State tax revenue rise slowest since mid-2010

Posted 3/19/12

ALBANY – U.S. state tax collections rose during the last three months of 2011 at the slowest pace in a year and a half, according to an analysis.

The Nelson A. Rockefeller Institute of Government said today that revenue rose 2.7 percent during the fourth quarter from a year earlier, the smallest increase since the three months ended June 2010. The figures compare with growth of 6.1 percent in the third quarter and 11 percent in the three-month period ended June 30.

State tax collections have risen for the past two years, easing pressure on governments struggling to erase budget deficits left in the wake of the 18-month recession. The last quarter’s tax data marks a retreat from a pace that couldn’t be sustained, said Robert Ward, who follows states for the Rockefeller Institute in Albany, N.Y.

“The recent softening is probably more in line with what we would expect given the state of the economy,” he said in a telephone interview. “The economy is recovering, and so are tax revenues, but there’s still a lot of weakness out there. It’s very much a mixed picture.”

The fourth-quarter growth was restrained by California, where collections slipped 8.9 percent from a year before, while Illinois’s revenue jumped 24 percent. Both were the result of tax-law changes, the institute said. Without those two states, taxes would have grown 4.4 percent.

Among the biggest gainers were Connecticut, North Dakota and Arizona. States with declines included Massachusetts, New Hampshire, Louisiana and Utah.

Rhode Island recorded a 4.8 percent total gain during the fourth quarter of 2011. Private income tax and sales tax in the Ocean State were up 2.2 percent and 7.8 percent, respectively, from the three months ended Sept. 30, while corporate income tax revenue dropped 6.2 percent.

“If the consensus forecast for the economy is correct, states should probably not expect dramatic growth in revenues over the next year or two,” Ward said. “We know a lot has been done to bring budgets back into balance. Clearly there’s more in that area to be done.”

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