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State Tax Revenue in U.S. Drops Most Since 1963, Study Says

January 7, 2010

U.S. state tax collections fell the most in 46 years in the first three quarters of 2009 as the recession shrank revenue from sources including personal income, the Nelson A. Rockefeller Institute of Government said.

Revenue dropped 13.3 percent, or $80 billion, compared with the same nine months of 2008, to $523 billion, the institute said. Collections in the third quarter alone sank 10.9 percent to about $162 billion, according to the report released today by the Albany-based body. It was the fourth straight quarterly decline. The institute is the public policy research arm of the State University of New York.

“The first three quarters of 2009 were the worst on record for states in terms of the decline in overall state tax collections, as well as the change in personal income and sales tax collections,â€

The worst economic slump since the Great Depression has forced states to cut spending, raise taxes and pass down costs to local governments to cope with $193 billion of combined budget deficits in the current fiscal year, according to a Center on Budget and Policy Priorities report issued last month.

Budget gaps have opened in 31 states since fiscal year 2010 began, Dadayan and Boyd wrote, citing a National Conference of State Legislatures study.

“2010 is going to be very difficult for the states and the next year is likely to be significantly worse,” Rockefeller Deputy Director Robert Ward said in an interview.

California’s Deficit

California’s deficit is going to total $20 billion for the next 18 months, Governor Arnold Schwarzenegger said in a speech yesterday. Schwarzenegger, a Republican, is scheduled tomorrow to release his budget plans for the state, the largest issuer of municipal debt.

New York is grappling with an $8 billion budget deficit, Governor David Paterson said in his state-of-the-state speech yesterday.

“The great recession hit virtually every single source of tax revenue and pushed a number of states to revise revenue forecasts numerous times throughout fiscal 2009 and 2010, with significant impacts on services,” Dadayan and Boyd wrote.

State income tax revenue was down 11.8 percent in the third quarter, sales tax collections were down 8.9 percent, and corporate income tax declined 22.6 percent, according to the study.

The Obama administration’s $787 billion stimulus package made up as much as 40 percent of the revenue losses states suffered, Ward said by telephone.

“It is a very significant amount of compensation but by no means eliminates the problem,” he said.

Ward said economists are split over whether the economy is recovering. He said taking an optimistic view “states still have some way to go just to stop the losses.â€

Local tax revenue grew by 0.7 percent in the third quarter, the report said.

Source: Bloomberg

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