The May Revision anticipates a funding shortfall for programs supported by cannabis tax revenues. Our new revenue estimates are slightly higher, yielding a slightly smaller funding shortfall. Specifically, our estimate for 2022-23 cannabis retail excise tax revenue is $509 million. This is $24 million above the administration’s May Revision estimate but $133 million below the January Governor’s Budget estimate.
We discuss our May revenue outlook.
April PIT withholding came in $705 million (7 percent) below projections included in the recently released Governor's Budget. Since the Governor's Budget projections were released in January, withholding is $2.9 billion (8 percent) below the administration's projections. For the fiscal year so far, withholding is running 4.5 percent lower than last year, with most of the weakness coming in November and December of last year.
Based on the most recent revenue and economic data, we currently estimate that collections from the state’s “big three” taxes—personal income, sales, and corporation taxes—are likely to fall below the Governor's Budget assumption of $200 billion in 2022-23.
Revenue from the cannabis retail excise tax has declined for six straight quarters.
Based on the preliminary results, the state will receive an estimated $961 million in revenue from the most recent quarterly cap-and-trade auction held on November 16, 2022.
Cannabis tax revenues have declined for five straight quarters. One part of last quarter’s revenue decline is the lost revenue from the recently eliminated cultivation tax. Despite this policy change, revenues from the retail excise tax declined faster than ever before, indicating that other factors continue to drive down revenues.
Although October colletions from the state's “big three” tax revenues—personal income, corporation, and sales taxes—came in far ahead of Budget Act assumptions, this is not indicative of better than expected revenue performance for 2022-23 overall. Instead, a closer look at the data shows that the recent trend of revenue weakness continued in October.
August state income tax withholding was down $450 million (6.1 percent) compared to last year.
Cannabis tax revenues have declined substantially for three straight quarters.
California income tax withholding collections were $90 million (1 percent) lower in July compared to last year.
California income tax collections were down 2 percent in June relative to last year.
Preliminary cannabis tax revenue for 3rd quarter of 2021-22: $189 million.
We discuss our May revenue outlook.
Our estimates suggest that it is virtually certain that collections from the state’s “big three” taxes—personal income, sales, and corporation taxes—will significantly exceed the Governor’s Budget assumption of $185 billion in 2021-22. Currently, our best estimate is that there will be somewhere between $33 billion and $39 billion in unanticipated revenue.