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California Controller warns that economic downturn may be near

FILE PHOTO - The California flag flies above City Hall in Santa Monica, California, U.S. on February 6, 2009. REUTERS/Lucy Nicholson/File Photo

SAN FRANCISCO (Reuters) - California’s state tax collections in April fell short of expectations, a sign that the state may be headed toward an economic downturn, State Controller Betty Yee warned on Wednesday.

Collections totaled $15.98 billion, $1.05 billion or 6.2 percent short of the governor’s projected budget for the month.

“April is usually the state’s biggest tax filing month, so lower-than-expected personal income tax receipts are troubling,” said Yee, the state’s chief fiscal officer, in a statement.

“While we await the governor’s May Revision, this is another signal that we may be inching towards an economic downturn, and we must tailor our spending accordingly.”

California has collected $96.88 billion during the first 10 months of fiscal 2017, which ends June 30. That means the state is $1.83 billion behind last summer’s budget estimates and $211.3 million shy of January’s revised fiscal year-to-date predictions.

Governor Jerry Brown plans to release on Thursday his mid-year revision of the proposed state budget for fiscal 2018. The revised budget is expected to reflect changes in the state’s financial position since January.

For the month of April, during which California tends to collect about 17 percent of its personal income tax receipts, collections lagged by 5.3 percent. Retail sales and use tax receipts fell short of projections in the governor’s proposed 2017-18 budget by $106.7 million, or 13.3 percent. Corporation tax receipts for April were 13.8 percent lower than estimates in the budget.

In January, Governor Brown proposed a $179.5 billion state budget for fiscal 2018, a 5 percent increase over this year, but he warned that the state must remain fiscally prudent ahead of an inevitable economic downturn.

California is especially vulnerable to downturns, because the state is more reliant than most on capital gains taxes, a volatile revenue source, and less on property tax revenue, which is more stable.

Reporting by Robin Respaut; Editing by Richard Chang