A very interesting article from Reuters on the possibility of a decline in state tax revenues. Reuters speculates on (1) lower capital gains revenues, in states such as California, and (2) declining real estate values, in other coastal states (such as New Jersey) impacting tax collections.
As to California, real estate is not likely to be a major factor in state tax collections. Property tax is paid to each county, and mostly stays with the county and cities within each county. However, the issue to watch is the impact of stock options.
Stock options were, in my opinion, the reason why California tax collections increased in 2006. I suspect that taxes from stock options will not increase in 2007 from 2006 (and likely will decrease). This is just speculation based on a small sample size; however, we will get a much clearer picture by the end of April (when the Franchise Tax Board releases collection numbers for April).
In any case, it will be an interesting April and May for budget writers at the state, county, and local levels.