State Tax Collections Continue to Flounder

April tax collections are falling short of forecasts and even dropping below last year's depressed levels in a number of states, complicating budget troubles and prompting some governors to dip into rainy-day funds.
Following several months of modest improvement, the weak April revenue numbers are disappointing for states that hoped for economic recovery soon.
Based on reports from more than a dozen states, the figures suggest the recession may have taken a heavier-than-expected toll on employment last year, cutting into income taxes.
The shortfalls also are punching fresh holes in state budgets. Widening state deficits could in turn put pressure on the federal government to issue new stimulus funding; a 2009 cash injection from Washington has helped shore up battered state finances, but much of that will dry up by the end of this year.
April is the biggest revenue month for many states because it is when they collect a large portion of income taxes. The month's collections came up short of expectations in California by 26.4%, or $3.6 billion; in Pennsylvania by 11.8%, or $390.1 million; and in Kansas by 10.2%, or $65.3 million. More states will report in the next few weeks.
In some states—including a few where April tax collections fell short of forecasts—revenue actually increased slightly from the same month a year ago.
But even if the results topped last year's, states that received lower-than-expected income in April still may need to reduce spending to balance budgets. All states except Vermont have at least a limited requirement to balance their budgets, so must adjust to revenue shortfalls.
The weak tax revenue also could mask good news, such as improving sales-tax collections, said Donald Boyd, a senior fellow at the Nelson A. Rockefeller Institute of Government at the State University of New York. Sales taxes better reflect current economic conditions than some other revenue categories.