State revenues lag in fourth quarter

With state tax revenues at their weakest in almost five years, it is déjà vu for state budget makers who've seen hard times before.

Tax revenues that states collected in fourth quarter 2007 grew only 2.3 percent compared to the same period in 2006, while the cost for state and local government services continued to rise, according to a report released today by the Rockefeller Institute of Government.

Factoring in the effects of inflation and enacted tax changes, state tax revenues nationwide decreased by 4.3 percent during the quarter.

"States are experiencing a classic nutcracker effect: Costs are rising sharply just as revenues falter," said Robert Ward, deputy director of the institute and the report's co-author. "The result may be a squeeze on states' ability to fund services."

The drop in state tax revenue also means fewer discretionary dollars to fund technology projects.

Tax revenue growth was strongest in the Rocky Mountain region and weakest in the Southeast, the institute said. States experiencing the sharpest drops in revenue include Arizona, Florida, Oregon, Mississippi, Nevada and West Virginia.

Revenue growth was the healthiest in Alaska, Colorado, Iowa, Montana, North Dakota, South Dakota and Texas.

State revenues comprise personal income tax, corporate income tax and sales tax. All three taxes showed weaker growth in the fourth quarter of 2007 than the same period in 2006.

Personal income tax and sales tax collections were up 3.8 percent and 1.9 percent, respectively, but corporate income tax fell 15.7 percent, the report stated.