States See Robust Revenue Gains in First Half of 2011

Albany, NY (July 14, 2011) -- States' tax revenues grew by 9.3% in the first quarter of 2011, according to Census Bureau data analyzed in a new report by the Rockefeller Institute of Government. That marks the fifth consecutive quarter of growth, following declines during and after the Great Recession.

Preliminary data for April and May indicate continuing and growing strength in revenues through the second quarter of 2011, according to the report by Senior Policy Analyst Lucy Dadayan.

Local tax revenues, however, declined for the second straight quarter, dropping 0.6%, due primarily to the lagged impact of falling house prices on property tax collections.

And despite continued recent growth, states' tax collections remain slightly lower than they were in the first quarter of 2008. Recent evidence of weakness in the national economy raises the specter of uncertain fiscal conditions for states in the future, according to the report.

"Strong gains in state tax collections since late 2010 have been driven by both economic growth and legislated tax increases," Dadayan writes. "If the economy continues to show weakness during the second half of 2011, revenue growth will likely soften as well."

For the first quarter of 2011, 48 states reported total tax revenue growth, with 21 states showing double digit percentage increases. Both personal income tax and sales tax revenue -- the two largest components of state tax revenues -- increased for the fifth quarter in a row, at 12.8% and 6.3% respectively.

For the first two months of the second quarter, overall collections in 45 early-reporting states showed growth of 12.5% compared to the same months of 2010. These figures remain 8.9% below the collections of the same months of 2008, however. 

But weakness in the overall economy, particularly in employment, raises serious concerns going forward, according to the report.

Many states also continue to struggle with long-term structural budgetary imbalances despite recent revenue growth. Most were forced to cut services or raise taxes to enact budgets for fiscal year 2012, which began July 1 for 46 states.

"If revenues falter again in a weakened economy," Dadayan concludes, "States' budgetary choices will grow even more difficult." 

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

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