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Finance Bulletin: April 2006

Economic Update

Generally good news in commercial construction and California exports stood in contrast to slowing housing markets at the beginning of 2006.

• Home construction permitting has followed a consistent see-saw pattern of alternating monthly gains and losses since August 2005.  Over the six months ending with January 2006, residential permitting was down over 8 percent from the same months a year earlier.
• Even though commercial construction has also followed a see-saw pattern since August, the gains greatly outweighed the reductions.  Over the six months ending with January 2006, the value of nonresidential permitting increased by over 27 percent from the same months a year earlier.  Permits issued in January 2006 were up over 56 percent from a year ago.  The improvement was driven largely by strong increases in office and hotel/motel construction.
• California home prices dipped slightly in February.  The median price of existing single-family homes sold in February was $535,500, a 2.9-percent drop from the January median.  This price is in the $530,000-to-$550,000 range that California's median has been in since June 2005 (except for a spike in August).  The February median price was 13.7 percent higher than a year ago.
• In contrast, sales of existing single-family homes accelerated slightly in February, capping four consecutive month-to-month slowdowns.  Despite this pick-up, home sales were still down 15.5 percent from February 2005.  The pace of sales of existing, single-family homes reached a seasonally adjusted annual rate of 513,745 units in February.  Overall, the pace of home sales during the first two months of 2006 is down 20 percent from the same months of 2005.
• International economic strength—in Asia in particular—provided a modest lift to California exports at the beginning of 2006.  Shipments of California-made goods to other countries in January rose 5.5 percent above the January 2005 level.  This, however, is behind the 6.2-percent pace achieved in 2005.
• Exports of electric machinery—which is dominated by integrated circuits and semiconductors—made the largest gain, accounting for over 30 percent of the overall export increase.  Exports of industrial machinery, which includes computers, fell 6 from January 2005.
• In contrast, Among export destinations, Japan was responsible for the most dramatic increase in January.  Exports there were up nearly 23 percent from a year ago, and this gain accounted for 43 percent of the total increase in exports.  In 2005, California exports to Japan increased just 1.3 percent.  Mainland China continued to be a destination of increasing importance to California. Exports there rose nearly 23 percent from a year ago, accounting for nearly 24 percent of the total gain.

Monthly Cash Report

Preliminary General Fund agency cash for March was $905 million above the 2006-07 Governor's Budget forecast of $5.059 billion.  Year-to-date revenues are $1.049 billion above the $60.655 billion that was expected. 

• Personal income tax revenues to the General Fund were $373 million above the month’s forecast of $1.433 billion.  Withholding receipts were $337 million above the estimate of $2.627 billion.  Other receipts were $17 million above the projected level of $670 million and refunds were $25 million lower than the forecast of $1.838 billion.  In November 2004, the voters passed Proposition 63, which imposed a 1 percent surcharge on taxpayers' taxable income above $1 million to fund mental health service programs.  Pursuant to the Proposition, the cash amount transferred to the Mental Health Services Fund (MHSF) during fiscal year 2005-06 is 1.76 percent (0.0176) of total monthly personal income tax collections.  The special fund amount transferred to the MHSF was $6 million over the estimate of $26 million.  Year-to-date General Fund tax revenues are $614 million above forecast.  April personal income tax receipts will be critical as final returns for the 2005 tax year are filed.
• Sales and use tax receipts were $29 million above the month’s forecast of $1.954 billion.  March represents the second prepayment for first quarter sales and use tax liabilities.  Year-to-date, the sales tax cash is $26 million below expectations. 
• Corporation tax revenues were $1.567 billion, $374 million above the month’s estimate of $1.193 billion.  Prepayments were $87 million above the forecast of $458 million.  Other payments were $249 million higher than the forecast of $850 million.  Refunds were $38 million less than the projected level of $115 million.  March is a significant month for this tax because final payments for 2005 calendar-year corporations are due March 15.
• Revenues from the insurance, estate, alcoholic beverage, and tobacco taxes came in $82 million above the $345 million that was expected. The remaining revenues—pooled money interest income and “other” revenues—were $47 million above the month’s estimate of $134 million.  

For more information, please contact the California Department of Finance, Room 1145, State Capitol, Sacramento, CA or call (916) 323–0648.

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