Revenue rises for 2nd quarter in U.S. states: report

WASHINGTON (Reuters) - The decline in U.S. state revenue may be ending, the Rockefeller Institute of Government said on Tuesday, although it warned that states' fiscal conditions remain fragile.

The independent research group based in New York said for the second straight quarter the revenue of states grew -- by 2.3 percent in the second quarter of 2010 -- and that could be enough to reverse the trend set by 20 months of declines.

"After record revenue declines in calendar 2009, and with spending trendlines still pointing upward, the fiscal conditions of the states remain quite fragile," said the authors of Rockefeller's report, Lucy Dadayan and Donald J. Boyd, in a statement.

"While some economic indicators signal some improvement in overall economic conditions, fiscal recovery for the states typically lags a national economic turnaround and is likely to take several years," they added.

The institute, which closely tracks state economies, found 34 states reported gains in revenue during the second quarter, with 12 showing double-digit growth.

For all of fiscal 2010, which ended on June 30 for most states, overall tax collections declined from the previous year and remain below pre-recession levels. The longest and deepest economic recession since World War Two began at the end of 2007 and ended last summer.

Fiscal 2010 tax collections declined by $19 billion, or 2.7 percent, from the preceding year, Rockefeller said.

The weakness is apparent in sales tax collections, one of the largest revenue generators for states.

Sales taxes during April-June quarter experienced the largest year-over-year gain since the third quarter of 2006. But sales tax revenue was still down 4.2 percent from the same period in 2008, Rockefeller said.

All states except Vermont must end their fiscal years with balanced budgets, and after the recession ate away at state revenue for five-straight quarters, many had to slash spending in order to make ends meet.

Some also turned to tax increases. Part of the revenue growth in the second three months of 2010 came from tax changes, Rockefeller said. California, New York, Massachusetts, North Carolina and other states added an estimated $4.9 billion to overall revenue during the second quarter by raising taxes.

The revenue growth streak may be continuing, with Rockefeller saying that preliminary data for July and August suggesting revenue gained in third quarter as well.

There are other hints of continuing strength. Two weeks ago, the National Conference of State Legislatures said fiscal 2010 was likely the "trough for state revenues" and some states expect growth in the current fiscal year.

A recent Census report showed taxes collected by both state and local governments grew to $318.15 billion in the second quarter of 2010 from $312.84 billion in the same period in 2009.

Still, if revenue does not reach pre-recession levels governors and state legislators -- many of whom will be new to their offices after next month's elections -- will have to make more spending cuts and tax decisions in the coming year, the Rockefeller report said.

(Reporting by Lisa Lambert; Editing by Neil Stempleman)