States' Revenues Rise Above Peak Levels after Two Straight Years of Growth
But Rockefeller Institute report finds growth softening, local governments struggling
Albany, N.Y. — States' tax collections grew for the eighth straight quarter at the end of 2011, for the first time topping peak revenue levels seen at the beginning of the Great Recession, according to Rockefeller Institute research and Census Bureau data.
States' tax revenues grew by 3.6 percent in the fourth quarter of 2011 compared to a year ago. The gains were 3.0 percent and 7.4 percent higher than during the same quarters of 2007 and 2008, respectively. Nonetheless, tax collections in 17 states remain lower in the final quarter of 2011 than they were four years before.
With the exception of the Far West, all regions of the country saw gains in tax revenue during the fourth quarter of 2011, the report shows. The Plains region had the largest gain, at 12.5 percent, followed by the Great Lakes states at 8.9 percent. The Far West showed a decline of 3.9 percent in tax collections — led by an 8.3 percent decline in California alone.
Preliminary figures for the first two months of 2012 suggest the trend in rising revenue will continue, with 45 early reporting states showing a 4 percent gain in revenues over January and February 2011. Gains in state tax collections overall appear to be softening, however, writes report author Lucy Dadayan.
Local governments are not faring well. Local tax collections had remained strong for most of the period during and after the recession, but trends are shifting due in part to the lagged impact of falling house prices on property tax revenues, according to the report. Local property tax revenues grew by a modest 0.6 percent in the fourth quarter, but declined in inflation-adjusted terms.
"Services and functions that are largely funded by local governments, such as education and public safety, are likely to be under severe fiscal pressures for some time if current trends continue," Dadayan writes.
For a full copy of the report, visit www.rockinst.org.