Most states have hit revenue floor, new report finds

According to a new report from the National Conference on State Legislators, nearly every state believes fiscal year 2011 revenues will fare better than FY 2010. Despite finding what many state officials hope is rock bottom, phased out stimulus money, expiring tax increases and an increased demand for state services will make any economic recovery in 2011 a challenge.

In the report, “NCSL Fiscal Brief: Projected State Revenue Growth in FY 2011 and Beyond,” a survey of legislative fiscal directors found that state revenues are beginning to trend upwards, and 40 states expect total tax collections to be higher than they were last year. This differs from a year ago when the same question was posed, which resulted in more than half the states expecting collections to be lower than the previous year.

Across broad tax categories of personal, sales and corporate income, a majority of states surveyed expect increases over last year – however modest those increases may be. For the biggest share of revenue in most states, personal income taxes, 35 states project collections will grow in FY 2011. The greatest projected increases come from Oregon (15.3 percent), Delaware (14.3 percent) and Louisiana (11.2 percent), the report found, though 20 of the 35 states forecast collections will rise between 1.2 and 4.9 percent.

Sales and use taxes bring in nearly 32 percent of revenues for states, and 34 or 43 responding states expect them to increase. Most respondents, again, said they expect modest increases between 1.2 and 4.9 percent over last year’s figures, with four states projecting lower levels – including Nevada, Rhode Island, Virginia and West Virginia.

The third category surveyed was for corporate income taxes. Although corporate taxes represent the smallest of the three, they represent the biggest turnaround in year-over-year collection projections. Of the 34 states forecasting year-over-year growth, 25 project the increase to exceed 5 percent, with 18 projecting double-digit growth, the NCSL report said.

Despite the general gains projected in most states, the figures will be far from peak collection levels. Of the 28 states who have long-term projections, most of them expect to return to peak levels in FY 2013, with a little under half expecting a return sometime next year.

Still, these projections are just that: projections. And the report is cautious to point out that data coming in over the next few months will be key in understanding if estimates are in line with reality.

For a copy of the full report, click here.