State Tax Revenue increased nominally, flat in real terms as of 3Q 2011

- by New Deal democrat

With the temporary lull in dramatic (US) economic direction, I have been updating a number of metrics I haven't looked at in awhile. Two weeks ago, I looked at leading indicators for jobs. Last week I examined real wages and the savings rate.

This week I'm revisiting state tax receipts. These lag the economy, and reports on state tax receipts badly lag even that. Because I knew they would turn up after the other data already had, I used to pillory Mish about sales tax receipts in particular. Needless to say, Mish, who used to religiously report these, stopped after they unequivocally turned against him. With last summer's near stall, however, in real terms these seem to have stalled as well as of the most recent (summer) reported data.

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

According to the Rockefeller Institute report:

State tax revenues grew by 10.8 percent in the second quarter of 2011, and by 8.4 percent annually for the period that ended the fiscal year for 46 states -- marking six straight quarters of growth and the strongest annual gains since 2005, ....

[E]very state but one (New Hampshire) reported an increase in overall tax collections compared to the year-ago period ....

[Further, p]reliminary figures for July and August 2011 suggest continued, though less robust, growth in revenues. Overall collections in 41 early-reporting states showed average gains of 6.8 percent compared to the same months of 2010.

....
Even for states, the longer term revenue picture remains mixed. Despite the recent gains, states' tax revenues remained lower in the second quarter than they were four years earlier.

Local governments, which rely heavily on property tax payments, are in worsening shape:

Tax collections for local governments, meanwhile, have headed in the opposite direction. The second quarter of 2011 marked the third consecutive quarter of declines in local property tax revenues. In total, local property taxes declined by 1 percent in the second quarter of 2011 compared to the same quarter of 2010.

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 Quarter	Revenues* ($ billions)	Inflation- adjusted Revenues	% off of peak
1Q 2008	176.4	183.8	-1.5%
2Q 2008	178.7	183.6	-1.6%
3Q 2008	181.4	184.6	-1.1%
4Q 2008	240.8 (186.6)	186.6	0
1Q 2009	181.2	179.9	-3.6%
2Q 2009	171.4	176.2	-5.6%
3Q 2009	159.2	162.7	-12.8%
4Q 2009	201.4 (156.1)	158.1	- 15.3%
1Q 2010	161.4	162.4	- 13.0%
2Q 2010	166.1	166.2	- 10.9%
3Q 2010	164.5	164.2	- 12.0%
4Q 2010	205.3 (159.1)	159.4	- 14.6%
1Q 2011	168.7	167.8	- 10.1%
2Q 2011	178.8	175.6	- 5.9%
3Q 2011	180.2	174.6	- 6.4%
4Q 2011	226.0(175.2)	167.8	-10.1%
1Q 2012	180.2 (p*)	171.6 (p*)	-8.1%(p)*

(p*=preliminary)

In summary, while in nominal terms state tax revenues have made back all but less than 4% of their entire shortfall off peak pre-recession revenues, measured in real terms they have stalled in the last several quarters. Meanwhile population has increased, and states have been facing record unemployment payouts. As I've said before, while there has been strong improvement, it still hasn't been enough.

Even worse, local governments, which rely on property taxes, are suffering from decreased revenues as well as decreased aid from the states.

If ECRI's prediction of another recession in the immediate future does turn out to be true, it is going to be brutal for state and local governments.

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 Quarter	Revenues* ($ billions)	Inflation- adjusted Revenues	% off of peak
1Q 2008	176.4	183.8	-1.5%
2Q 2008	178.7	183.6	-1.6%
3Q 2008	181.4	184.6	-1.1%
4Q 2008	240.8 (186.6)	186.6	0
1Q 2009	181.2	179.9	-3.6%
2Q 2009	171.4	176.2	-5.6%
3Q 2009	159.2	162.7	-12.8%
4Q 2009	200.4(155.3)	157.3	-15.7%
1Q 2010	160.5	161.5	-13.5%
2Q 2010	164.6	164.7	-11.7%
3Q 2010	163.3	163.0	-12.6%
4Q 2010	204.5(158.5)	158.8	-14.9%
1Q 2011	168.1	167.2	-10.4%
2Q 2011	178.7	175.5	-5.9%
3Q 2011	179.8	174.2	-6.7%
4Q 2011	230.1(178.3) (p)*	170.8(p)*	-8.5%(p)*

(p*=preliminary)

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.

State Revenues continue to surprise positively - and it's still not enough

- by New Deal democrat

Most state budgetary years run from June 30 to June 30, so we are rapidly approaching the moment of truth where we find out how badly states are harmed by the ending of federal assistance. Two months ago when I last looked at this issue, we only had data through the end of last year. It appeared that state budgetary problems, while bad, would not be quite as bad as originally feared. Now we have the final data through last December, preliminary data for the first quarter of this year, and at least some raw information about April. So let's revisit the situation.

The Rockefeller Institute released its quarterly report one month ago, saying:

State tax revenues grew by 7.8 percent in the fourth quarter of 2010, compared to the fourth quarter of 2009, according to Rockefeller Institute research and Census Bureau data. This is the fourth consecutive quarter that states reported growth in collections on a year-over-year basis. Forty-two states reported tax revenue growth during the fourth quarter, with nine showing double-digit growth.
Preliminary figures for January and February 2011 indicate further strength in state tax revenues this year. Overall collections in 45 early-reporting states showed growth of 9.5 percent compared to the same months of 2010, and 7.5 percent compared to the same months of 2009.

Based on the seasonally and inflation adjusted chart of real state revenues I prepared for my last article, which showed the first calendar quarter of last year 12.6% off the peak, and two years ago 12.8% off the peak, the January - March quarter of this year was around 3.1% to 5.3% below state revenues' April - June 2008 peak.

Newspaper articles from the last month strongly suggest that the positive surprise in revenue growth continues.

For example, in Kentucky,

The office of the state budget director reported ... that April's General Fund tax revenue grew by nearly 8 percent compared to year ago figures. That means total revenues for the month were $844 million - compared to $782 million in April 2010. Tax receipts have grown 5.6 percent for the first 10 months of the current fiscal year.
....
Road Fund tax revenues for April were $116 million, a 7.6 percent increase over April 2010 figures. Year-to-date tax receipts for fiscal year 2011 have increased by nearly 12 percent over last year.

“We are seeing improvement in the major taxes," Lassiter said. "The most recent interim outlook predicts collections to exceed the official estimate by approximately $95.7 million

In California,

State officials are reporting an unexpected $2-billion surge in tax receipts that will help lawmakers close the remaining $15-billion budget deficit, and the Capitol is humming with hope that more is coming.

In Massachusetts.

The Commonwealth of Massachusetts hauled in April tax receipts that were $580 million above expected estimates, according to a Massachusetts Department of Revenue announcement today.
....
Collections for April 2011 totaled $2.505 billion, up 43.4 percent from the same period last year.

In New Jersey,

David J. Rosen, chief budget officer for the nonpartisan Office of Legislative Services (OLS), told the Assembly Budget Committee yesterday morning that state tax revenues would be $913 million higher than Gov. Chris Christie anticipated in his March budget message. The surplus, he explained, comes courtesy of a huge two-year surge in income tax revenues, which would more than make up for a decline in corporate tax revenues in fiscal years 2011 and 2012.

In Nebraska,

economic forecasters on Thursday said they see improvements in the state's economy.
And they made their optimism official, projecting an increase in the overall amount of revenue the state will bring in the rest of this year and in the 2011-13 budget years.

Some of the board's positive outlook came from what the state Department of Revenue said it has seen since April 18 in individual income tax growth.

But there are other defining factors that the six members of the Nebraska Economic Forecasting Advisory Board considered in projecting an $82.5 million increase in revenue for this fiscal year, and a $146.5 million net gain to the state's bottom line in the two years after.

Even in Texas,

Lawmakers will have an additional $1.2 billion to spend during the next two years, Comptroller Susan Combs told state leaders Tuesday.
The revised revenue estimate will ease pressure on legislators working to craft a budget compromise before the session adjourns May 30. But it’s not nearly enough to eliminate dramatic cuts and layoffs across all levels of state government caused by a revenue shortfall that was initially projected to be $15 billion — or $27 billion when calculating the costs of maintaining services for a growing population.

Most of the higher revenue estimate comes from a dramatic rise in sales tax receipts during the past year. The high price of oil also has helped fill the state coffers.

Rather than simply parrot secondhand accounts, here is a chart of how April 2011 general fund revenues compared with one year ago and the peak three years ago for eight specific states I began following in 2009:

State	Revenue April 2011	Revenue April 2010	% Difference	Revenue April 2008	% Difference
New York	6,948.4	5,341.6	+30.1%	8,782.2	-20.9%
Indiana	1,673.3	1,684.7	-0.4%	1,961.4	-14.7%
Tennessee	1,264.2	1,243.0	+1.7%	1391.9	-9.2%
Alabama	827.6	682.0	+21.3%	840.7	-1.6%
Georgia	1,371.7	1,340.5	+2.3%	1,761.2	-22.1%
California	10,355.8	10,100.4	+2.5%	16,231.9	-36.2%
Florida	2,612.2	2,516.6	+3.7%	2,358.5	+10.8%
Ohio	2,342.9*	1,988.2*	+17.8%	not available	n/a

[*Unlike the other states, Ohio includes federal budget assistance in revenues statements. For purposes of consistency, these have been subtracted.]

The bottom line: state tax revenues continue to surprise to the upside. But it still won't be enough to avoid some real financial spending crises in a few particularly hard-hit states such as California and New York, where steep declines in personal income tax collections are responsible for almost the entire shortfall compared with 2008. Florida's gain over 2008 is no error - it has no personal income tax.

State Tax Revenues improving -- but not enough (w/ update)

- by New Deal democrat

In terms of the normal progression of leading/coincident/lagging data, the Great Recession and the recovery thereafter have almost completely given the lie to the proposition that "it's different this time." But one thing that has been different about this recovery, and has had a very important effect on the generation of jobs, was the abysmal failure of the Congress to extend further aid to the states. Faced with nearly a 20% decline in revenues since the peak of the economy, the "50 little Hoovers" that Paul Krugman has mentioned so often had little choice but to cut into sinew and bone to come up with balanced budgets. To visualize the difference this has made in the jobs recovery, here is a graph of job growth since the bottom last December, in private industry (blue) vs. government (green) and the composite nonfarm payrolls (red).



While the census added and then subtracted 500,000 jobs between February and September, its net affect was zero. Thus the loss of 250,000 government jobs this year is real, and its effect on overall job growth is obvious.

One important question is, whether there is further bloodletting in store for the states, or have their budget woes hit bottom? The Rockefeller Institute reported several months back that overall state tax revenues probably bottomed out at the end of the first quarter or beginning of the second quarter this calendar year. But a crucial test - the holiday season - is upon us. The Tax Foundation reports, citing the Rockefeller Institute, that

November and December are the crucial months for state sales tax collections, which make up a third of state revenues.

Although the Rockefeller Institute has yet to report on third quarter state tax revenues (not just sales tax, but personal and corporate income taxes, and other miscellaneous taxes), the following report by Stateline (a nonprofit, nonpartisan online news site funded by the Pew Foundation that reports on state issues) suggests that the improvement in state tax revenues won't be able to make up for continuing shortfalls even next summer:

[S]tate officials are reporting steady although modest gains in monthly tax collections, a sign that the nascent economic recovery is gaining strength after three years of plunging sales tax revenues that decimated state budgets.

In recent days, officials in 27 states have said that year-over-year monthly revenues are increasing and some are forecasting a rise in tax receipts in state budgets for the fiscal year that begins July 1.... Improved sales tax receipts are leading the revenue recovery in most states.... Corporate tax revenue also is up in many states, consistent with the rise in business profits nationally. ...

Still, there is a flip side to [states'] recovering revenue picture that puts the situation in all states in perspective. [States] may appear to have ... extra cash next year, but most of that will be needed to make up for the loss of federal stimulus money and mounting Medicaid and public pension costs....

Most states do not have surplus revenues, which means they will have to cut spending, raise taxes, borrow or tap reserves to balance their budgets for the fiscal year that begins July 1. NCSL is projecting that states will have a total of $72 billion in budget gaps in 2012.... Many states with revenue increases still are confronting huge budget shortfalls that guarantee years of fiscal turmoil. [For example,] California may have escalating sales tax receipts, but its budget shortfall will exceed $25 billion for the fiscal year starting July 1....

In other words, if Stateline's report is correct, it appears that the combination of the total expiration of federal government assistance (a given at this point), mounting costs, and the ending of one-off tax gimmicks mean that the states (and in particular California) are likely to need to make further cuts next summer, a very depressing prospect, even if the level of those cuts are nowhere near what has been necessary in the last year.

UPDATE: As if they were reading my mind, the Rockefeller Institute released their preliminary report for the third calendar quarter of 2010 today. From their news release:

Tax collections increased by 3.9 percent in the third quarter of 2010, compared to the same period a year earlier, based on data from 48 states. Of states reporting, 42 showed gains in overall tax revenues. Collections improved for the two largest revenue sources — personal income and sales taxes — while corporate income tax revenues declined slightly.

The growth in overall collections is partly driven by new tax laws in several states, but is also due to a slowly recovering economy, according to report authors Lucy Dadayan and Donald Boyd. Yet they cautioned that difficult times for states’ fiscal conditions have not ended.

“The state tax revenue picture in the first three quarters of calendar year 2010 represented significant improvement from the collapse of the preceding quarters,” they write. “Still, the immediate outlook is for revenue collections significantly below prerecession levels, and growing spending pressures. The overall picture remains: States will face continued, significant budget challenges in fiscal 2011 and beyond.”

The full report notes that total state tax revenues were 7.0% below the third quarter of 2008 - which was the last quarter of YoY growth. Since the Rockefeller Institute only gives YoY figures and does not attempt seasonal adjustments, it is impossible to know absolute, seasonally adjusted or even annual numbers, but my best back of the envelope estimate is that with this quarter, state sales taxes have made up about half of their percentage shortfall from peak.

Mish has lost all credibility re State Sales Tax Receipts

- by New Deal democrat

I last blogged about Mish's accidental bottom ticking in early July, saying that The Emperor of Doom wears no Clothes, shredding his claim that retail sales gains were a mirage because, allegedly, state sales tax returns were still declining. Here's what he said then:

Month in and month out we hear the same nonsense about retail sales. I will believe it when I see state sales tax collections support the claims.
....
states have been reporting declining sales tax collections for the entire year.

Unfortunately for Mish's claim, checking state sales tax collection reports showed that in the second quarter almost all of them were increasing!

In rebuttal to a comment our reader Constant Learner attempted to leave on his blog, Mish cited an article from July 2009 w/r/t tax increases in many states that rose earlier in 2009. Any of those increases already in effect in May 2009 are equally applicable to both years and support the data I cited. He also cited a California article that references the many tax increases that took place beginning in April 2009. Again these are applicable to both years and so support my point.

Well, as Bonddad reported earlier this week, the Rockefeller Institute came out with its initial report on second quarter state revenues. Mish duly quoted them as follows (my emphasis):

Sales tax collections increased by 5.9 percent in the second quarter of 2010 compared to the same quarter of 2009, but were still 5.4 percent lower than two years ago. With 42 of 45 sales-tax states reporting so far, only seven states reported declines in sales tax collections compared with the same quarter last year.

To which Mish replied (without any reference to supporting data):

Much of the improvement in sales taxes is a result of tax hikes, not increased sales. Those effects will soon wear off in year-over-year comparisons

Note btw that Mish doesn't say tax increases are responsible for all of the improvement, just an undefined "much" of it.

So let's review:

1. Mish says that "I will believe [increases in retail sales data] when I see state sales tax collections support the claims."
2. The Rockefeller Institute reports that sales tax collections increased.
3. Mish discounts the Rockefeller Institute report, without citation to contrary data.

Mish has lost all credibility when it comes to state sales tax receipts.

And by the way, contrary to his last sentence, July state sales tax receipts don't help him out either. Here they are:

New York:
sales tax receipts up 7.7%
total tax receipts up 6.8%

Indiana
Indiana up 10% YoY in June

Texas:
Texas up 7.6% YoY

Tennessee"
Tennessee July up 5.94% YoY

Alabama
Alabama up 1.31%

Georgia:
Georgia up 2.4%
4.7% total tax revenues

California:
Calif up 1.2% YoY June (UPDATE: July up almost 20%)

Florida:
FL up 2.6% YoY in July

Ohio:
Ohio up 9.6% in July

New Jersey's data was unavailable.

Since both of the articles Mish cited two months ago dealt with tax increases that predated the second half of 2009, they don't apply, as previous tax hikes wouldn't affect YoY July numbers. I eagerly await Mish's attempt to discover tax hikes in those states that occurred after last July.