Bloomberg has picked up the latest update from Rockefeller Institute and has this article:
State Revenue Falls Most Since 1963 on Incomes, Sales (Update2)
By Jerry Hart and William Selway
Oct. 15 (Bloomberg) -- U.S. state tax collections tumbled the most in almost half a century in the second quarter as the economic recession curbed levies on incomes and sales.
The 16.6 percent plunge was the biggest since at least 1963, the Nelson A. Rockefeller Institute of Government said today. For the 12 months to June 30, the fiscal year for most states, revenue declined 8.2 percent, or $63 billion, about twice what states got from the $787 billion U.S. economic stimulus package, the institute said.
State revenue has dwindled for two straight quarters and continued to decline in July and August, the Albany-based research organization said. Budgets for the year that began July 1 already face $26 billion of deficits, the Washington, D.C.- based Center on Budget and Policy Priorities said Aug. 12, forcing state lawmakers to confront additional spending cuts.
“We’re looking at a multiyear problem hitting essentially every state,” Robert Ward, the institute’s deputy director, told reporters. “It has happened during recessions before, but the depth of this decline is unprecedented in modern times.”
Collections dropped in 49 states in the second quarter as sales and personal-income taxes slid for the third consecutive period, the institute said. Income tax was down 27.5 percent and sales tax fell down 9.5 percent, its study said. Both categories fell by the most in 45 years.
“Many economists believe that the national recession has ended and that a tepid recovery is now underway,” Rockefeller analysts Lucy Dadayan and Donald J. Boyd wrote. “Unfortunately for states, an emerging economic recovery does not spell instant budget relief.”
‘Considerably More’
Figures for July and August for 36 early-reporting states showed tax collections down 8 percent, the Rockefeller Institute said. At least 17 states have announced budget shortfalls since July, with “considerably more” expected, Boyd said.
New York’s tax revenue from April 1 to Sept. 15 was $634.5 million below projections and $3.6 billion less than a year ago, Comptroller Thomas DiNapoli said yesterday. California reported last week that revenue trailed a forecast made less than three months earlier by $1.1 billion, or 5.3 percent.
States are anticipating more cuts to current-year budgets, already pared once to bring them into balance. Mississippi Governor Haley Barbour told managers on Oct. 13 to cut spending 5 percent because tax collections in the first three months of fiscal 2010 were 7.7 percent below estimates. Florida Governor Charlie Crist told department heads on Oct. 12 not to request more money for next year, when the state faces a $2.6 billion deficit.
“It’s clear that when governors propose their budgets in January, the vast preponderance will be looking for more spending cuts and tax increases,” Boyd said.
'Housing Market'
The main driver for the second-quarter decline was lower income-tax collections, Boyd said on a conference call, “most likely due to lower capital gains from market declines in 2008 and the bursting real estate bubble.”
Payroll-tax withholding fell 4 percent from a year earlier and estimated-tax payments made in the quarter fell 32 percent in the median state, he said.
“Real wages take 13 to 17 quarters to recover from the end of a recession,” he said. “It will take several years for states to bring spending into line with incomes.”
The study’s retail-sales index showed an 11 percent decline since the start of the recession in December 2007, he said. The second quarter’s 9.5 percent decline in sales taxes followed an 8.3 percent decline in the first quarter, he said.
Alaska’s tax income declined the most of any state, the study said, with an 86.5 percent drop because of lower oil prices. Vermont fared the best, with a 2.2 percent gain because of a one-time estate-tax settlement.
Local tax collections declined by 2.8 percent in the second quarter, the Rockefeller study said. That’s less severe than the state slowdown because municipalities rely more on property taxes, which rose “a surprising” 3.1 percent in the quarter, the report said.
Still, 88 percent of local finance officers said in a September poll by the National League of Cities that they’re less able to cover expenses than in the year before.
To contact the reporters on this story: Jerry Hart in Miami at jhart@bloomberg.net; William Selway in San Francisco at wselway@bloomberg.net.
A couple of points struck me. First, the fall in state revenues is of record proportions. However, while state revenues collectively declined 16.6%, local government tax revenues declined by only 2.8%. This disparity is due in large part to local governments being dependent upon local real estate taxes as opposed to income and sales tax. See the following chart from the Rockefeller Institute Report that depicts this:
Click on image to enlarge
Also from the report is the following statement:
When I say state budgets are based on the past, this is exactly why. It is always a game of playing catch-up. Spending every dime in good economic times leads to the severe cuts we are seeing now.
Unfortunately for states, an emerging economic
recovery does not spell instant budget relief. As we have noted
previously, some elements of the economy that are very important
to state finances — particularly employment and wages — are
likely to recover more slowly than gross domestic product. In addition,
state tax revenue, when it does begin to recover, will be below
its earlier peak for at least several years and will not be
sufficient to support spending commitments that are now in
place. Despite the recovery, most states will face budget gaps this
fiscal year and next, and probably for at least one to two
additional years.
If you like tables and charts and graphs, the Rockefeller Report is really a revelation. It contains a ton of information on every state comparing revenues, changes, and the effect of recent legislation.
One more point I need to make on this, and I did not see this in the Rockefeller Report, is that many states, if not most of them, used the Federal Stimulus funds to balance their budgets this year. I believe Pennsylvania used $3 billion to do just that. What this means is that every one of these states was already in a structural deficit before the new fiscal year began. Many states used that money as a one-time fill for their budget gap. The problem is, this is not a one-time revenue shortcoming. Tough decisions are going to have to be made.
Thanks for reading.
James
