State tax revenue growth last quarter was the weakest in eight years and the economic slowdown, which had been concentrated in the Midwest and the Southeast, has spread to nearly the entire country, according to a report published Wednesday by the Nelson A. Rockefeller Institute of Government.
"The trend now is toward slowing growth. The fear is that this continues and we start seeing negative growth," says Nicholas Jenny, a fiscal analyst at Rockefeller and one of the report's authors. "Some states are seeing that now. States that are suffering the worst are the Great Lakes states, the Plains states and some states in the Southeast, such as North Carolina, Florida, Mississippi and Alabama."
The report focuses on the April-June quarter, which over the past five years has been the quarter of strongest state tax revenue growth due to final payments of income taxes. But this year, the quarter bucked that trend.
Overall state tax revenue growth was 2.6 percent, the third consecutive quarter of slowing revenue growth, according to the report.
And while the personal income tax picture was mixed, sales tax growth fell to 0.5 percent, the lowest rate in over ten years, and corporate income tax collections declined sharply for the third quarter in a row. Thirty-five of the 45 states that collect corporate income taxes saw those collections fall.
Adjusted for inflation and legislated changes, "real" tax revenue growth was only 0.8 percent, the weakest rate of growth since 1993.
States have responded to the slowing growth and the generally weak economic climate by enacting fewer and smaller tax cuts than in previous years. As of now, few states have enacted tax increases. But a continuation of weak growth will confront states with unpleasant choices, the report concludes.
The Rockefeller Institute report tracks a downturn almost certain to be worsened by the U.S. conflict with terrorism. In Hawaii, Gov. Ben Cayetano has called a special session of the state legislature for next month to deal with what he calls the most severe economic crisis in the state's history.
Illinois Gov. George Ryan and Chicago Mayor Richard Daley are both talking tax increases and further budget cuts to head off an economic disaster that threatens to bring the state's $24 billion tourist and travel industry to its knees.
And in Nevada, the gambling industry, which has begun laying off hundreds of workers, is seeking state help for a new tourism campaign to get people back into Las Vegas' sparkling hotels and casinos.
Together, the three states provide a fairly startling picture of just how damaging the ripple effects of the Sept. 11 attacks are likely to be on state economies, at least in the short term.
All three report that tourist and business travel has declined by 40-to-50 percent already, based on reports from their most popular hotels.
"This is the most serious challenge that we have ever faced," Cayetano told reporters. He proposed a series of measures to deal with the problem, including the possible suspension of airline landing fees and tapping the state's cash reserve fund to help other affected industries.
Lawmakers in Minnesota and Kansas are also weighing what can be done to help the ailing airline industry in their states. The Minneapolis Star Tribune reported Thursday that state leaders may help Norwest Airlines restructure its debts and provide enhanced benefits to the thousands of airline workers being laid off. In Kansas, lawmakers are also exploring ways to ease the impact of thousands of job layoffs that the Boeing company is expected to make in coming months as airline orders for new planes are canceled.
In addition to the economic fallout, state leaders continued Thursday to deal with a variety of other attack-related problems, including: