Report shows states still facing declining tax collections

Report: States’ tax collections fall again

HELENA, Mont. — States again saw sharp declines in tax collections in the last quarter of 2009 — a record fifth straight quarterly drop, according to a new report that predicts more looming spending cuts or tax increases.

Overall, revenue from state tax collections dropped 4.1 percent for the quarter compared to the same quarter in 2008, the Rockefeller Institute of Government reported Tuesday.

For some governors and lawmakers already grappling with painful budget decisions, the latest figures — while offering more evidence of the grim economy — weren’t all that surprising.

“It is topic number one,” said Montana Gov. Brian Schweitzer, returning from a weekend meeting of the nation’s governors. “Sharing or comparing ideas, in some cases horror stories, is what we do.”

The institute said that states that already have slashed spending or raised taxes will need to do more. Beleaguered governments have been cutting back on schools, social programs and prison costs — such as by releasing inmates early.

Lucy Dadayan, policy analyst at the Rockefeller Institute, said a few states showed quarterly revenue increases, and she predicted that more tax collections will begin to rebound. But it will be awhile before revenue returns to pre-recession levels, she said, noting that state tax collections often lag behind economic recovery.

“We won’t be surprised to see more spending cuts and more painful action to be taken,” she said. “At least for a year or two, we envision that most states are still going to be struggling.”

Schweitzer’s state of Montana was among seven — including Alaska, Wyoming, Arizona, Oklahoma, Texas and Georgia — that saw tax revenue drop by more than 10 percent in the fourth quarter.

In some of those cases, the states entered the recession later than others so they are just starting to see the drops felt earlier elsewhere.

Schweitzer said that Montana, with its big pre-recession surplus, won’t be feeling nearly as much pain as other states. While Montana ponders budget cuts of five percent, other states, such as California, have released prisoners from jails, slashed spending on schools, raised college tuition — along with raising taxes in some cases.

Overall, the tax revenues collected by 46 states included in the preliminary report fell from $140.2 billion during the fourth quarter of 2008 to $134.5 billion a year later. Revenue increased in seven states, and much of that was due to tax rate increases rather than economic recovery.

The biggest declines were seen in Oklahoma, 27 percent, and Arizona at 17 percent.

The report noted that “2009 will be remembered as bringing historically sharp declines in tax revenue to states.” But it also predicted that more positive signs will be seen in early 2010, including increases in sales tax collections in many places.

The nation’s governors are ready for the good news.

“It is likely we have hit bottom,” said Schweitzer. “We do see some bright signs.”