State tax revenues well above projections for August. Yay! But there's a problem.

Stay with me on this. California revenues came in $134.9 million higher than expected in August, according to the Controller's office, factoring personal income, corporate, and sales taxes. In any other year, they'd be celebrating in Sacramento. But not this year. See, the revenues were high, but not high enough. State lawmakers, desperate to pass a budget bill last June, pulled a fast one by "assuming" that tax revenues would come in way, way higher than expected this year - $4 billion worth. It was an absurd assumption, but it was the only way the numbers would balance out without instituting another few billion dollars worth of cuts - and no one had the stomach for that. All right, fine. So July comes in $541 million short of what they needed to meet the $4 billion, and August, while quite strong, was short by $100 million. They're now hoping for a stellar September, but if the shortfalls keep up, the state will not be able to meet its target at the end of the year. At that point, officials will be obligated to trim the budget by an additional $2.5 billion - and those cuts would be especially brutal, directed at K-12 schools, higher education, public safety and social services. What's ironic is that according to the Controller's office California's economy is holding up reasonably well. From the August report:

According to the California Department of Finance, the average work week hit 41.3 hours in the most recent data available, which is the highest level since before the recession began. This has also created some overtime opportunities for existing workers--averaging roughly 4 hours per week. The housing market, which has been the source of much concern in recent years, has also stabilized around current prices -- while both defaults and foreclosures are trending downward across the state. The residential market will not shoot back up in the near term, but it is safe to conclude that the worst is behind us on that front. Unemployment is expected to remain high throughout the year and into 2012, but we have already added back more than 225,000 jobs and all indications point to more job growth. Things are getting better slowly, and despite concerns of a double-dip recession, the state is expected to continue its healing process.