State Revenues: Rounding the Corner?

Oregon and Washington State have been in the news this week for all the wrong reasons.  Both have been forced to make emergency adjustments to much lower-than-expected revenues. Oregon lawmakers are planning to tap into a small pot of reserve funds to prevent the closure of state prisons and the early release of inmates , while Washington cut $281 million from social programs in a move described as “devastating.”

According to a new report from the National Conference of State Legislatures, however, both states have reason for optimism. They are expecting the sharpest revenue growth in the nation during the current fiscal year.

The report, a survey of legislative fiscal directors, found that Oregon expects revenues to grow 12.1 percent in fiscal 2011 from last year’s levels, while Washington is hoping for a bounceback of 14 percent, the highest in the nation. Colorado is expecting the third-biggest growth nationally at 10.8 percent.

Overall, the fiscal outlook is much better for states than it has been for some time, NCSL found. Forty states expect their revenues to grow in the current fiscal year, while only Alaska expects them to be lower — the result of volatile oil prices, which provide the vast majority of the state’s revenues. Six more states (Alabama, Michigan, Nevada, Rhode Island, South Carolina and Wyoming) expect revenues to be flat, while another three states (South Dakota, Utah and Wyoming) did not respond to the survey.

Of course, the good news needs to be put in context, NCSL cautioned. State tax collections have been falling precipitously since the start of the recession in December 2007, so even sharp upticks won’t bring many governments to pre-recession levels. Some states don’t expect that to happen for at least five years.