Monday, July 18, 2011

2011 1H state tax revenues near nominal record, but stall in real terms

- by New Deal democrat

The Census Bureau has reported on state and local tax revenue collected in the first calendar quarter of 2011, and the Rockefeller Institute has also reported on preliminary collections from the second quarter.

The best data point is that combined state and local tax revenue collections in the first calendar quarter of 2011 set a record for first quarter collections, $321.6 Million, compared with previous record of $311.6 Million collected in the first calendar quarter of 2008.

Leaving aside local revenues, state tax revenues for the first calendar quarter were $179.8 Million, only $1.6 Million, or -0.9% less than the record $181.4 Million in first quarter 2008. As to the second calendar quarter of 2011, the Rockefeller Institute says:
Overall collections in 45 early reporting states showed growth of 12.5 percent in the April-May months of 2011 compared to the same months of 2010, and growth of 14.7 percent compared to the same months of 2009. With these figures, however, collections were still 8.9 percent below the April-May months of 2008..... While state tax collections are now strengthening, they have yet to fully make up for the deep losses brought by the Great Recession. We expect that milestone to be passed when we report more complete second quarter data later this summer.
(my emphasis)

Some other highlights from the Rockefeller Institute's report:
Total state tax revenue in the first quarter of 2011 increased by 9.3 percent relative to a year ago, before adjustments for inflation and legislated changes.... Despite gains in the last five quarters, however, collections are still ... 0.9 percent lower in the first quarter of 2011 compared to the same quarter of 2008. The decline is deeper if we adjust the numbers for inflation - 4.7 percent lower than three years ago in real terms....

Personal income tax revenue increased 12.8 percent in the January-March 2011 quarter compared to the same period in 2010.... [W]ithholding for the January - March 2011 quarter continued to improve for the fifth quarter in a row, increasing by 8.3 percent for the 40 states for which we have withholding data. Withholding for the same states was up by 13.8 percent compared to the January-March quarter of 2009....

State sales tax collections in the January-March 2011 quarter showed growth of 6.3 percent from the same quarter in 2010, but
were still down by 2.5 percent from the same period three years earlier.
This is all to the good. Local governments, by contrast, which rely heavily on property tax payments, are in worsening shape:
[T]he fiscal picture for local governments is quite different. The real, year-over-year decline in local taxes was an average of 0.6 percent over the last four quarters, compared to a 0.4 percent decline for the preceding year and 3.0 percent growth of two years ago. Inflation over the year, as measured by the gross domestic product deflator, was 1.6 percent. For most of the period during and after the last recession, local tax collections remained relatively strong. However, the trends are now shifting due in part to the lagged impact of falling housing prices on property tax collections.
Here is an updated graph of state tax revenues, seasonally adjusting by .775 for the second quarter (which includes April 15), beginning with the first fiscal quarter of 2008 (or the third calendar quarter of 2007) :

Fiscal QuarterRevenues* ($ billions)Inflation- adjusted Revenues% off of peak
1Q 2008176.4183.8-1.5%
2Q 2008178.7183.6-1.6%
3Q 2008181.4184.6-1.1%
4Q 2008240.8 (186.6)186.60
1Q 2009181.2179.9-3.6%
2Q 2009171.4176.2-5.6%
3Q 2009159.2162.7-12.8%
4Q 2009200.4(155.3)157.3-15.7%
1Q 2010160.5161.5-13.5%
2Q 2010164.6164.7-11.7%
3Q 2010163.3163.0-12.6%
4Q 2010204.5(158.5)158.8-14.9%
1Q 2011168.1167.2-10.4%
2Q 2011178.7175.5-5.9%
3Q 2011179.8174.2-6.7%
4Q 2011230.1(178.3) (p)*170.8(p)*-8.5%(p)*


In summary, while in nominal terms state tax revenues have made back almost their entire shortfall, measured in real terms they have stalled in the last several quarters. Meanwhile population has increased, and states have been facing record unemployment payouts. Local governments, which rely on property taxes, are suffering from decreased revenues as well as decreased aid from the states. In short, there has been improvement, but it still isn't enough.

The only silver lining here is that, with federal aid ended, any layoffs this summer and September are likely to be about the last due to budget constraints - unless high Oil prices and contractionary idiocy in Versailles bring on a double-dip.