(Repeats to fix dropped letter in first sentence)
By Lisa Lambert
WASHINGTON, April 19 (Reuters) - The financial picture of U.S. states brightened further early this year as revenue collections grew, but at the local level it remained dim, largely due to the continuing effects of the housing bust, according to data from an independent research group released on Tuesday.
Overall state collections increased 9.5 percent in January and February from the same months the year before, according to the Rockefeller Institute’s preliminary data.
Those gains followed a 7.8 percent increase in state tax revenues in the fourth quarter of 2010 from the final quarter of 2009, the institute said.
But a different story is playing out on the local level. Tax collections of cities and counties fell by 2.3 percent in the fourth quarter of 2010 from the last quarter of 2009.
The decrease was almost entirely due to falling property taxes, a key revenue source for local governments. Property taxes made up 85 percent of local revenues in the fourth quarter of 2010, according to the institute.
For local governments, the housing bust that began more than three years ago has hit like a slow-moving avalanche.
While the slump quickly pushed down property values, there can be as much as a three-year lag in tax assessment of properties. That means the crisis only started affecting many local governments’ coffers in the last year.
The drop comes at a time when many cities and counties are struggling to balance their books and keep funding essential services, such as police forces.
Assistance from the federal economic stimulus plan is ending just as states, also mired in persistent budget woes, have begun cutting their aid to local governments.
Last month, the U.S. Census said that state and local revenues were 2 percent higher in the 2010 fourth quarter than in the final quarter of 2009. By contract, property tax revenues dropped 3 percent over the year. (Reporting by Lisa Lambert; edit by Leslie Adler)