State tax revenues rise for 3rd straight quarter

Published 3:24 pm Thursday, December 2, 2010

State tax revenues rose over the summer for the third straight quarter, giving a much-needed boost to beleaguered government budgets.

The Rockefeller Institute, a research group at the State University of New York, said Tuesday the amount of tax money states collected increased by an inflation-adjusted 2.6 percent in the July-September quarter, compared to the same period a year ago,

Still, the increases aren’t enough to make life easier for governors and state legislators. Most states face persistent budget gaps that are forcing widespread spending cuts and tax hikes. Budget shortfalls have prompted many states to lay off government workers and cut programs, serving as a drag on the broader economy.

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Tax revenue hasn’t fully recovered from the impact of the recession. It is still 7 percent below what it was two years ago.

The recent increases won’t spare state governments from having to make tough budget choices. The Center on Budget and Policy Priorities estimates that states will face budget deficits of about $140 billion in fiscal year 2012, which starts next July 1 in most states. Almost all states are required to balance their budgets each year.

“The immediate outlook is for revenue collections significantly below prerecession levels,” the report’s authors, Lucy Dadayan and Donald Boyd, wrote. “The overall picture remains: States will face continued, significant budget challenges in fiscal 2011 and beyond.”

Revenue rose in 42 of the 48 states that have reported data for the third quarter, the report said. Personal income and sales taxes both rose, while corporate tax revenue declined. Part of the increase in revenue is due to tax increases, but the rise also reflects “a slowly recovering economy” that is increasing income and sales, the report said.

New York reported the biggest dollar increase in total tax collections, with a rise of $577 million, or 4.5 percent.

North Dakota experienced the largest percentage jump, with an increase of 29.5 percent. That was due to a large rise in corporate income tax revenue. Utah, West Virginia, Connecticut and Delaware saw the next biggest gains.

Of the six states to report declining tax revenue, Alaska’s fell 48 percent. That was the biggest drop, mostly because of a decline in oil and gas production taxes. The price of both commodities fell and less of each was produced during the period, the report said. Hawaii, Louisiana, South Dakota, Virginia and Alabama were the other states to report drops.

Some of the changes were due to technical factors. Hawaii’s drop was mostly because tax refunds were delayed in the previous year. Virginia’s drop resulted from a change that required July sales taxes to be paid in the second quarter this year, rather than the third.

The increase in revenues isn’t unexpected. The National Conference of State Legislatures said in late September that it expected taxes to rise this year after two years of sharp drops.

Still, states say it will take years to return to pre-recession levels of tax revenue. Sixteen states told the NCSL that it will take at least two more years, while four states don’t expect to return to pre-recession levels until fiscal 2015. California doesn’t expect its revenues to return to peak levels until fiscal 2016, the longest of any state.