U.S. State Tax-Revenue Collections Slowing, Goldman Sachs Report Estimates

U.S. state tax revenue grew by about 7 percent in the third quarter compared with the same period of 2010, the smallest increase in more than a year, according to Goldman Sachs Group Inc. (GS)

After recovering following the 18-month recession that ended in June 2009, state income and sales tax receipts may grow more slowly, the New York-based company said in a report dated yesterday. It based its preliminary estimate on collections from 20 states that represent 78 percent of total revenue.

Local governments’ property-tax revenue was negative year- on-year in the three months through June for the third consecutive quarter, the report said. Localities are considering property-tax increases to maintain services, according to the study.

“The combination of negative property tax trends and softening in other areas implies that the state and local sector will continue to be a drag on growth,” the report said.

Last month, the Nelson A. Rockefeller Institute of Government in Albany, New York, said state tax revenue rose 6.8 percent in July and August from the same period in 2010. A jump in revenue in the three-month period would mark the seventh- straight quarter of growth.

State and local contribution to gross-domestic-product growth will remain negative until the second half of 2012, and those governments may need to reduce spending or raise taxes more than they project, the Goldman Sachs report said.

To contact the reporter on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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