Tax Revenue Grew in States in First Quarter, Report Says

U.S. states’ tax collections rose 4.1 percent during the first three months of 2012, a faster pace than during the previous three months, as economic growth helped ease financial pressure in the nation’s capitals.

The increase is the ninth straight quarterly gain for states following more than a yearlong slide after the 2007 recession, according to the Nelson A. Rockefeller Institute of Government in Albany, New York. The pace was faster than the 3.6 percent rise during the last three months of 2011.

Even with the gains, the state revenue growth has slowed since jumping as much as 11 percent a year ago. Other economic indicators are showing growth may be slowing. U.S. employers last month added the fewest workers in a year and the unemployment rate rose to 8.2 percent from 8.1 percent. Reports released last month showed the economy grew less than initially estimated during the first quarter.

“Overall, state tax revenues are showing improvement, though the pace of growth continues to slow from its peak in the second quarter of 2011,” the Rockefeller Institute said in its report.

The revenue gains are reducing the size of budget deficits that have forced state officials to cut jobs and reduce spending on schools, welfare and public works, which exerted a drag on the economy. States faced deficits of $54 billion for the coming budget year, half what they were the year before, according to the Center on Budget and Policy Priorities, a Washington-based research group.

Sales Taxes

The first quarter growth was led by sales taxes, which rose 5 percent, while personal income taxes climbed 3.2 percent, according to the data, which is based on 47 states.

Among the states with the biggest growth were Illinois, where taxes rose 24 percent, Connecticut, where they increased 13.8 percent, and Texas, which advanced 16.6 percent, according to the report. California and New York were among the six states where collections declined, falling 3.6 percent and 1.8 percent, respectively.

The improvement lessened concerns of bondholders. U.S. state bonds returned 11 percent in 2011, according to Bank of America Merrill Lynch indexes, and 2.7 percent so far this year.

“The trend is good,” Daniel Loughran, a portfolio manager with OppenheimerFunds Inc., said today at the State & Municipal Finance Conference hosted by Bloomberg Link in Chicago.

The combination of increasing tax revenue and spending reductions “are really the things we bondholders want to see,” he said.

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

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net

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