WASHINGTON — State government tax collections jumped 8.9% in 2011 from the previous year, but the overall fiscal picture is not promising because most states are still below peak collection levels, according to an analysis by the Rockefeller Institute.
At the end of fiscal 2011, which ended last June for most states, overall state tax collections totaled $50 billion but were still 2.1% below their 2008 peak tax collection levels. After adjusting for inflation, tax revenue collections show 6.2% decline in 2011 compared to 2008.
Sales tax collections were “above by an insignificant 0.3%,” the report said, which examined trends in state government tax collections based on data released by the Census Bureau last week.
“We have been seeing considerable softening in tax revenue collections in the first half of fiscal 2012,” said Lucy Dadayan, author of the report, adding that the fiscal 2011 growth is not sustainable over time. “The softening growth rate in state tax revenues combined with the growing spending pressures and widening gap between revenues and spending are clear signals that states have to address both short-term and long-term fiscal challenges.”
Thirty-two states reported total tax collections below 2008 peak levels. Only 17 reported taxes that were higher than previous peak levels. North Dakota was the only state where overall tax revenues showed continued growth, despite the recession. As the nation’s third-biggest oil-producing state, North Dakota’s coffers are overflowing and it has reaped the benefits of a recent oil boom, helping to keep their unemployment rate at 3.1%, well below the national average of 8.2%.
Over the last few years, state and local officials have taken drastic steps to slash spending and close massive budget deficits.
Still, for fiscal 2013, 30 states have projected shortfalls totaling $49 billion, according to the Center on Budget and Policy Priorities.
The CBPP says these shortfalls are even more daunting because states’ options for addressing the budget deficits have been dwindling over the past few years, such as the temporary aid to states through the American Recovery and Reinvestment Act of 2009.
“Overall, state tax revenues still have a long way to go before they fully recover from the deep declines caused by the Great Recession,” Dadayan said. “The extent of revenue recovery varies dramatically among the states.”
Of the 43 states with personal income taxes, 38 reported decreases in personal income tax collections in 2011 compared to their peak levels, with 18 states reporting double-digit declines, the Rockefeller report said. Only five states have seen increases in their personal income tax collections since 2008. Overall personal income tax grew by 9.8% compared to the previous year.
“Personal income tax collections have suffered the most persistent and widespread declines, despite strong growth in the last year or so,” Dadayan said.
Sales tax revenues grew by 8.2% in 2011 and 18 states reported collections that surpassed earlier peak revenues. These revenues were below their peak in 28 states, of which seven saw double-digit declines.
Nevertheless, 2011 was an improvement for tax revenues from 2010, the report said. The year-over-year growth rates in overall tax collections ranged from 0.4% in Hawaii to 44.5% in North Dakota. But as state revenues steadily grow, they aren’t fast enough to fully recover from the recession or meet ballooning education, pension, and health care obligations, experts said.