Monday, October 19, 2009

Fiscal Position of the States Shows Record Decline

The Nelson A. Rockefeller Institute of Government has issued its latest quarterly report about state and local finances in State Tax Revenues Show Record Drop, For Second Consecutive Quarter. It is worth reading in its entirety. It covers the second quarter of this year, not the third quarter. Here are some excerpts.

We have compiled historical data from the Census Bureau
Web site going back to 1962. Both nominal and inflation
adjusted figures indicate that the second quarter of 2009 marked
the largest decline in state tax collections at least since 1963. The
same is true for combined state and local tax collections, which
declined by 12.2 percent in nominal terms. . .

The year-over-year change in state taxes, adjusted
for inflation, has averaged negative 9.2 percent over the last
four quarters, down from the 1.2 percent average growth of a year
ago and 2.0 percent of two years ago. Real, year-over-year growth
in local taxes has slowed to an average of 0.7 percent over the last
four quarters, from 1.6 percent for the preceding year. . .

The local tax slowdown is less severe than the state tax slowdown.
In the second quarter of 2009, local tax collections declined
by 2.8 percent, mostly due to declines in local income tax and
sales tax collections. Most local governments rely heavily on property
taxes, which tend to be relatively stable and rose a surprising
3.1 percent during the quarter. . .

Second quarter
revenues fell by
amounts unseen in at
least five decades. Total
state tax revenue in
the second quarter of
2009 declined by 16.6
percent relative to a
year ago, before adjustments.
The income
tax was down by 27.5
percent, the sales tax
was down by 9.5 percent, and the corporate income tax increased
by 2.9 percent. . .

DoctoRx here. California in essence legislated accelerated income tax payments; absent that, the report elsewhere makes clear that excluding California, corporate income tax collections declined 16.4%.

State finances lagged the economic cycle after the 2001 recession. I suspect that this will be the case this time as well.

Copyright (C) Long Lake LLC 2009

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