulas in the state constitution (created through 1988's Proposition 98), the expected $2 billion windfall will largely be earmarked for K-12 schools and community colleges.

And other obligations are also going to get a first call on any extra cash, Sisney said. They include Proposition 2, the enhanced budget reserve fund approved by voters last fall, and automatic payoffs of money owed to local governments from years gone by.

"The growing complexity of California's intertwined budget formulas mean that many different scenarios are possible," Sisney said.

But keep in mind that the rules are malleable in many cases, subject to the forces of Capitol politics. The Prop. 98 school funding formulas, in particular, have become a bit of a budget "black box," where the bottom line is that the rules are whatever are agreed to by political leaders and powerful education interest groups.

Legislative Democrats believe, as they have now for several years, that the state needs to restore some of the programmatic cutbacks made during the Great Recession. And this year, they've largely shifted their tactics from defending the poor to promoting fairness and equity. Their challenge, though, has long been to convince Brown to go along.

Still, the news from this April is likely to be good when it comes to giving state leaders choices. California's growing workforce is sending more tax dollars than ever to Sacramento. Taxpayers may wish they could skip the month of April, but in the state's capital city, it's bigger than the Oscars.