Revenues in Governor Newsom’s Proposed Budget

Revenues in Governor Newsom’s Proposed Budget


Revenues for the state General Fund will be up by about $5 billion in the 2019-20 budget to $146 billion. The primary sources of the General Fund are: the personal income tax ($100 billion), the sales tax ($27 billion) and the corporations’ tax ($13 billion). 


Due to wage gains for high income earners and a healthy stock market until last October, capital gains taxes and top income taxes were the prime contributors to the increase. For the 2016 tax year, the top 1% paid 46% of state income taxes. This produces great volatility during recessions and is part of the reason for the adoption of the state “rainy day” fund.


Sales taxes are an ever-shrinking component of state revenues – declining from 59% in 1950 to about 19% in 2020. Local governments (cities and counties) may increase the rate for specified local purposes – as a result they vary from a low of 7.25% in Butte County for example to a high of 10.25% in the city of Santa Monica. A large portion of the sales tax is dedicated to local governments through a variety of mechanisms including realignment that helps fund county social services, mental health and public health.


The Governor’s budget projects annual revenue growth of 3.2% from 2017 through 2022. However in the next recession (whenever it arrives), the budget projects revenue losses of $50 billion over two years.


California adopted a state earned income tax credit for low-income workers in 2015. About $400 million is projected for 2 million low-income workers for this year. The Governor proposes to increase the numbers of workers eligible and the size of the tax credits to $1 billion in credits for 2.4 million low-income workers and their families.


A portion of state income taxes from the highest income households are dedicated to county mental health, generating about $2.4 billion annually.


Cigarette taxes generate $2 billion in taxes; only $65 million goes to the state General Fund, the remainder to a variety of special local and state funds, such as Prop 10 for early childhood, Prop 99 for indigent health, and Prop 56 for MediCal. A portion goes to cancer research and various smoking prevention efforts. 


Local property tax revenues are increasing about 6% annually due to the run up in home property values at the point of sale. About 42% ($31 billion) is dedicated and earmarked for K-14 education.


Various special fund revenues generate about $56 billion. One of the largest ($18 billion) is dedicated to roads; this comes from vehicle license fees and gas taxes.


Prepared by: Lucien Wulsin

Dated: 1/27/19

The Wall!

Governor Newsom’s Proposed Budget for Health and Human Services