WASHINGTON — State revenues jumped 5.3% in fiscal year 2013, but officials are worried that a slowdown next year is imminent, the National Conference of State Legislatures said in a recent report.
Despite overall improved fiscal conditions with revenues and expenditures, state officials are uncertain about the sustainability of the stronger revenue growth rates seen in fiscal 2013, which for most states ended on June 30. On top of that, spending needs are likely to outpace revenue projections as growing Medicaid costs and a protracted economic recovery continue to add pressure on state budgets, the report said.
In a separate report published last week, the Rockefeller Institute of Government said that state tax revenues were up 8.6% in the first quarter of 2013. In 39 states, tax collections were above their peak levels in the first quarter of 2008.
Most states have attributed the revenue gains to taxpayers pushing income into tax year 2012 to avoid an anticipated increase in federal tax rates in 2013.
Congress passed the American Taxpayer Relief Act of 2012 to avoid the so-called "fiscal cliff" and increased marginal tax rates. The highest individual tax rate jumped from 35% to 39.6% and the payroll tax holiday was eliminated, among other things.
The higher than expected revenues outpaced expenditures, which rose 4.4% above fiscal year 2012 levels, according to the NCSL report.
Forty-one states, the District of Columbia and Puerto Rico reported year-over-year revenue growth in fiscal year 2013.
In five states, revenues grew by more than 10%, while 19 states reported growth between 5% and 9.9%. Seventeen states, D.C. and Puerto Rico had less than 5% growth in 2013.
Revenues were close to flat in Massachusetts and West Virginia.
Six states, had year-over-year revenue declines in 2013. Alabama had the smallest decline with 0.6% and Alaska had the largest fall with 13.4%, primarily due to a decline in oil production.
Revenue actions taken by 46 states resulted in a net tax cut of $1.3 billion, or approximately 0.2% of the prior year's state tax collections. Thirty-five states made no significant net tax changes in 2013.
"Most of the tax cuts enacted in 2013 were in the personal income tax category, led by large decreases in Iowa, Maine, Ohio, North Dakota and Wisconsin," the report said.
To date, 12 states have reported new tax reforms, a number that is likely to grow by the end of 2013, the report said.
For 2014, general fund state revenues are projected to grow by only 1.3%, much slower than the 5.5% rate in 2013, the NCSL report said. At the same time, general fund appropriations are budgeted to increase by 3.9% which reflects higher education and Medicaid costs. As a result of this spending and revenue mismatch, state year-end balances are projected to fall 11.6% in 2014, the report said.
Thirty-three states, D.C. and Puerto Rico project year-over-year revenue growth for fiscal year 2014. Only three states — New Jersey, North Dakota and Oklahoma — forecast revenues to increase by more than 5%.