States See Revenue Surge in FY 2000

State tax revenue grew by a record-setting 8.7 percent last year and would have grown by 9.4 percent if there had been no changes in tax rates, tax bases and acceleration of tax payments, a new study says. The revenue surge was the fastest rate of growth in the past decade and was stronger than most states originally forecast, according to the Nelson A. Rockefeller Institute Of Government’s fiscal studies program in Albany, N.Y.

The report, authored by Nicholas W. Jenny and Elizabeth I. Davis, estimates state tax revenue exceeded $467 billion in fiscal 2000, an actual increase of more than $37 billion from 1999. Jenny and Davis attribute the increase to the rapid growth in the personal income tax, the “main engine of state revenue growth since 1996.” Personal income tax grew by 12.4 percent while sales-tax revenue rose by 7.3 percent and corporate income-tax by 4 percent.

Last year also was the seventh straight year of net state tax cuts. “Legislated changes” – changes in tax rates, tax bases and acceleration of tax payments — reduced state revenue growth by seven tenths of one percent collectively, compared with a 1.7 percent reduction the previous year, the study says.

It says the region most affected by such cuts – both in dollars and percentage – was the Mid-Atlantic with a 2.1 percent reduction from 1999. New York led in actual dollar amount, with a one billion-dollar decline (2.8 percent) in year-over-year growth. Delaware had the largest in percentage terms (6.3 percent).

Rocky Mountain states, led by Colorado’s four percent-reduction of tax revenue growth, had an average cut of 1.7 percent, the only other region with more than one percent, the study shows. The Plains states, which led in tax cuts in 1999, had a tax liability increase because a 1999 Wisconsin tax rebate was a one-time only phenomenon. Other states which had more than 3 percent growth were Hawaii (-5.3 percent) and Missouri (-3.7 percent).

Overall, net tax cuts in fiscal 2000 reduced revenue growth by nearly $2.9 billion, the study reports, well below 1999’s $7.2 billion in net cuts.

“There are some signs that revenue growth is slowing in fiscal year 2001, which may put more of a pinch on state budgets than policymakers have been accustomed to,” the report concludes.