(Bloomberg) — California collected 12% less in revenue than it expected in July, indicating that state coffers are taking a hit from a slowing economy and a cooldown in the once-booming technology industry.
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Cash totaled $9.2 billion in the first month of the fiscal year, almost $1.3 billion below the state’s budget forecast, according to a bulletin from the California Department of Finance. The amount of personal income tax withheld from paychecks fell short of expectations — by 10% in July and 5.8% in June.
The revenue miss adds to signs around the country that state governments’ budgets, recently flush from stock-market gains and pandemic aid, may be curtailed by a decelerating economy. California’s dropoff in withholdings likely was tied to job cuts in tech, a traditionally high-wage sector, said H.D. Palmer, a spokesperson for the finance department.
Silicon Valley giants such as Apple Inc. and Alphabet Inc. are slowing hiring, while companies from Netflix Inc. to Lyft Inc. have fired workers as economic headwinds mount. Smaller tech employers have also been scaling back: According to Layoffs.fyi, a website tracking job cuts at startups and recently public companies, more than 37,000 positions were eliminated globally in the second quarter.
Read more on tech companies that have laid off workers
Such job cuts can hit particularly hard in California, which is prone to booms and crippling deficits because of its dependence on high earners and financial markets. The state’s nonpartisan legislative adviser warned earlier this month that California is likely to see revenue from its three major tax sources fall short of forecasts during the current fiscal year.
“As we know, slight changes in income for high earners can have a magnified effect on revenues, up or down,” Palmer said in an email Monday. Tech job cuts are “likely being reflected in the recent withholding totals.”
Other parts of the country are having similar issues. New York state’s personal income tax is down 3.2% since the beginning of the April 1 fiscal year through July.
California has socked away billions to cover the hit of the next downturn. Lawmakers put $37.2 billion into its reserves in its latest spending plan. The state also plans to send $9.5 billion of tax rebates to residents in October.
Palmer noted that the state’s unemployment rate in July was at a record low of 3.9%.
“Overall, the employment picture is resilient,” he said. “We always caution folks, both in and out of government, not to make any long-term extrapolation on one month’s worth of cash data.”
(Updates with tech industry details in third paragraph)
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