The Nelson Rockefeller Institute of Government released a report the other day that shows states across the country are losing revenue from income taxes at an alarming rate.
Some of the conclusions in the report include:
-The sharp declines in personal income tax collections will punch still deeper holes in the budgets of many states. This increases the risk that state budget agreements for 2009-10 will not close budget gaps completely, and that states will need to make midyear budget cuts.
-These new data on income-tax revenues also make it likely that states will be forced to consider further spending and revenue actions in 2010, and will confront large budget gaps when federal stimulus assistance ends in 2011.
Pennsylvania experienced a 26% decline in Personal Income Tax between January and April of 2009. Because Personal Income Taxes make up 32% of our budget, you can see that being 26% short on 32% of your budget will have a significant impact on budget shortfalls. However, we are not as bad off as some other states. Arizona is seeing a 55% decrease in PIT. PIT makes up 25% of the Arizona budget. California was 34% lower in PIT revenues this year and PIT revenues make up almost 48% of their budget.
Something to remember about government budgets is that the revenues always lag. State and local budgets are set one year in advance and are based on the best projections available at the time. Last July, Harrisburg had no idea what the economy would be doing in April of 2009. They budgeted with their best guess. Now that best guess is going to be off by over 25%.
Each state will handle these shortfalls in their own way. Most will end up doing a combination of things including laying off workers, unallotments (as they are doing in Minnesota), tax increases, etc.
What I can say with confidence is that this recession is not over, especially when talking about the actions various states will be forced to take in June and July of this year (this is when budgets are typically passed). Pennsylvania is weathering this storm better than half of the other states but we will still be impacted. The 2009-2010 budget will be a tough one to pass, but it will be easy compared to what happens in 2010-2011.
The report concludes with this bit:
-It (the PIT situation) raises the risk that the newly adopted budget will take an optimistic view of the year ahead and may unravel as the year progresses, requiring midyear cuts. And because those solutions that are adopted may be nonrecurring in nature, it raises the risk that states will face larger gaps for 2010-11 when such non recurring resources go away
Thanks for reading.
James
