Saturday, October 10, 2009

U.S. states suffer "unbelievable" revenue shortages

WASHINGTON (Reuters) - The U.S. economy may be creeping toward recovery after the worst slowdown since the Great Depression, but many states see no end in sight to their diving tax revenues.

Tax revenues used to pay teachers and fuel police cars continue to trail even the most pessimistic expectations, despite the cash from the economic stimulus plan pouring into state coffers.

"It's crazy. It's really just unbelievable," said Scott Pattison, executive director of the National Association of State Budget Officers, and called the states' revenue situations "close to unprecedented."

Most states had been pessimistic in forecasting their tax revenues for the 2010 fiscal year, Pattison said. So far, collections have fallen below even those low targets.

Lower tax revenues could lead to higher taxes or another sharp reduction in services if receipts do not show signs of improvement before year-end, as every state but Vermont is required by law to balance their budgets.

That could mean fewer teachers, early prisoner releases and fewer highway repairs as residents battle soaring unemployment.

States are coming off a terrible first quarter, which for most states began on July 1.

Among the worst cases is Indiana where revenue collections were 8 percent below forecast, or $254 million lower than expected, leading state budget officials to speculate revenue could fall $1 billion by the end of the fiscal year.

Iowa cut its fiscal 2010 revenue estimate by 8.4 percent this week. That prompted Governor Chet Cutler on Thursday to order spending reductions of 10 percent across the board.

"The fact is clear. Iowa has not spent too much; rather our revenue has fallen off by significant amounts as the result of the national economic recession," Culver said in a statement.

Last week, Mississippi Governor Haley Barbour said his state's September tax collections were 10 percent less than forecast.

"It is likely that more spending cuts will be necessary in this fiscal year to ensure a balanced state budget," Barbour said.

In California, general fund revenues for the first three months of the fiscal year were $1.1 billion below estimates in its budget, State Controller John Chiang said on Friday.

"While there are encouraging signs that California's economy is preparing for a comeback, the recession continues to drag state revenues down," he said in a statement.

But Oregon, which collected about $10 million below estimates for personal and corporate revenues for those two months, is seeing some hopeful signs. Continue...