US state revenue fell in '09, spending didn't: Census

WASHINGTON (Reuters) - Total revenues of U.S. state governments plunged almost 31 percent in 2009 as the country’s deepest recession in 80 years took hold, but state spending accelerated, according to U.S. Census data out on Wednesday.

The decrease underscored the big budget holes many states continue to face as revenue remained lethargic in 2010.

Total state government revenue dropped 30.8 percent from 2008 to $1.1 trillion in 2009, the latest year for which data is available and the last year before the decennial census was completed.

Much of the decline was caused by drops in social insurance trust revenue, which are funds providing money for programs such as unemployment compensation and public employees’ retirement, the Census said.

Total taxes collected in 2009 fell 8.5 percent from the previous year to $715.1 billion. The Census said it was the first year-on-year decline in tax revenue since 2002.

As revenues fell in 2009, states continued to spend. Billions of dollars from the federal stimulus plan passed early in the year buoyed budgets and prevented some cuts to education and public welfare programs.

Within weeks of taking office in 2009, President Barack Obama worked with the U.S. Congress to pass an $814 billion economic stimulus plan of tax and spending measures that included the largest transfer of federal funds to states in U.S. history.

Supporters of the American Recovery and Reinvestment Act said the plan could only stimulate the economy if money was distributed and spent quickly.

The Census data shows that states received the transfers almost immediately, with total federal grants to states increasing 12.9 percent in 2009 to $477.7 billion.

Much of the stimulus money was funneled to states by bulking up federal grants for welfare programs, such as unemployment insurance. The Census said that in 2009, those grants rose 16.3 percent from 2008. That was four times the increases in grants in the previous two years.

Now that the stimulus is winding down, states are concerned about making up for the slack, saying they spent more because of the plan. Increased federal aid may be cut off but demand for higher spending on social programs remains, they say.

Total state spending in 2009 rose 3 percent over 2008, mostly on education, welfare, and health.

In 15 states, education represented more than 40 percent of total spending, led by Georgia, where it made up 46.1 percent of all expenditures. In 11 states, spending on public welfare represented greater than 30 percent and Minnesota had the highest proportion at 37.5 percent.

The Census said Alaska had the highest percentage of spending for highways at 13.5 percent, and spending on public health was the highest in Hawaii at 12.3 percent.

Reporting by Lisa Lambert; Editing by Andrew Hay