California Likely To See $5B in Extra Revenue for January, LAO Finds

California likely will collect $5 billion more in January income tax revenue than forecasters initially expected, according to the Legislative Analyst's Office, the Sacramento Bee's "Capitol Alert" reports (Yamamura, "Capitol Alert," Sacramento Bee, 1/30).

Last week, LAO said that January revenue would be $4 billion higher than initially expected, the largest one-month overage in recent memory (California Healthline, 1/23).

Details of New Projection

LAO raised its estimate by $1 billion based on:

• More than $500 million in extra tax withholding; and
• Fewer income tax refunds paid out by the state.

Factors in Revenue Boost

LAO said that three factors could be contributing to higher-than-expected January income tax revenue:

• The prospect of higher 2013 federal tax rates prompted high-income earners to take more capital gains and dividends in 2012;
• A retroactive state income tax increase might have prompted high-income earners to pay their state taxes earlier than expected; and
• Improvements in the economy have surpassed fiscal experts' expectations ("Capitol Alert," Sacramento Bee, 1/30).

Potential Uses for Extra Funding

Legislative Democrats have said that the state should use any extra revenue to increase spending on health and welfare programs.

Senate President Pro Tempore Darrell Steinberg (D-Sacramento) has said that any extra money the state receives could be used to:

• Pay off debts;
• Expand certain state programs; and
• Boost the state's rainy-day fund.

Steinberg also has talked about using extra revenue to restore dental benefits for low-income adults, which were eliminated under cost-cutting strategies.

However, Steinberg said that lawmakers should be "relatively cautious" about the extra money "until we get more information" (California Healthline, 1/23).