“Fool’s Gold” Causes State Revenues to Exceed November Forecast
All that glitters is not gold.
General Fund revenues for the month of November came in
$534 million higher than the 2007-08 Budget Act forecast, or 10.3% above the
expected level. This gain significantly reduces what had been a $1.2 billion
shortfall through October 2007, and the news stands in contrast to earlier
reports that the Governor had acknowledged a further deterioration in the
state’s Budget condition. However, the Department of Finance’s Finance
Bulletin reveals that November collections are not as robust as they first
appear.
While each of the three major taxes—the personal income tax, the sales and use tax, and the corporation tax—came in slightly above estimate, almost all of the strength in the November collections is related to the insurance tax. Specifically, $23 million was expected from this tax in November, but actual collections totaled $374 million. Unfortunately, this gain is attributable to a cash flow adjustment, rather than fundamental strength in this tax. The November gain, therefore, is expected to be wiped out in December as receipts fall short for that month.
After accounting for this cash flow issue, November General Fund collections were slightly ahead of estimate, $183 million, or about 3.5% better than expected.
On the economic front, the Finance Bulletin highlights the loss of 15,800 payroll jobs in October, a sign that the economy continues to weaken. Job losses were felt across nine of 11 industrial sectors, with only the professional and business services sector and the educational and health services sector posting job gains. The state’s unemployment rate was 5.6% in October, unchanged from the September rate; in October 2006, the unemployment rate was 4.8%.
The housing slide continued in October, with sales of existing single-family homes down for the eighth consecutive month. Sales are 40% below year-ago levels. Similarly, the median sales price dropped to $497,100, almost 10% below the October 2006 median. For most of 2007, the median sales price had held steady until September, despite weakening sales volume for almost two years. The long awaited and feared market correction in home prices now appears to be fully underway.
This gloomy economic news appears to reinforce the Governor’s comments earlier this week that the state’s Budget problems are getting worse, notwithstanding November’s slight uptick in revenues from a nonrecurring source.
—Robert Miyashiro