June 7, 2012 / 4:12 PM / in 6 years

State revenues still growing, albeit slowly

(Reuters) - Revenue for state governments trudged higher in the first quarter of 2012, according to a report released on Thursday that noted the growth in state tax collections has been softening for nearly a year.

“Overall, state tax revenues are showing improvement, though the pace of growth continues to slow from its peak in the second quarter of 2011,” the Rockefeller Institute of Government, which closely monitors states’ fiscal health, reported.

Total state tax revenues grew 4.1 percent in the first quarter of 2012 from the same quarter of 2011. In the previous quarter, they grew a slim 3.6 percent year over year. That compares to the second quarter of 2011, when they climbed 11.1 percent from the year before.

Many states begin their new budget years July 1, and they are eager for signs of strong revenues. During the 2007-09 recession, revenues collapsed for five straight quarters, reaching lows not seen in decades. In the second quarter of 2009 alone, they plummeted 16.3 percent, Rockefeller records show.

Because all states except Vermont must end their fiscal years with balanced budgets, lawmakers rushed to cut spending, temporarily raise taxes and tap the federal government for help.

Revenues have now grown for nine consecutive quarters, but the growth has slowed in the last three. That leaves state lawmakers worried they will not recover fast enough to cover high demand for services such as healthcare and the hole left by dwindling federal aid. As emergency tax hikes expire, states are also worried they will not be able to address possible economic threats like a spike in unemployment or the crisis in Europe.

Among 47 states for which data is available, 41 reported gains in tax revenues during the first quarter of the year, according to Rockefeller. Seven said they had double-digit growth in tax collections.

Six reported declines: New York, Wisconsin, West Virginia, Montana, California and Oregon. Of those, California had the largest drop, largely due to the expiration of temporary tax increases.

“Personal income taxes showed a growth of 3.2 percent, a considerable slowdown from the second and third quarters of 2011, when year-over-year growth was 17.1 and 10.3 percent respectively,” Rockefeller found.

Personal income taxes are a major revenue source for the states that charge them. State sales taxes were up 5 percent and corporate income taxes 2.2 percent in the first quarter, the institute said.

Reporting By Lisa Lambert; Editing by David Gregorio

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