Housing slump damages state revenue: report

WASHINGTON (Reuters) - The U.S. housing slump has damaged many states' revenue streams, leaving some with shortfalls and worries about funding education and health care, according to a report released by the National Conference of State Legislators on Monday.

Legislative fiscal directors from 24 states said their states' revenue was affected last quarter by the housing market's plummet. Florida reported the slowdown directly or indirectly hurt all of the state's major revenue sources.

Local governments generally collect property taxes, but states can levy related charges such as mortgage taxes. More than 12 states and Puerto Rico had declines in real estate transfer and recording taxes, according to the survey, which was conducted in November and covered the first four months of fiscal 2008 for most states.

"Many states anticipated a slowdown in this revenue source, but the drop is even higher than expected," the report said.

The overall revenue picture was mixed with some states, particularly in the west or Midwest, raising their fiscal 2008 forecasts, while others, most notably California, Florida and New York, lowering theirs. Florida has dropped its general fund estimate by $2.1 billion since August.

"Although early warning signs do not portend immediate bad news, concerns for current year budgets are mounting with even greater concern for some states in (fiscal) 2009," the report said. "If the economy takes a turn for the worse, state finances undoubtedly will decline from the situation reported here."

Last week's report from the National Governors Association and National Association of State Budget Officers reached the same conclusion.

Only nine states had optimistic revenue outlooks for the rest of their fiscal year, compared to 16 states that had positive expectations in November 2006, according to the survey. Nearly 20 states expressed concerns about revenue, compared to just six last year.

In Arizona for example, overall tax collections were 7.3 percent below the state's forecast, according to the NCSL report.

Surpluses from past years' revenue surges may help those states that built up a financial cushion, NCSL said.

Meanwhile perennial spending pressures like Medicaid, the federal and state-funded health care program, remained.

Education was also a burden, according to the report. California may have to make up for some education funding shortfalls, while Connecticut and Kansas must cover swelling special education costs.

(Reporting by Lisa Lambert; Editing by James Dalgleish)