State Tax Revenues See Largest Increase in More Than 10 Years

by: Mark J. Perry
Last week, I featured the recent Census Bureau report showing that state and local tax revenues increased by 5.21% in the third quarter this year compared to 2009, which is the largest quarterly increase since the fourth quarter of 2007 (see chart above). Dennis Cauchon now reports in today's USA Today that:

Tax collections are surpassing projections, the clearest sign yet that state and local government finances are on the mend as the economy improves. Sharp rises in tax collections since July, especially in the last three months, have boosted tax revenues to levels not seen since 2008, a review of tax reports shows. Including federal aid, state and local government revenue is running at a record high.

Serious challenges remain: financing long-term pension obligations, rebuilding budget reserves and repaying funds raided for unrelated expenses. In the short term, though, the outlook is brightening. Nearly every state is reporting tax collections above what it expected and higher than a year ago.

"We're getting revenue growth that you'd see in a reasonable expansion," says Wisconsin Department of Revenue chief economist John Koskinen. State and local revenue rose more than 6% nationwide in the first nine months of 2010, the biggest increase over inflation since 1999, Bureau of Economic Analysis data show.