Revenues up for states, budget gaps remain

Reuters News
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Posted: Jul 11, 2011 11:49 AM
Revenues up for states, budget gaps remain

WASHINGTON (Reuters) - More than half of U.S. states collected more revenues in the fiscal year just ended than they had forecast, but in many places budget crises remain, according to a report released on Monday.

According to the Center on Budget and Policy Priorities, a think tank that tracks states' economic conditions, at least 28 states have reported that tax collections for the recent fiscal year exceeded expectations, almost all because of gains in income tax collections.

"Increases in corporate profits and rising incomes for individuals and families -- especially the wealthy -- have fueled the boost in revenues. Personal and corporate income taxes are significantly higher than expected, while sales taxes generally are much closer to targets," it said in the report.

It noted that wages grew slowly over the last year, but forms of income collected by wealthy individuals, such as money earned on investments, have grown rapidly.

Almost all states ended fiscal 2011 on June 30. Revenue forecasts are a crucial part of states' fiscal planning because all states except Vermont must balance their budgets.

During the worst of the 2007-2009 recession, revenues came in below already depressed forecasts, forcing states to make emergency spending cuts in almost all areas of public life.

Even though revenues are rising, the increase has not been steep enough to close budget gaps. For the fiscal year started this month, states had to eliminate $103 billion total in shortfalls.

With residents expressing zero interest in tax hikes, and the federal government pledging not to repeat the extraordinary assistance given states in the $830 billion stimulus plan, almost all states had to cut spending.

"States continue to face a significant fiscal challenge; the worst recession since the 1930s has caused the steepest decline in state tax receipts on record," CBPP said.

While their revenues for the fiscal year just ended were higher than the year before, they were 9 percent less than the amount they took in during fiscal 2008, when their revenues crested before the recession.

CBPP highlighted the discrepancy in the state of Connecticut, which took in $1 billion more than forecast last year, but still had to close budget gaps of more than $5 billion for fiscal 2011 and $3.2 billion for fiscal 2012.

(Reporting by Lisa Lambert; Editing by Andrea Ricci)