Revenue rising in most states: report

WASHINGTON (Reuters) - Revenues are rising in most U.S. states but it may take years to undo the damage caused by last year’s enormous collapse in tax collections.

“State officials have anxiously awaited this turnaround for months or, in some cases, years,” said a report released on Wednesday by the National Conference of State Legislatures. “Now they are waiting to see if the economy will sustain this nascent revenue growth.”

Fiscal 2010 was likely the “trough for state revenues,” the group representing state legislators said. For most states fiscal 2010 ended on June 30.

Still, the growth will be minor, especially after last year’s drop in state revenue that was the worst in two decades.

The NCSL found that 17 states expect fiscal 2011 total tax collections to rise by at least 5 percent, but only Colorado, Oregon and Washington expect growth to exceed 10 percent, and each of those states raised taxes, NCSL said.

In 23 states, tax collections are expected to increase between 1 and 4.5 percent. Six states, including Michigan, which was one of the states hit by hardest by the recession, they are projected to be “essentially flat.”

Alaska, one of the few states that has weathered the recession that began at the end of 2007, expects its revenue to drop 6 percent due to declines in oil-related taxes.

Personal income tax collections, which represent a little more than a third of total sate tax collections, will likely grow in 35 states, NCSL said.

Only 28 states have forecasts that go beyond fiscal 2011, and 11 of them expect collections to grow 5 percent in fiscal 2012.

States have a long climb back to economic security.

“State revenue collections consistently underperformed forecasts throughout the recession, and they continued to struggle even after the recession ended,” NCSL said.

The longest and deepest economic downturn in the United States since World War Two officially ended in June 2009.

“During the recession -- which lasted about 18 months -- even pessimistic forecasts were missed. This widened the gap between spending needs and available revenues,” the report said, adding that collective budget gaps resulting from the recession likely will total $530 million.

All states except Vermont must by law close their budget gaps.

The NCSL report comes the same week the U.S. Census reported that state and local tax revenue increased in the second quarter of 2010 from the same period a year ago.

Reporting by Lisa Lambert; Editing by James Dalgleish