U.S. States Show First Tax Revenue Jump Since 2008, Report Says

July 13 (Bloomberg) -- California and New York helped push U.S. states’ tax revenue to the first quarterly gain since 2008, the Nelson A. Rockefeller Institute of Government said.

Overall tax receipts increased 2.5 percent to $164.5 billion during the January-to-March period, compared with the same three months in 2009, the Albany, New York-based institute said in a report today. It was the first year-over-year jump since the third quarter of 2008. Thirty-three states recorded a decline in collections, down from 40 states in the fourth quarter of 2009.

“Recent data show an unmistakable improvement in the economy and a slight firming in state tax-revenue collections,” wrote the co-authors of the report, Lucy Dadayan, a senior policy analyst, and senior fellow Donald Boyd.

Still, the growth in overall revenue is modest and “not an indication of broad state fiscal recovery,” the report said. States’ financial conditions remain “quite fragile” after record declines in 2009, Dadayan and Boyd wrote.

Personal-income and sales-tax increases in California, the most-populous state, and New York, the third-biggest, were the primary drivers of the gain and lifted net revenue by about $5.8 billion. Excluding those states, collections fell 1.5 percent.

Local tax collections declined 1.1 percent, hurt by a 1.7 percent drop in local property taxes, the first decrease since the start of the recession, and a 0.5 percent slump in local sales taxes. Local individual income taxes grew 5.1 percent, the first jump after five consecutive quarterly losses. Overall, personal-income-tax revenue increased by 2.5 percent and sales- tax revenue by 0.4 percent.

Still Lagging

State revenue trails pre-recession levels and fell 9.3 percent compared with the same period two years earlier. Preliminary data for April and May from 42 states signal the second quarter will be weaker than the first, with revenue rising by 0.9 percent, according to the institute.

“Even if overall economic conditions continue to improve throughout 2010, fiscal recovery for the states historically lags behind a national economic turnaround and can be expected to do so in the aftermath of the recent recession,” Dadayan and Boyd wrote. “Analyses of some of the numbers in terms of longer-term perspective indicate that states will face a long and bumpy road to fiscal recovery.”

--Editors: Mark Schoifet, Walid El-Gabry