June Taxes $200 Million Above Estimates, No Budget Near

June tax collections appear to be roughly $200 million over estimates as California reaches the end of the month with no budget in sight for the new fiscal year that begins July 1.

The higher than expected revenue eases slightly the state’s cash shortfall of $17.9 billion.  But agreement on how the rest of the cash hole is filled remains elusive.

Through June 29, income tax payments totaled $6.1 billion, $600 million more than Gov. Arnold Schwarzenegger estimated in his revised budget released in May.

Of that, $2.9 billion was withholding – the taxes businesses subtract from employee paychecks – which is sent to the Employment Development Department. There are no more withholding payments for June.

The remainder of the income tax receipts was payments to the Franchise Tax Board.

However, requests for refunds must be subtracted. Those requests totaled $332 million through June 24.

Bank and corporations tax collections fell $100 million short of the $2.1 billion the GOP governor expected, also lowering the state’s net total.

Combining the two revenue streams, totals $7.8 billion for the month, roughly $200 million above projections.

Because of changes made in last year’s budget, June, rather than April, has become the most significant revenue collection month of the current fiscal year.

To pull more future income into the current and previous fiscal year, the 2009 budget front-loaded estimated tax payments so that 40 percent, rather than 25 percent, come due in June.

Without a budget in place on July 1, the state controller can still cut checks for much of state government, as his website shows.

For example, programs required by the federal government will still be funded. Those include payments made to the state’s low-income aged, blind and disabled and in-home care for California’s elderly poor.

Welfare and Medi-Cal, the state’s health care program for the poor, will also continue to receive appropriations.

Debt service and refund checks for taxpayers will also be covered, as will be payroll for most state employees.

State elected officials, including the Legislature and their appointed staff will not be paid until a budget is signed. Nor will businesses providing services to the state after July 1.

State Controller John Chiang is the defendant in a lawsuit brought by Schwarzenegger challenging Chiang’s refusal to implement a 2008 executive order by the GOP governor to reduce the pay of most state workers to the federal minimum wage, now $7.25.

The executive order applies to state workers covered by the federal Fair Labor Standards Act. There are 314,184 state workers covered by the act and 73,194, California State University employees.

A Sacramento appellate court heard oral arguments on the case June 21. A trial court previously ruled in the governor’s favor.

It’s unclear when the appeals court will issue its ruling although Chiang contends it will be costly and probably infeasible to adjust the state’s antiquated 40-year-old payroll system, scheduled for decommissioning in 2012, to reduce pay to the federal minimum. Doing so, Chiang also argues would violate federal labor law.

It is likely Chiang will continue paying state workers their normal wage absent a ruling against him by the state supreme court.

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