State Predicts $660-Million Tax Windfall : Public Schools Expected to Benefit From Higher-Than-Expected ’88 Receipts

Public schools and community colleges are likely to be the big winners as the result of the disclosure Thursday that state personal and corporate income tax collections are going to be an estimated $660 million higher this year than previously projected.

State Supt. of Public Instruction Bill Honig said that schools should be in line to receive about 40% of the total, or $264 million. The guarantee of 40% of the money stems from voter approval last November of Proposition 98, the school funding initiative.

Honig said that the Los Angeles Unified School District’s share of the money, roughly $33 million if estimates hold up, could be enough to head off the threatened teachers’ strike.

“You may avoid a strike with this money,” Honig said. Statewide, Honig said, the extra money “will help relieve financial pressure on a lot of districts.”

Reaction elsewhere in the capital was relatively restrained, even though the unexpected tax receipts will help Gov. George Deukmejian and the Legislature head off some of the cuts in health and welfare programs they are preparing to make in the budget for the fiscal year that starts July 1. Although the tax receipts are arriving in the 1988-89 fiscal year, much of the benefit would spill over into next year.

“This is good news, but it’s not very good news,” said Assemblyman John Vasconcellos (D-San Jose), chairman of the Assembly Ways and Means Committee.

Only a Small Dent

Vasconcellos said the money will help relieve the threat of budget cuts, but make only a relatively small dent in the problem. He said the state is about $1.6 billion short of what it would take to fully finance state services and provide programs with enough of a budget increase to allow them to keep up with inflation.

By rough reckoning, after schools receive their 40% share of the unexpected windfall, it would leave about $400 million to be spent on all other programs, if present estimates stand up. That is roughly the amount that Deukmejian plans to save by eliminating inflation increases for health and welfare programs. Even so, legislators are faced with the prospect of making additional cuts in health, welfare, prison and other programs.

As it now stands, the Legislature and governor could not even spend the bulk of the new money. That is because state spending for the current year is just $144 million below the limit imposed in California government by voters in 1979. Lawmakers could change the limit to allow additional spending, but that would take a two-thirds vote of both houses of the Legislature.

One senior legislative budget staffer, who asked not to be identified, said the spending limit problem and the Proposition 98 share for the schools will handcuff the Legislature in its ability to spend the money on the health, welfare and prison programs threatened with cuts. “What the new money does is complicate the problem, but it’s a complication that we’d rather have than not have,” he said.

The disclosure of the unexpectedly healthy tax receipts was made by the Franchise Tax Board, based on a near-final counting of April tax returns.

Franchise Tax Board spokesman Jim Reber said that with about 98% of the April tax returns counted, personal income tax collections for the month are up 51.7% from a year ago. Corporate tax collections during April are up 17.7% over the previous year.

Combined, corporate and personal income tax collections during April are up $1.1 billion over last year, a combined increase of 42.8%, Reber said. He refused to speculate about reasons for the surge.

While tax collections are up, the good news was compounded by the disclosure that refunds--money the state is obligated to return to taxpayers for overpayments--are lower than expected. So far, Reber said refunds are $300 million below what had been expected. Last year, refunds averaged $293 per taxpayer, compared to an average of $247 per return this year.

The Deukmejian Administration expected tax collections to be up this year, but not nearly as much as they appear to be.

Official confirmation of the revenue figures by the Administration will not be made until mid-May, when the Department of Finance publishes an update on state revenues and spending.

This is the third consecutive year that Department of Finance revenue estimates have been well off the mark.

Last year, at about this time, state officials were told that tax collections were short by about $1 billion. The dip in tax collections led to a series of deep budget cuts that left many state agencies reeling.

The year before that, collections were more than $1 billion higher than estimates. That paved the way for $1.1 billion in rebates to taxpayers.

State Finance Director Jesse R. Huff refused to confirm the amount of money coming in over Administration budget estimates, but he acknowledged that tax collections are “somewhat over our expectation.”

Huff defended his forecasts, saying that revenue estimating “is not a science, it’s an art.”

He said one reason for the increased collections is that the economy performed much better than most economists had predicted in 1988. He also said a change in federal tax laws in 1986 is still having an effect on tax collections.

In Los Angeles, School Board President Roberta Weintraub called the unexpectedly high tax collections “excellent news.” But she said it was too early to say whether the additional money, if it ultimately trickles down to the school district, will be used in a settlement with teachers.

The district has offered teachers a 20% raise over three years--8% this year, 4% next year and 8% in 1990-91. To finance the pay raises, district officials said they would have to cut $80 million from next year’s budget.

United Teachers-Los Angeles, the union representing the district’s 32,000 teachers, wants a two-year agreement that would give teachers an 11% raise this year and 10% next year.

Staff writer Elaine Woo in Los Angeles contributed to this story.