The Brief

No sooner had Gov. Gavin Newsom cut billions of dollars in spending to close a budget deficit in June than California received an unexpected tax windfall, one that has people in the Capitol speculating about where the avalanche of money came from.

More corporate taxes than expected poured into state coffers this summer, with cash receipts exceeding forecasts by nearly $2 billion since April. An especially big surge came in July, and state officials and accounting experts think the extra receipts came from a small number of companies — most likely one or more Silicon Valley tech firms, with artificial intelligence chipmaker Nvidia a leading candidate.

The influx highlights a growing tension in California between its tendency to further regulate tech companies — the governor has signed six bills governing the use of artificial intelligence so far this year — and its reliance on them for tax revenue.

On a single day, July 16, the state received more than $800 million than expected in corporate tax payments, “by far its single biggest day of collections” for a July going back at least four decades, state deputy legislative analyst Brian Uhler told CalMatters. (He excluded 2020 because the pandemic delayed tax deadlines.)

This July, the Finance Department said it collected about $1.4 billion in corporate taxes, nearly three times the agency’s forecast of $500 million. In June, corporate taxes were $263 million above forecast, and in May, $752 million over. “The July overage was likely due to large payments by a small number of companies and may not necessarily be indicative of overall corporation tax revenue trends,” the department said in its monthly bulletin.

Tax records are confidential, and representatives from both the Finance Department and the Franchise Tax Board stressed that nobody at the state is allowed to discuss details or information from specific tax returns or payments.

But the July influx in corporate tax payments was likely related to changes in state tax rules adopted in June, according to state and accounting experts who spoke with CalMatters. The tax changes, intended to help close the deficit, include a suspension of a deduction businesses can claim to offset profit, called the net operating loss deduction, as well as a $5 million limit on how much businesses can claim for research and development and other tax credits.

It’s possible that companies expecting to have outsized profit realized they owed more in taxes and needed to make large estimated tax payments immediately after the changes were enacted, accounting experts said. Corporations that expect to owe taxes are required to make quarterly estimated tax payments and can incur penalties if the payments are late. State analysts believe the new taxes could disproportionately come from “businesses in riskier or more innovative industries — such as the technology, motion picture, and transportation sectors,” as they put it when the changes were proposed.

In California, a red-hot tech company fits the bill of outsized profits and risky innovation: Nvidia, which is raking in record amounts of money because of the artificial intelligence boom.

As other companies scramble to get ahead in the AI race, they are buying Nvidia’s chips and propelling the company to new heights. On Aug. 28, Nvidia reported second-quarter net income of $16.6 billion, which was more than double its profit from the same period last year — and about the same amount spent by all state and federal campaigns in the last election.

Nvidia’s annual financial report from 2023 shows that it had $1.5 billion in unused California tax credits for research and development. Between the cap on that tax credit and the suspension of the loss deduction the company could have claimed against its rising profit, Nvidia probably realized it would have a larger tax bill, accounting experts told CalMatters. That’s why it may have been the company or one of the companies that made the sizable estimated tax payment to the state.

Nvidia’s most recent quarterly filing provides additional clues: The company paid a total of $7.21 billion in income taxes in the second quarter, a whopping 31-fold increase from the $227 million it paid in taxes in the same period last year. For the first six months of its 2024 fiscal year, Nvidia paid $7.45 billion in income taxes, compared with $328 million in the first half of 2023. Those totals included federal and state taxes. California has a flat corporate tax rate of 8.84% of a company’s net income, while the federal tax rate is a flat 21%.

If Nvidia was largely responsible for the July tax windfall, due to an estimated tax payment, the company likely expects a lot of taxable income this year, said Francine McKenna, an independent financial journalist who writes the Dig newsletter and has taught financial accounting at the University of Pennsylvania’s Wharton business school. McKenna said if that’s the case, and because there’s a limit on how much the company can claim in terms of other tax credits, Nvidia will likely make another sizable estimated tax payment in the third quarter.

An Nvidia spokesperson would not comment. Neither would a spokesperson for Gov. Gavin Newsom.

“I’d expect payments from other companies as well, potentially,” said Brett Whitaker, a former tax executive at Ernst & Young, Nike and Mattel who now teaches corporate tax accounting at Indiana University. “They depend on these credits often to avoid paying tax, so suspending them could drive tax for many.”

Whitaker said most companies try to take advantage of R&D tax credits: “Big Four (accounting) firms have entire teams dedicated solely to this effort.” But he added that the credits are especially commonly used by tech companies and others whose businesses rely on innovation.

It’s hard to tell exactly when those other estimated tax payments will come and how significant they will be, Finance Department spokesperson H.D. Palmer said.

Estimated tax payments are due in April, June, September and January, but those payments are not always made on time so can come in at any time, according to the Franchise Tax Board.

A CalMatters examination of Silicon Valley’s biggest tech companies’ financial filings with the federal Securities and Exchange Commission suggests that some of them may also be affected by the tax changes. That means the companies could make estimated tax payments that could be similar in size to the ones the state received in July.

Apple, Google parent Alphabet and Facebook parent Meta are among the companies whose financial filings show they have past losses, which they could normally deduct, and/or unused research and development tax credits in the state.

As of last Dec. 31, Alphabet had $18.6 billion in old losses in California. The tech giant also had $6.3 billion in research and development credits. As of the same date, Meta had $2.78 billion in past losses in the state, as well as $4.08 billion in unspecified state tax credits from prior periods. And as of Sept. 30, 2023, Apple had $3 billion in research and development credits. All these companies are highly profitable, and whatever deductions and credits they were expecting to use are now either on hold or limited.

According to the analysis of the budget bill that included the tax changes, California’s deduction suspension and tax-credit limits could increase state revenue by $5.95 billion this fiscal year, $5.5 billion the following fiscal year and $3.4 billion the year after that.

The tax changes split state lawmakers mostly along party lines when the governor proposed them in his budget earlier this year. Democrats characterized the changes as necessary, while Republicans decried them as a burden on businesses.

Democratic state Sen. Scott Wiener from San Francisco, a supporter of the changes, said in an emailed statement to CalMatters: “It is important not to read too much into any single month revenue numbers, but we believe that tough decisions we made this year will strengthen the state’s fiscal health going forward while protecting our core programs and benefiting the overall economy.”

Sen. Roger Niello, a Republican from Roseville, an opponent of the changes and a former accountant, told CalMatters he checked with his fiscal staff as well as the Legislative Analyst’s Office about the bigger-than-expected corporate tax payments in July. “It’s reasonable to consider that it’s because of tax changes, but they really don’t know,” he said.”It does appear to be from large deposits from a few companies.”

Niello said the state has disallowed the deduction for operating losses in nearly half of the years between 2008 and 2027, citing a finding by the Legislative Analyst’s Office in a May report. The deductions are supposed to help make taxes roughly even for businesses with similar total profits over the course of multiple years.

Suspending that deduction “appears to be a go-to measure by the state for accounting for revenue shortfalls,” Niello said. “It’s something that businesses cannot rely on now.”

In addition to the tax changes, California tech firms have navigated various legislative fights and new regulations this year. The biggest battle was over a bill to force them to test powerful artificial intelligence models for their potential to enable cyberattacks, the creation of weapons of mass destruction, and other threats to infrastructure. Several big tech companies opposed the legislation, saying it would hinder innovation, while prominent whistleblowers said it would help mitigate the reckless pursuit of tech profits. The measure, from Wiener, cleared the Legislature only to be vetoed by Newsom this past weekend. The governor also signed into law bills that would protect voters from deepfakes and allow victims of doxxing to sue their attackers in civil court.

In his monthly briefing Thursday, the leader of the massive Port of L.A. complex said the port shutdowns in the Persian Gulf and slowdowns in European and Asian ports caused by the U.S.-Israeli war with Iran are not rippling to Southern California.

“We right now don't see any of that congestion happening, but it just may,” said Port of L.A. Executive Director Gene Seroka. “No one has the answer at this point in time of how long this war is going to continue and for what duration the Strait [of Hormuz] will remain closed.”

Shipping across the Pacific Ocean to U.S. ports on the West Coast, Seroka said, is so lucrative that companies are making sure container ships are not delayed. Most of the trade through the port complex is with China, Japan and Vietnam.

“I don't think you're going to see a significant impact on the West Coast,” said Ron Widdows, a former ocean carrier CEO who joined Seroka during the briefing.

The war with Iran will mark its second week Saturday. The conflict’s economic upheaval has upended politics and economies in the Middle East. European and Asian countries are feeling the ripple effects as trade along the Strait of Hormuz has slowed.

Southern California consumers will feel the effect on the pocketbook

The war’s effects on rising prices at gasoline stations in the U.S. is also leading to price increases in cargo ship fuel, known as “bunker.”

“Those bunker prices effectively doubling right now are passed on almost immediately, and in some cases with a 30-day notice, to shippers, [and] they'll be passed on to the cost of those goods,” Seroka said.

For now, container volume at the Port of L.A. is good, with 812,000 container units moving in and out of the L.A. port last month.

“That's about 3% higher than last year and 11% above the five-year average for February, both positive signs,” Seroka said.

A disruption in trade through the massive SoCal port would affect hundreds of thousands of jobs in the five-county Southern California region. Port of L.A. trade accounts for 17% of all waterborne container international trade into the U.S.

As the federal investigation related to Los Angeles Unified’s superintendent continues, the district’s acting leader and the elected board face key decisions about the district’s finances and negotiations with unions poised to strike.

This on top of the day-to-day tasks of running a school district that employs 83,000 people and enrolls more than 400,000 students across more than 1,000 schools.

“This removal of [Superintendent Alberto] Carvalho, which is understandable under the circumstances, comes at the very worst time for the system,” said Pedro Noguera, dean of USC’s Rossier School of Education.

LAUSD’s board voted unanimously to place Carvalho on paid administrative leave two days after FBI agents searched his home and office in late February. The reason for the searches is unknown. A DOJ spokesperson said the agency has a court-authorized warrant but declined to provide additional details.

While Carvalho has declared his innocence and expressed a desire to return to his job, the district says an investigation is ongoing.

Which means, for now, longtime administrator Andres Chait will continue leading the country’s second largest school district through a series of pressing challenges.

What does an acting superintendent do?

This is not the first time in recent history an acting superintendent has led LAUSD.

Vivian Ekchian stepped in to lead the district in 2017 when then-Superintendent Michelle King was out on medical leave; King stepped down altogether the following year. Ekchian previously served as associate superintendent and, before that, an elementary school teacher, principal, administrator and chief labor negotiator.

“The role of the acting superintendent, from my perspective, is not different from the actual superintendency,” Ekchian said. “The work needs to get done, and it doesn't stop.”

When asked about the acting superintendent’s decision-making power compared to the permanent position, a district spokesperson wrote in a statement that “acting superintendent is a board-appointed position and carries all responsibilities and authority afforded the position of district superintendent.”

Ekchian said the superintendent’s decisions are guided by the district’s existing strategic plan, consultation with other senior leaders and community partners.

“If there's an urgent matter, like a fire or something that requires immediate decision-making, systems and structures are in place for organizations and departments to know what to do next with immediate guidance from the superintendent,” Ekchian said.  ”All decisions aren't the same, and the urgency is dictated by the matter at hand.”

Like Ekchian, Chait rose through the ranks from teacher to administrator at LAUSD over nearly three decades.

The responsibilities of his most recent role, chief of school operations, included overseeing school safety, athletics and the district’s office of emergency management. The salary for the chief of school operations position is $278,205 annually (the district did not indicate whether his salary has changed).

Since being named acting superintendent, Chait has appeared on the district’s social media, but the district has declined to make him available to LAist or other media outlets for interviews.

In his first verbal statement to the public on Monday, March 2 before a closed board meeting, Chait said his priority as acting superintendent is to keep the district focused.

“We remain committed to academic excellence and student wellbeing,” he said. “Our core values remain unchanged. I know transitions can create uncertainty, but our district is strong.”

Mounting pressure from labor

On Tuesday, the board approved labor agreements with the unions representing school police, support staff supervisors, office personnel and other classified staff.

But contract negotiations with the district's largest unions, those that represent teachers and school support staff, have stalled. Members of both United Teachers Los Angeles and SEIU Local 99 voted overwhelmingly in January to give their leaders the power to call a strike.

An IT worker and a gardener, both in positions targeted for reductions, were among the union members that addressed the LAUSD board.

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“ A strike is always the last resort,” said Maria Nichols, president of Associated Administrators of Los Angeles, the union representing principals, on Tuesday. “None of us — AALA/Teamsters, UTLA, SEIU — want to go on a strike and be disruptive for our students, our families, our school communities, especially at a time when LAUSD is already navigating uncertainty.”

More than a hundred school support staff and other union members filled the chambers Tuesday as Nichols and other representatives addressed the board.

Alex Orozco, UTLA’s secondary vice president, told the board that negotiations were “not anywhere close” to being settled. (The following day, the union announced the most recent step of negotiations, “fact-finding,” ended without an agreement.)

In past negotiations, the district’s superintendent has been a lightning rod for the union’s criticisms. In 2018, for example, UTLA weaponized then-Superintendent Austin Beutner’s calendar ahead of a strike.

The unions’ approach to Chait has been restrained so far.

“ The problem our members are facing, and students, is a systemic issue. It's not an individual,” said Max Arias, executive director of SEIU Local 99, in an interview with LAist. “We have to continue to attack the system, but I'm trying to hold out some hope that [the acting] superintendent will, you know, understand what we need to get done.”

The unions plan to hold a rally in downtown Los Angeles on Wednesday.

At Tuesday’s board meeting, Chait described a first week on the job spent visiting with teachers, principals, students, support staff and labor partners.

“As someone who's been a teacher, principal, held a number of roles in the district, I understand that you are indeed the backbone of this district,” Chait said. “The work simply just does not happen at schools or at offices without you. My commitment to you is to always come from a place of transparency, honesty and dialogue.”

Cutting back on spending

Part of the labor negotiation challenges are related to the district’s financial constraints. In February, a divided board voted to send layoff notices to more than 650 employees as part of a plan to cut spending.

Even as California is poised to fund schools at record high levels, Los Angeles Unified and other districts have grappled with increased costs.

For example, LAUSD hired more staff to support students during the pandemic, and now the federal relief dollars that initially funded those positions are gone. For the last two years, the district has relied on reserves to backfill a multi-billion-dollar deficit.

Noguera, with USC, said the budget is the district’s most immediate priority.

“There's no easy solutions,” he said, “and I think that's part of the reason why they've held off for a while on making tough decisions.”

The financial report presented Tuesday indicates that the district will continue to spend more money than it brings in over the next three years. Still to be determined are how the outstanding labor negotiations and the state budget will affect LAUSD’s spending plan for next year.

Defending immigrant families

Since the start of President Donald Trump’s second term, Los Angeles educators — and those around the country— have said the increase in immigration enforcement actions contributed to lower attendance and fewer students enrolled in school this year.

Thousands of Los Angeles Unified students have walked out in recent months to protest the Trump administration’s militarized crackdown on immigrants, detainment of children and violence against U.S. citizens protesting the raids.

Thousands of students from schools across Los Angeles walked out Wednesday, Feb 4, 2026 in peaceful protest of the Trump Administration’s immigration policies.

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In response, the district has expanded summer school and transportation options, distributed “know your rights” information and asked the federal government not to conduct immigration enforcement actions near schools. Teachers and community organizations have also volunteered to patrol schools before and after school.

On Tuesday, the board instructed staff to review contracts with outside vendors and evaluate whether they support or enable immigration enforcement and detention.

Chait, whose own family immigrated from Chile in 1983, said the district’s work to support immigrant families will not change during his tenure.

“Please know we stand with you,” Chait said Tuesday. “We will support you. We will ensure that our campuses are safe, secure and welcoming environments for our students and staff.”

A theater project bringing the world of William Shakespeare to local veterans is gearing up for its first public performance on Sunday.

For the past year, a group of about a dozen veterans have met at the West Los Angeles VA campus to study the work of the Bard of Avon.

The project is a partnership between the Shakespeare Center of Los Angeles and The Veterans Collective. The group is led by trained theater artist — and fellow veteran — Aaron Lyons.

Lyons is a longtime staple of L.A.’s theater community and is a member of the Antaeus Theatre Company. He said seeing this group express themselves through these timeless works has been inspiring.

“Helping them grasp Shakespeare, not only intellectually but emotionally, has been one of the most uplifting experiences of my life,” Lyons said.

Ranging in age from their 30s to their 70s, the group includes veterans of the Vietnam War and most of its members live at the West LA VA Campus, Lyons said.

The actor, who’s performed in more than half of Shakespeare’s plays, said part of his goal with the project was to demystify Shakespeare’s canon for veterans who might not have studied it since grade school.

“Watching this group of men and women understand it and be able to connect with it in ways that they didn’t think possible was really, really inspiring,” Lyons said.

The group will perform an original work called “Shakespeare Night Live” at 3 p.m. Sunday, March 15, at McCadden Place Theatre. The performance weaves through several Shakespearian monologues and scenes.

Tickets are $10 and available at the Shakespeare Center of Los Angeles website.

The war in Iran is rattling the aviation industry, from flight cancellations to rising costs for jet fuel. So if you're planning to travel this spring or summer, should you grab a ticket now, or wait?

"You should go ahead and book," says Sean Cudahy, an aviation reporter at The Points Guy travel and personal finance website.

It's generally recommended to buy international flights further in advance than domestic trips. But in the current circumstances, Cudahy says he would go ahead and book even domestic flights.

His advice is a sign of how the Middle East conflict is rippling outward, affecting prices and itineraries around the world, beyond the thousands of travelers who were stuck after the war forced a barrage of flight cancellations.

Airlines warn that ticket prices will rise with fuel costs

The war's effect on travel was sudden and striking, resulting in the cancellation of more than 46,000 flights in and out of the Middle East from Feb. 28 — when the U.S. and Israel began bombing Iran — to March 11, according to Cirium, the aviation analytics company.

That includes Dubai International, the busiest airport in the world for international travel, according to Airports Council International, along with popular hubs in Doha and Abu Dhabi.

But even airlines far from the Mideast are facing a sudden surge in a core expense: jet fuel. At the beginning of the year, a gallon of jet fuel cost $2.11; by March 10, the price rose to $3.40, according to the Argus U.S. Jet Fuel Index, a gain of more than 60%.

The spike came after tanker traffic through the Strait of Hormuz came to a virtual halt, as Iran announced it would close the waterway that normally handles about 20% of the world's oil and liquified natural gas.

Mideast refineries had been sending some 470,000 barrels of jet fuel each day through the strait to airports in Europe and elsewhere, says Rick Joswick, who heads the near-term oil analytics team at S&P Global.

The price for a gallon of jet fuel soared close to $4 in the first week of the war, prompting United Airlines CEO Scott Kirby to say on Friday that airfare price hikes from higher fuel costs would "probably start quick."

As they absorb higher fuel costs, airlines could adjust prices higher across the board, or they might tuck an increase into premium fares, where they'll be less noticeable, Cudahy of The Points Guy says.

Several airlines have publicly confirmed that they'll be raising prices to compensate, as Reuters reports. Other carriers, such as Japan Airlines, publish a schedule of fuel surcharges triggered by cost increases.

"I do think that this is ultimately going to lead to higher fares for everyone," Cudahy says. "The only question now is how significant and how long does it last?"

Air travelers stranded by the Iran conflict are greeted in Athens, Greece, after arriving on a charter flight from Dubai on Saturday.

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Crisis parallels earlier global disruptions

The higher fuel prices reflect a genuine struggle to ensure the aviation industry has ample supplies, says Joswick.

"It's not irrational. It's not some trader bidding up prices," he says. Comparing the situation to the COVID-19 pandemic, he adds, "The consumption of toilet paper didn't change. But you notice that all of the supermarkets ran out of toilet paper, right? Everyone wants to be sure that they have coverage of a critical need."

Both Cudahy and Joswick compare the Iran conflict's ripple effects to Russia launching its full-scale invasion of Ukraine in 2022, which set off flight disruptions and higher fuel prices. As long as the Strait of Hormuz is closed, Joswick says, prices will keep rising.

"If that were to persist, this would be like a 1979 kind of [oil] crisis," he says. "Anything over a month, and you're seeing a substantial long-term price increase until the flows are restored."

The U.S. and other large economies can mitigate those effects by tapping strategic oil reserves — which they opted to do on Wednesday. But Joswick predicts that while such a move can help ensure adequate oil supplies, it might not bring a sharp drop in jet fuel prices. For one thing, he says, the U.S. reserve focuses on holding crude oil, not jet fuel. And he cites logistical challenges, such as California's reliance on jet fuel that it either produces or imports.

Tips for buying a plane ticket right now

If you're ready to take your chances and book a flight, Cudahy has some guidance.

First, don't buy a restricted, basic economy ticket that you can't change later, he says.

Instead, he recommends buying a regular, full-fare economy ticket: "If the price does eventually drop, you can then go back and change it and capture the lower price."

Another tactic, Cudahy says, is to use airline miles.

"You can generally cancel it and get all your miles back later, if the price goes down," he says.

Use services such as Google Flights to comparison shop and set up alerts for price changes. And if you book flights through a third-party site such as Expedia, be sure you understand its cancellation and change policies, in case they differ from the airlines.

Because of the chance for renewed hostilities in and around Iran, Cudahy says he would try to avoid nearby airline hubs for the next couple of months.

But he wouldn't wait to book a ticket.

"In the same way that we're seeing relatively long lines at gas stations with folks trying to get their tanks filled up before the price goes up even more than it already has, I would be thinking the same way when it comes to airfare right now," he says.

While you might drive an extra mile or two to find cheaper gas, airlines and airports don't have that luxury when they buy jet fuel.

"Prices are always set on the margin," Joswick says. "That last airport that needs to buy jet fuel, they will pay whatever it takes to get that. And that price then becomes the standard for the whole industry."
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