Tax Increases Push States’ Revenues Into the Black for First Time Since 2008,
Rockefeller Institute Reports

Collections still declining in most states, including key April income-tax revenue

Albany, N.Y. — States’ overall tax revenues rose in the first quarter of calendar 2010 on a year-over-year basis, marking the first such gain since the third quarter of 2008, according to preliminary data in a new report from the Rockefeller Institute of Government.

Despite the overall growth in revenues, a majority of states still saw declines, according to Institute Senior Policy Analyst Lucy Dadayan, the report’s author. The increase in total collections was mostly attributable to revenue growth driven by legislated tax increases in just two states — New York and California. If those two states are removed from the calculations, total collections across the nation show a 2.2 percent decline in the first quarter of 2010. And even with the boost from those two states, overall revenues remain significantly below pre-recession levels.

Further, early indications of revenues in the April-June quarter — marking the end of the fiscal year for 46 states — are not promising, as the important April collections from income taxes showed a 7.6 percent year-over-year decline.

States will continue to face a rough road to fiscal recovery, Dadayan predicted.

“The income tax shortfall for the April-June quarter will push states to take hasty actions for dealing with the shortfall,” she writes in the report. “The April shortfalls in income tax collections come late in the fiscal year and late in the budget process, leaving little time for revenue analysts to evaluate the budget shortfalls, for budget forecasters to revise their forecasts, and for elected officials to assess the magnitude of the state fiscal crisis.

“The 46 states whose fiscal years end June 30 will be hard-pressed to enact legislation reducing spending, lay off workers, raise taxes, or otherwise obtain resources sufficient to offset the lost revenue before the end of the year,” Dadayan concludes.

Overall state tax revenues grew by 2.4 percent in the first quarter of 2010, compared to the same quarter a year earlier, based on preliminary data in the Institute’s State Revenue “Flash” Report. Personal income tax revenue increased by 2.7 percent for the nation. Yet 34 of 49 early reporting states had declines in both overall and personal income tax collections.

Sales tax collections increased by 0.5 percent, and corporate tax collections increased by 2.3 percent.

On a regional basis, the New England, Mid-Atlantic and Far West regions of the country all saw increases in tax collections, while the remaining regions suffered declines. The Great Lakes region was the weakest by far in terms of both personal income tax and overall tax revenue collections, while the Southwest region was the weakest in terms of sales tax collections.

The Institute will issue a more complete report of state revenues for the first quarter of calendar 2010 once data from Census Bureau become available.

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