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US States Tighten Fiscal Belts

by Leroy Baker, Tax-News.com, New York

07 December 2007


State financial conditions remained strong for most US states in fiscal 2007, but as overall budget growth has slowed from the previously robust conditions, state governments have been less inclined to give away revenues in tax cuts, a new study has indicated.

According to the latest Fiscal Survey of States by the National Governors Association and the National Association of State Budget Officers, revenues were generally stable in fiscal 2007, and only one state was forced to make mid-year budget cuts.

But the report showed that conditions across the states varied widely, with some states cutting taxes and increasing funding for programs, and others relying on budget stabilization funds and spending cuts to address lower-than-anticipated revenues.

While revenue growth was generally strong in fiscal 2007, fiscal 2008 enacted budgets reflect more modest growth, and some states have already reported budget shortfalls.

The study also showed that state governments have been considerably less willing to cut taxes. States enacted net tax and fee decreases of $115.5 million in fiscal 2008. In comparison, states enacted net tax and fee decreases of $2.1 billion in fiscal 2007. In fiscal 2008, twenty-four states adopted net decreases, while eighteen states enacted net increases. Continuing the trend of recent years, the largest enacted decrease was in personal income taxes ($1 billion). The largest enacted increase was in cigarette and tobacco taxes ($761.8 million).

In fiscal 2007, most states’ revenue collections exceeded expectations. Revenues from all sources exceeded expectations in thirty-eight states, were on target in four states, and were below expectations in eight states. Fiscal 2007 tax collections of sales, personal income, and corporate income taxes were 5.6% higher than fiscal 2006 collections. Specifically, sales tax collections were 3.0% higher, personal income tax collections were 7.2% higher, and corporate income tax collections were 9.0% higher.

However, states have budgeted for more moderate revenue growth in their fiscal 2008 budgets. Compared to fiscal 2007 collections, enacted fiscal 2008 budgets reflect 3.4% more in sales tax revenue, 3.4% more in personal income tax revenue, and 1.4% less in corporate income tax revenue, a 2.9% overall increase from fiscal 2007.

The study showed that expenditures continued to grow in almost all states, with only one state reporting negative expenditure growth for fiscal 2007, thirty-one states reporting expenditure growth to be positive but less than 10%, and eighteen states reporting expenditure growth of 10% or more. In contrast, for fiscal 2008, seven states enacted negative growth budgets, thirty-one states have budgeted expenditure growth to be positive but below 10%, and twelve states have budgeted growth of 10% or more.

The full text of the Fiscal Survey of States can be found in the Tax News Resources section.

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