Utah, Arizona and Nevada were among seven states that experienced a year/year double-digit drop in state tax receipts in the 4th Q according to a preliminary report from the Rockefeller Institute of Government. Alaska, South Dakota, Florida and New Hampshire which do not have personal income taxes also recorded 10% plus declines from a year earlier. The eleven states with gains in tax revenue were resource dominated states where the recession arrived late plus North Carolina and Michigan (tax rate increase).

New York State had a 0.2% decline but this fall will worsen significantly with the massive layoffs and income cuts recently in the states’ large securities industry. The states with the most severe foreclosure problems have experienced a rapid deepening of the recession. Year/year tax revenues declined 9.4% in California, more than 11% in Arizona and Nevada and nearly 16% in Florida.

Many of the states on the bottom of the list are technically ineligible for much of the new federal education and some of the healthcare funds because they have cut their own spending on these programs from last year. Expect this problem to be finessed or ignored, probably with some delay in getting funds to the states. Other states will not object because it is in their best interest to have the money received and spent quickly.

Also many states on the bottom half of the list will be forced to cut the construction spending in their own budgets so the net impact of the new federal construction funds will be less than the gross impact in these states.

Change in State Tax Revenue
Q4 ’07 to Q4 ’08

Source: Rockefeller Institute of Government