State Tax Revenue Declines in 2Q, After Weak 1Q Growth

WASHINGTON – State tax revenue declined in the second quarter after showing weak growth during the first three months of the year, according to a report from the Nelson A. Rockefeller Institute of Government.

The report attributed the slowdown to the weak performance of the stock market and steep declines in oil prices.

Lucy Dadayan and Donald Boyd, the report's authors, said state tax revenue declined by 2.1% in the second quarter, according to preliminary data, and that the declines were widespread and affected about half the states.

"Those declines came at a time when most states had already adopted 2017 budgets," the authors said. "That may leave many 2017 budgets with holes to fix."

The drop came after total state tax revenue grew by 1.6% in the first quarter of 2016, the authors said.

They predicted a "gloomy" outlook for state budgets in the 2016-17 fiscal year.

The two authors said that for the most part, state governments have been hit harder by slowing tax revenue growth than local governments, which rely heavily on relatively stable property taxes.

"We believe the results will be even worse than had been expected when data for the weak first calendar quarter of 2016 and the negative second quarter are reflected," the report read. "This weakening raises a yellow flag for state budgets."

Focusing in on data for the first quarter, the report found the Southwest region, at 4.4%, had the largest decline in overall state tax collections, while the southeast region had the strongest growth at 6.2%.

A total of 37 states reported growth in tax revenue for the first quarter, four of which experienced double-digit growth.

A total of 13 states reported declines in overall state tax collections in the first quarter of 2016, six of which are dependent on revenue from oil and minerals. The largest declines in total tax revenue were reported in North Dakota and Wyoming -- two oil dependent states -- at 30% and 14%.

Personal income tax revenue growth slowed to 1.8% in nominal terms on a year-over-year basis, and preliminary figures show a 3.3% decline in the second quarter of 2016, according to the report.

Corporate income taxes also declined by 4.5% in the first quarter and the motor fuel tax only increased by 1.9%.

The median forecast of state income tax and sales tax growth is at 4% and 3.8%, according to the Rockefeller Institute.

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