State Tax Revenues Experience Biggest Drop Since at Least 1963

The economy of the United States may finally be surfacing from a nearly two-year long recession (at least from a purely technical basis), but individual states continue to suffer mightily due to rapidly decreasing tax receipts.

The Nelson A. Rockefeller Institute of Government reported late last week that US state tax collections fell a mind-boggling 16.6% in the second quarter of 2009 compared to the same period last year.

According to the organization, this is the largest drop in quarterly tax revenues since "at least" 1963.

For all of fiscal 2009, state tax revenues dropped 8.2%, or $63 billion dollars. This, according to the Institute, is also a record.

A total of 49 states saw lower tax revenues in Q2 2009 compared to Q2 2008, with 36 of the 49 states reporting double-digit declines.

Vermont was the lone state in the union that saw its quarterly tax revenues increase compared to last year, as the state was able to post a 2.2% increase.

According to the Institute, things do not look as though they are improving short-term for many states. According to the report released late last week (link below), "preliminary figures for July and August for 36 early-reporting states show continued deterioration, with overall tax collections dropping 8%."

The report also goes on to say that Alaska has experienced the largest decline in tax revenues (36.8%) from its peak, while Wyoming and North Dakota haven't experienced any drop-off at all (in real dollars).

Florida, California and Arizona, three of the states that have been hardest hit in this recession, all experienced their peak in state tax revenues way back in 2006, at the height of the real estate bubble.

With the national unemployment rate expected to continue to tick higher into late 2010, many states will continue to experience a decline in tax revenues over the coming year or two. This will lead to continued budget gaps, which will result in more tough budget decisions for state governments.

Source: Nelson A. Rockefeller Institute of Government - State Taxes Across U.S. Take Second Consecutive Record Plunge

Photo: Rob Crawley

Filed under: The Economic Meltdown