Senior Vice President for State Fiscal Policy
Data on state tax revenues that the Census Bureau released this morning remind us how devastating the recession has been for states’ ability to fund public services — and how important it is that states are closing their shortfalls in part through new revenues, as my colleague Jon Shure noted Friday.
The new data show that revenues in the April-June quarter of 2010 were basically flat compared to the same quarter last year. Revenues rose just nine-tenths of 1 percent over 2009 levels, less than the rate of inflation. For the 12-month period ending in June 2010, revenues were 13 percent below pre-recession levels, after adjusting for inflation.
The April-June quarter is the most important period for state tax collections, because that’s when most income tax bills come due. Unfortunately for states, income tax collections for the quarter were below 2009 levels. Sales taxes — the other main source of revenue for states — were slightly above 2009 levels but remain far below 2008 levels.
No one knows when state revenues will recover, but it will certainly be years from now.
State tax revenues pay for K-12 and higher education, health care, transportation, and public safety. While the amount of money that states have to fund these services has fallen steeply in the recession, the number of people whom states are trying to serve has grown. States have more kids in public schools, for instance, and more people receiving health coverage through Medicaid — due both to normal population growth and to families’ loss of jobs and income in the recession.
Bad as things are, they could have been worse. State revenues would have been even lower, and the cuts to services deeper, if states from Maryland to Oregon had not taken the politically difficult but economically necessary steps of raising tax rates and eliminating unproductive tax breaks.
Caught between shrinking resources and growing needs, most states have opted for a balanced approach that includes new revenues — instead of relying only on cuts in services. The latest revenue figures drive home the reality that the crisis states face was caused by a collapse in revenues, not overspending.