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Goldman Sachs Study Says State Revenue Grew 6% in Third Quarter

Goldman  Sachs  Note Says State Revenue Grew 6%
The headquarters of the Goldman Sachs Group Inc. Photographer: Daniel Acker/Bloomberg

States’ tax revenue grew about 6 percent in the three months ended in Sept. 30, Goldman Sachs Group Inc. estimated, the third consecutive quarterly increase as the U.S. climbed out of the longest recession since the Great Depression.

The firm said its economists examined receipts from 16 states accounting for more than half of nationwide collections. The year-over-year gain in the period appeared to continue into the fourth quarter, it said.

“The outlook for the state and local sector has improved over the last several months, as revenues have picked up or at least stabilized in most states,” Alec Phillips said in the note to clients today.

The gain may help states close budget deficits that will likely total $140 billion in fiscal 2012, the Washington-based Center on Budget and Policy Priorities said in a report on Oct. 7. An 18-month recession that was declared over in June 2009 shrunk state tax collections by 8.4 percent in fiscal 2009 and 3.1 percent in fiscal 2010, the report said.

The third-quarter gain in tax collections would be the third consecutive after five quarters of decline, based on a report by the Nelson A. Rockefeller Institute of Government.

Revenue grew by 2.5 percent in the first quarter and 2.3 percent in the second, according to the Albany, New York-based institute. Rockefeller estimated on Oct. 19 that revenue rose 2.8 percent in the first two months of the third quarter.

Stimulus Funds

Goldman’s Phillips said the loss of federal stimulus funds and further declines in property-tax receipts will continue to drag on state and local finances. To make up for the end of federal aid through the American Reinvestment and Recovery Act, which will stop around mid-2011, state tax revenues would have to grow about 8 percent, he said.

At the local level, a recovery in property-tax revenue, the main source of income for municipalities, will likely lag behind that of other taxes by more than a year, Phillips wrote.

“While the outlook for the state and local sector has improved, it is still far from good,” he said.

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