NEWS: States see robust revenue gains in first half of 2011

The Nelson A. Rockefeller Institute of Government

NEWS

July 14, 2011

For Immediate Release

Contacts:
Claire Hughes (518) 443-5744
Heather Trela (518) 443-5831

States See Robust Revenue Gains in First Half of 2011, New Report Says

But Weak Property Tax Drives Down Local Tax Collections; Evidence of a

Weakening National Economy Raises Future Uncertainty for States

Albany, N.Y. -- States' tax revenues grew by 9.3 percent in the first quarter of 2011, according to Census Bureau data analyzed in a new report by the Rockefeller Institute of Government. That marks the fifth consecutive quarter of growth, following declines during and after the Great Recession.

Preliminary data for April and May indicate continuing and growing strength in revenues through the second quarter of 2011, according to the report by Senior Policy Analyst Lucy Dadayan.

Local tax revenues, however, declined for the second straight quarter, dropping 0.6 percent, due primarily to the lagged impact of falling house prices on property tax collections.

And despite the continued recent growth, states' tax collections remain slightly lower than they were in the first quarter of 2008. Recent evidence of weakness in the national economy raises the specter of uncertain fiscal conditions for states in the future, according to the report.

"Strong gains in state tax collections since late 2010 have been driven by both economic growth and legislated tax increases," Dadayan writes. "If the economy continues to show weakness during the second half of 2011, revenue growth will likely soften as well."

For the first quarter of 2011, 48 states reported total tax revenue growth, with 21 states showing double digit percentage increases.Both personal income tax and sales tax revenue -- the two largest components of state tax revenues -- increased for the fifth quarter in a row, at 12.8 and 6.3 percent respectively.

For the first two months of the second quarter, overall collections in 45 early-reporting states showed growth of 12.5 percent compared to the same months of 2010. These figures remain 8.9 percent below the collections of the same months of 2008, however.

But weakness in the overall economy, particularly in employment, raises serious concerns going forward, according to the report.

Many states also continue to struggle with long-term structural budgetary imbalances despite recent revenue growth. Most were forced to cut services or raise taxes to enact budgets for fiscal year 2012, which began July 1 for 46 states.

"If revenues falter again in a weakened economy," Dadayan concludes, "states' budgetary choices will grow even more difficult."

For a full copy of the report, visit www.rockinst.org.

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About the Rockefeller Institute of Government

The Nelson A. Rockefeller Institute of Government, at the University at Albany, is the public policy research arm of the State University of New York. The Institute conducts fiscal and programmatic research on American state and local governments. Visit our Web site at www.rockinst.org.