State Tax Collections Up

States experienced a dramatic increase in tax collections inthe first quarter of 2013 over the first quarter of 2012 — an average 9.3percent rise  — mostly from growth in personal income taxcollections and a recovering economy, according to a new report. The increasesare fueling debate in the states about how to handle the windfalls.

North Dakota’s revenue jumped 74.6 percent, compared to ayear ago, reflecting the oil boom, while California’s went up 34.9 percent inthe year-to-year comparison by the Nelson A. Rockefeller Institute ofGovernment at the State University of New York.

In California, state lawmakers are debating what to do withtheir $4.5 billion more in revenue, which has led to a re-estimation of thestate’s budget. As in many other states, California’s education, transportationand infrastructure sectors are competing for more funding.

On Monday, Democrats in the legislature urgedmore spending on social, health and educational programs, especially thestate’s “Middle Class Scholarship” program that cuts costs for tuition at stateuniversities. But Republicans toldCapital Public Radio such spending would undermine a cautious tack first articulatedby Gov. Jerry Brown. A budget is due by June 15.

The Rockefeller Institute’s compilation of preliminary datafrom 47 states shows that 39 states had revenue gains while eight statesreported declines.  Personal income taxcollections had the strongest growth among the major taxes, at 17.6percent.  Sales tax growth was 6 percent,and corporate income tax growth was 3.5 percent.

The institute attributed much of the growth to accelerationof income into calendar year 2012, in an effort to avoid the possibility ofhigher federal taxes later in 2013. It noted that California, where income taxcollections grew by nearly $6.3 billion, or 52.2 percent, in the first quarterof 2013, accounted for a large part of the increase overall. ExcludingCalifornia, the rest of the nation showed growth of an average of a 9 percent inthe first quarter of 2013.

Lucy Dadayan, senior policy analyst at the institute,cautioned against reading too much into the revenue growth, noting that thefederal  “fiscal cliff” and sequestrationhave affected state revenues.  She alsocautioned about the “spending side” of state budgets.

“On one hand, we have slowly improving revenues, and on theother hand we have rapidly growing spending pressures, including rising healthcare costs and growing pension liabilities,” she said. “This leads to a growinggap between revenues and expenditures, which in the long run would not besustainable.”

The report noted that state tax revenue has beencontinuously recovering for more than three years, but is slower and moreprolonged than previous recoveries, and is still far from a full recovery.While good news, the institute said the increase is “likely not an indicationof rapid improvement in underlying economic factors.”