State Revenues in Freefall

The 2010 fiscal year continue to provide lawmakers with reason to reach for the budget ax. As such, a whole host of state access and treatment programs remain very much on the chopping block.  Throughout the recession state revenue collections have consistently underperformed expectations. The decline has been steep and unrelenting. Even pessimistic forecasts have not been met, producing cavernous holes in state budgets. Despite the painful decline, states are anxious to hit bottom so that a revenue rebound can begin.
Unfortunately, the steep revenue falloff in FY 2009 will not be the bottom for many states. More than half expect a further decline in FY 2010. On top of that, a growing number of states already have missed their revenue targets in the early months of the new fiscal year, producing another round of budget gaps. The revenue slide would have been more severe without state tax increases. At least 20 states have raised taxes so far in 2009, for a net increase of $26.5 billion. These increases bolstered the revenue growth projections in many states.

  • Eight states expected total tax collections to fall at least 5 percent below FY 2009 levels. The biggest drop was expected in Alaska (-45 percent) as the price of oil declines from previously high levels and oil company profits fall. Double-digit declines also were forecast in Louisiana (-13.9 percent) and Wyoming (-10 percent).
  • Hawaii officials originally expected revenue growth to be flat, which is what is indicated in this report. But since the revenue forecast was released on May 28, 2009, revenues have continued to slip. The Hawaii Council on Revenues more recently forecasted that revenues would fall below last year’s levels.
  • Eighteen states projected total tax collections to rise in FY 2010 compared to last year, although five of these states expected growth below 1 percent.
  • The largest year-over-year increases were forecasted in California (6.5 percent), Virginia (4.4 percent) and New Hampshire (3.2 percent). Each of these states, among others, raised taxes or other revenues, which helps explain the growth. Officials in Virginia note that subsequent to the forecast, collections fell short of estimate by some $300 million suggesting that the original forecast was too optimistic.

Hawaii and Virginia are far from alone in seeing lower-than-expected revenue performance. Across the nation, officials are expressing concern that they are missing their revenue targets. Many are lowering their forecasts based on new information or expect to reduce them in coming months if revenues do not rebound. Iowa is among the states most recently reporting a revenue shortfall. Although officials had expected a 1 percent drop in total tax growth, the actual decline has been much steeper. Based on the new forecast in early October, revenues are expected to be 7.1 percent lower than projected last spring and 8.4 percent lower than last year’s actual collections.
Just a few months into FY 2010, revenue shortfalls are growing. At least 20 states already report that new budget gaps have opened since the fiscal year began on July 1.
Courtesy: National Conference of State Legislators
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