State Revenues Took Biggest Hit On Record During First Quarter

Some devastating analysis from the Rockefeller institute (pdf) shows how bad the situation of many  states is:

State tax collections for the firstquarter of 2009 showed a drop of 11.7 percent, the sharpest decline in the 46 years for which quarterly data are available. Combining the Census Bureau’s quarterly data with its annual statistical series, which extends back to 1952, the most recent decline in state tax revenues was the worst on record.

While almost all taxes (except property taxes) are showing a big decline, income taxes are notably declining:

The personal income tax decline was particularly sharp, an unprecedented 17.5 percent in nominal terms. The inflation-adjusted decline in state personal income taxes was the greatest in the 46 years for which quarterly data are available.

But that was the first quarter!  Well, the second quarter isn’t looking better:

Early figures for April and May of 2009 show an overall decline of nearly 20 percent for total taxes, a further dramatic worsening of fiscal conditions nationwide. Preliminary figures for the state fiscal year 2009 indicate around 8 percent decline in total taxes, 13 percent in personal income taxes, and 5 percent in sales taxes.

There is one spot of good news, however:

The local tax slowdown has been less pronounced than the state tax slowdown. In the first quarter of 2009, local tax collections rose by 3.9 percent, driven by 7.4 percent growth in property taxes.

Even this, however, has a grey lining—property taxes are still based on older valuations which are no longer accurate in most municipalities.  People are paying property taxes for more than their properties are worth, and given that many are suffering from large income declines (or there wouldn’t be the huge decline in income tax), this means many are paying more than they can afford.  This is also a lagging measure, and as properties are revalued we can expect this number to start to decline.

Sales taxes are also down a wopping inflation adjusted 9.5%, also the worst on record (the previous worse being the third quarter of 91 at 6.9%.

This downturn, then, has put a massive hurt on States.  California is the worst off, followed by New York, but most are hurting.

There are some where taxes are up: Maryland, Indiana, Iowa, North and South Dakota, Arkansas , Kentucky, Alaska, Montana and Oregon.  Everyone else is down.E

The results of state cuts to services, which are happening and will continue to happen, will be devestating.   In an economic downturn government needs to increase spending to offset the fact that private spending is down.  If government does not do so, especially in a severe downturn (I think we can agree this on is) it risks making the recession or depression even worse.  This is why, next to making 40% of the federal stimulus bill tax cuts, cutting aid to the states was the stupidest part (or rather, not part) of the bill.

California, in its budget “compromise” took 4 to 5 billion from the munipalities (since their tax base is doing better than the state’s) and cut 6 billion from education.  While other states cuts will not be as brutal (and other states can raise taxes, unlike California, thanks to its completely dysfunctional proposition and majority requirements) they will still be ugly, and will both deepen and lengthen the recession.

This is your government on conservative ideology: push key spending down to states, which can’t tax or borrow the way the federal government can; insist on tax cuts over real stimulus, and then wonder why the stimulus doesn’t work.  None of this is unpredicted, at the time of the stimulus cuts economists said the state relief was one of the most important parts of any good bill.

What we got wasn’t a good bill, and the consequences will continue to pour in.  Dysfunctional states plus a dysfunctional federal government, plus conservative ideology equals devestating cuts on services people need most during a downturn, and which the economy needs most.