Slow revenue growth continues to dog US states-Rockefeller

WASHINGTON Tue Feb 5, 2013 12:06pm EST

WASHINGTON Feb 5 (Reuters) - Revenue growth for U.S. states in the third quarter of 2012 was likely slower than the U.S. Census reported and softer than in previous quarters, the Rockefeller Institute of Government said on Tuesday.

Overall state tax revenues increased 2.7 percent from the same quarter in 2011, Rockefeller said, slightly below the 2.9 percent the U.S. Census Bureau estimated in December. Income taxes grew 5 percent and sales taxes 2.7 percent, while corporate income tax rose 2.8 percent.

"Despite increases over eleven quarters - nearly three years of continual gains - overall tax collections are still comparatively weak by recent historical standards," Rockefeller said in a special report.

As taxpayers bit their nails over the possibility that the so-called "fiscal cliff" would bring about massive federal tax increases in 2013, they sold investments and took other steps to shift the bulk of all their tax liabilities into 2012. That means the fourth quarter likely showed an increase in state and local revenues, Rockefeller said.

The New York-based research group found that 11 states registered revenue declines during the third quarter of 2012 while four had increases in the double digits. States in the southwestern and Rocky Mountain regions showed some of the largest gains, with New Mexico's revenues rising 14.9 percent, Texas' up 11 percent and Colorado's gaining 8 percent.

The 2007-09 recession caused states' revenues to plummet to lows not seen in decades over the course of five quarters. That forced almost all states to make emergency spending cuts, raise taxes, borrow and turn to the federal government for help just as the newly jobless and homeless increased demand for their services.

States are eager for their revenues to return to the peaks they reached before the recession, and, in total, tax revenues are now above those highs. Still, Rockefeller noted that at the end of fiscal 2012, 22 states had tax collections below peak levels. For most states fiscal 2012 ended in June.

Meanwhile, local governments continue to suffer from low revenues that are only slowly improving.

"Local tax collections have been relatively weak by historical standards over the last three years due in part to the lagged impact of falling housing prices on property tax collections," Rockefeller said, noting the impact of property assessments, which are slow to change.

The institute found that for the last four quarters, local taxes averaged year-on-year growth of 2.6 percent, compared with the 4.6 percent decline the previous year.