1Q Tax Collections Fell in Nearly Every State, Report Finds

WASHINGTON - Total tax collections declined in nearly every state in the first quarter of 2009, which could lead to a boost in bond issuance, according to a new report released yesterday by the Nelson A. Rockefeller Institute of Government.

State tax revenue fell by 12.6% compared to the same time a year ago, and that budgetary pain could lead some states to issue more bonds because they will not have the revenue needed to finance projects on a pay-as-you-go basis, according to Robert Ward, deputy director of the institute.

"Historically, we do see more borrowing when times are tough as we are now," he said. "It certainly wouldn't be surprising if there was some uptick there."

The report's authors said states will continue to struggle with shrinking tax revenues and budget shortfalls during the next two quarters of the year.

"We expect revenue collections, particularly collections from the personal income tax, to deteriorate even further in the April-June quarter based in large part on declines in financial markets and income tax returns due in April," said senior policy analyst Lucy Dadayan. She also noted that state tax revenue typically languishes at lower levels for two or more years following a recession.

Of the 47 states that have reported their tax collection numbers thus far, 45 showed a decline in total revenue, according to the report.

Only Iowa and South Dakota reported increases in overall revenue, the report said. Montana, Nevada, and New Mexico have not yet reported their revenue collection data for the first quarter.

The shortfalls experienced in the first three months of the year mark the second consecutive quarter in which the three major sources of tax revenue - personal income tax, sales tax, and corporate income tax - all declined.

Personal income tax took the steepest nosedive in the January-March quarter, declining by 15.8% compared to the same time last year, the largest such drop since 2002. That decline has hit states particularly hard because revenue from personal income tax made up nearly 40% of all revenue collected, according to the report. Thirty-four of the 41 states that collect a person income tax reported declines, with two not yet providing data. South Carolina had the largest decline, at 38.3%.

Thirty-six states showed sales tax revenue declines of an average of 7.6%. Ten reported double-digit declines, and Georgia experienced the largest at 16.3%.

In addition, 33 states reported declines in corporate income tax revenues, with all but one reporting double digit decreases.

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