U.S. State, Local Tax Revenue Rises 2.1%, Slowest Pace in a Year

U.S. state and local-government tax collections grew during the last three months of 2011 at the slowest pace in a year, marking a step back from gains that helped ease the strain on public agencies.

The Census Bureau said today that states and local governments’ tax revenue rose for a ninth-straight quarter, climbing 2.1 percent from a year earlier to $387.2 billion in the fourth quarter. The increase was the smallest since the end of 2010, the data show. Property taxes rose 0.2 percent from a year before, the second-straight gain.

The pickup in the economy has lifted government tax revenue since late 2009, after the official end of the recession. The influx of cash over the past year narrowed budget deficits facing states and some cities, lessening the need for cuts in spending and jobs.

State tax collections accounted for the bulk of the fourth- quarter gains, though the increase was the smallest since the second quarter of 2010. The Census figures follow a report this week by the Nelson A. Rockefeller Institute of Government estimating that state collections grew in the fourth quarter at the slowest pace in 18 months, though the Census figures show a 3.5 percent increase, larger than the 2.7 percent estimated by the institute.

“The economy is recovering and so are tax revenues, but there’s still a lot of weakness,” said Robert Ward, the institute’s deputy director. “It’s very much a mixed picture.”

The drop in the pace of growth reflects an economy that has yet to fully rebound, Ward said.

Still Above Projections

Even with the slowdown, the growth in tax collections toward the end of 2011 outstripped projections when officials put together their spending plans last year. The total gain for states compares with revenue increases of 1.6 percent forecast for the year, which began in July for most states, according to the National Association of State Budget Officers.

While states still expect to collect $49 billion less than they will need in the 2013 budget year, the shortfall is less than half that faced in the current year, according to the Center on Budget and Policy Priorities.

The Census figures show some stability for cities and counties hit by the real estate rout. Total property-tax collections, a portion of which goes to states, rose to $177.2 billion. It was the second-straight increase after three straight drops that began at the end of 2010. Local governments’ share rose 0.6 percent to $174.1 billion.

Economic Expansion

The change in tax collections came as the economy expanded at a 3 percent rate during the fourth quarter, the quickest since mid-2010, as companies rebuilt inventories in anticipation of growing demand. Economists expect a 2 percent expansion this quarter, the median estimate of forecasters surveyed by Bloomberg.

The recent slowdown for states may reflect the rebounds from a year earlier, when collections were still recovering from near-recession lows, Chris Mauro, the head of municipal strategy for RBC Capital Markets in New York, said before today’s report.

“You would expect the rate of growth would decline,” he said. “But more importantly, we’re not seeing enough employment and income growth to produce a really firm and sustainable growth in state tax revenue.”

To contact the reporter on this story: William Selway in Washington at wselway@bloomberg.net

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

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