(Reuters) - Drooping U.S. state tax revenue in the first half of 2016 could put holes in the states' budgets for fiscal 2017, according to a report by the Rockefeller Institute of Government released on Thursday.
The public policy research arm of the State University of New York reported that taxes mainly on sales and personal and corporate income slumped by 2.1 percent in the second quarter based on preliminary data, after growing just 1.6 percent in the first quarter compared with the same quarters in 2015.
"The sharp declines in oil prices and the weak stock market appear to be the primary causes of the depressed state tax revenues. This weakening raises a yellow flag for state budgets," the report concluded.
Fiscal 2017 began on July 1 for 46 states and most adopted budgets based on rosier tax growth projections. The institute said the median forecast for income tax growth in 36 states is 4 percent for fiscal 2017, while the median sales tax growth forecast for 39 states is 3.8 percent.
"States are likely to reduce their forecasts when they next update them," the report said.
It cautioned that revenue growth "is likely to remain slow and highly uncertain" throughout fiscal 2017, unless the stock market perks up in the final months of 2016, boosting the prospect for higher personal income tax collections.
The revenue pinch is also being felt in states dependent on revenue from oil and minerals, including Oklahoma and North Dakota.
"The steep oil price declines throughout 2015 and early 2016 led to declines in severance tax collections as well as in overall state tax collections and depressed overall economic activity, leading to weakness or declines in other taxes," according to the institute.
The report, "Weak Stock Market and Declines in Oil Prices Depressed State Tax Revenues," is at: (www.rockinst.org/pdf/government_finance/state_revenue_report/2016-09-21-SRR_104_final.pdf.)
(Reporting by Karen Pierog in Chicago; Editing by Matthew Lewis)