State Tax-Revenue Trends Improve But Local Receipts Lag

States’ tax revenues rose significantly during the latter part of 2010, continuing a trend toward gradual fiscal recovery, according to the Rockefeller Institute of Government’s latest State Revenue Report. But local tax revenues, highly dependent on property taxes, moved in the opposite direction in the fourth quarter last year, the Albany, N.Y., organization reported. Publicly funded foodservice operators are dependent on state and local tax receipts not only for operating funds, but for capital monies.

State tax revenues grew by 7.8% in the fourth quarter of ’10, compared to the same quarter of ’09, according to Rockefeller Institute research and Census Bureau data. This is the fourth consecutive quarter that states reported growth in collections on a year-over-year basis. Forty-two states reported tax revenue growth during the fourth quarter, with nine showing double-digit growth. Preliminary figures for January and February indicate further strength in state tax revenues this year.

Local tax revenues, however, have experienced the reverse trend. Tax collections by local governments declined by 2.3% in the fourth quarter ’10, mostly driven by declines in property tax collections. The research group cited the lagged impact of falling housing prices on property tax collections. Such a lag in the recession’s impact on local government coffers is often seen, said report authors Lucy Dadayan and Donald J. Boyd.

While the growth in last year’s tax collections is good news for states, Dadayan and Boyd stressed that the road to fiscal recovery will remain slow and gradual. States collected $715 billion in total tax revenues in ’10, a gain of 4.3% from ’09. However, that figure was still about $60 billion or 7.8% below the levels reported in ’08. While tax collections in ’10 were promising in most states, 10 states reported declines.

Dadayan and Boyd concluded “State budgets will likely face continuing pressure at least until the national economy enters a new period of continuing, robust growth.”