State revenues improve, but still lag peaks

New data from the US Census and the Rockerfeller Institute of Government shows that state tax revenues are began to recover in 2011, taking some pressure off of historically tight state budgets. However, overall tax collections are still 2.1% below peak levels. Many states are pushing for ways to increase revenue as persistent unemployment increases demand for state services.

According to the Rockerfeller report, state tax collections remain low with more than half of the states reporting that total tax collections were still well below their peaks in 2011. Many states that levy personal income taxes have not yet seen revenue recover as unemployment remains high and wages have fallen significantly.

Economic indicators are showing evidence of a slow gradual recovery, but state revenues often trail the immediate effects of economic shifts. The 2008 financial crisis didn’t hit budget cycles until 2009. So any early recoveries may not be felt until the next budget cycle.

States have made massive cuts in the number of government employees, education budgets, social services and increased service fees in order to make ends meet. These moves have led to some high profile populist uprisings in state’s like Wisconsin and Michigan where Governors who are viewed as acting against average citizens in their austerity measures are now facing increased pressure. Governor Scott Walker of Wisconsin faces an historic recall action to remove him before the end of his first term. And in Michigan, a controversial financial management plan has been halted by the justice system.

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