WASHINGTON -- State raked in a 8.9% more in tax revenues the second quarter of this year compared to the same period last year, says a new report from the Center for the Study of the States in Albany.
Much of the gain was triggered by increases in tax rates, rather than economic growth, so the increase is not as spectacular as it looks, according to Jennifer McCormick, co-author of the report to be released today.
"In a sense, its good news. But the number actually inflates growth in the economy," she said.
If states had not enacted tax increases, the increase would have been only 2.6%, which is less than a third the actual gain, according to the report based on a quarterly survey of budget officers in all states except Alaska.
"That's not even keeping up with inflation. We're not growing as fast as we should be," said Ms. McCormick, a research associate at the center that is part of the Nelson A. Rockefeller Institute of Government.
More importantly, the report says states' fortunes are becoming more dependent on economic growth because states have less room to raise taxes further. "If economic growth is weak, state revenue will not increase strongly. That appears to be the most likely scenario," says the report, called "Disappointing Tax Revenue Plagues State Budgets."
Many analysis expect growth to remain weak in 1993. Consequently, Ms. McCormick holds out little hope that next year will be better than this year. "This coming year," she said, "is going to be even harder on states because there is not a lot of room to increase taxes."
The end of the second calendar quarter also marked the end of the 1992 fiscal year for most states. For the entire year, state revenues were up 7.2% from 1991. According to the report, "The 7.2% revenue increase is an improvement from the 3.4% growth in fiscal 1991, but it is not very impressive in light of the many large tax increases enacted last year," the report says.
In general, the quarterly survey that the report is based on tracks three types of state taxes: personal income sales and use, and corporate income. The first two each account for roughly 30% of total state revenue, and the third accounts for about 8% according to Ms. McCormick.
Sales and use taxes posted the largest gain in the second quarter, with revenues up 10.45 from last year. Excluding tax increases, however, sales and use taxes were up only 2.1% and "failing short of the inflation rate which is about 3%," the report says.
Personal income taxes were up 9.2% in the second quarter. That gain would have been 6.7% without the new Connecticut income tax imposed last October, and only 2.6% without any tax hikes anywhere, the report says.
Corporate income tax declined 7.9% in the second quarter because 20 of the 49 states reported decreases in corporate tax revenue, the report says. Ms. McCormick noted that corporate taxes are highly volatile from quarter to quarter, so they are not a good indicator of overall trends.
On a regional basis, revenue gain in the second quarter compared to last year varied greatly. The Southwest posted the largest overall gain, with revenue up 27.3%, and the Great Lakes region came in last, with revenues up 4.1%, according to the report.
Excluding legislated tax increases, the Rocky Mountain region enjoyed the strongest gains, with revenues up 6.4% in the second quarter. "That region's economy suffered much less from the recession than did any other region in the nation," the report says.
And the Far West had the worse revenue growth, excluding tax increases. "This is solely attributable to California," the report says, "which accounts for about three-quarters of the revenue in the Far West and has one of the nation's most depressed economies."
In fact, had it not been for tax increases, the Far West would have been the only region where revenues actually declined. With tax increases, the region's revenues were up 11.1% in the second quarter, according to the report.
In general, the report was not entirely negative. And Ms. McCormick acknowledged that, one way or another, state revenues have gone up during the fiscal year. "The revenue situation is better, but is it still a long way from good," the report says.