New York, California and Florida are among states reporting revenue collections trailing forecasts in the fiscal first quarter, prompting preparations for a fresh round of budget reductions.
California’s receipts fell more than 3 percent short of estimates for the three months through September, raising concern that school aid may be cut. In fiscal 2013, New York state may face a $2.4 billion deficit because of smaller Wall Street bonuses and job cuts, Comptroller Thomas DiNapoli said Oct. 11.
States are projecting combined budget gaps of $31.9 billion in fiscal 2013, according to the National Conference of State Legislatures in Denver. A 14 percent third-quarter drop in the Standard & Poor’s 500 Index, the worst performance since the end of 2008, and concern that Europe’s debt crisis may spread have dented consumer and business confidence, curbing tax receipts.
“It’s going to be quite a while before happy days are here again for many state legislatures,” John J. Pitney Jr., a politics professor at Claremont McKenna College in Claremont, California, said by telephone. “There is such weak job growth and income growth. Everything that should be up is down.”
A revenue miss of $1 billion in California would trigger automatic cuts in funding for universities and social services, under the state’s 2012 budget. A $2 billion shortfall would spur cuts to schools. For the first three months of the fiscal year, receipts trailed projections by $654 million, or 3.4 percent, the state Finance Department said yesterday, citing declines in corporation and sales levies.
‘Weak’ Job Growth
“If you look at job growth in the past five months, it’s been very weak,” said Robert Dye, chief economist at Comerica Inc., a Dallas-based bank holding company. “Especially in August, measures of consumer confidence nosedived and we remain in a period of heightened risk and uncertainty.”
Florida forecast revenue to miss budget estimates by as much as $1.57 billion over two years through fiscal 2013 as home building and job growth slow, Amy Baker, the Legislature’s chief economist, said, citing an Oct. 11 report. First-quarter receipts fell $106 million short of estimates, prompting a cut of 2.5 percent in the state’s revenue outlook for this year.
Weaker collections in recent months reversed a trend in which a majority of states took in more revenue in fiscal 2011 than projected, said Michael Leachman, director of state fiscal research at the Center on Budget and Policy Priorities, a nonprofit research organization in Washington. Revenue in most states remains below peak levels reached in 2007 and 2008, while demand for health care and education has risen, he said.
“States shouldn’t be making decisions based on these short-term trends,” Leachman said by telephone. “If you are only cutting spending, then you are pulling demand out of the economy.”
The center, which focuses on issues affecting lower-income Americans, said in June that 24 states already were projecting a combined $46 billion in 2013 deficits.
New York City’s securities industry lost 4,100 jobs since April, and may lose almost 10,000 more by the end of 2012, while profit is declining, according to an Oct. 11 report from state Comptroller DiNapoli. Citing a “ripple effect” on the economy, the report projected state tax revenue to be weaker than estimated earlier, widening budget deficits.
Rising Illinois Deficit
While Illinois may collect more revenue than projected in the current fiscal year, as income-tax receipts surge, the budget deficit is forecast to climb to $5 billion by the Civic Federation, a nonpartisan research organization in Chicago. In January, Governor Patrick Quinn, a Democrat, signed the biggest tax increases in state history to cut the deficit, pay bills and help fund public pensions.
“We’re not going to grow out way out of this and they are going to have to do more in terms of cutting,” said Laurence J. Msall, the nonprofit federation’s president, noting that state tax collections remain below 2008 levels. Msall said the state plans to spend $454 million more than projected revenue in the 2012 budget, after ending fiscal 2011 with a deficit of $4.6 billion that was carried into this year.
Even in states where revenue growth remains strong, such as Texas and Ohio, it is still forecast to weaken.
Ohio’s fiscal first-quarter tax receipts were $35 million, or 0.8 percent, above forecast, the state budget office said this week. However, September fell 1 percent short of estimates as $511 million in sales levies missed by 3.5 percent.
Sales-tax receipts in Texas, the most-populous state after California, rose to a record $1.76 billion last month, up almost 12 percent from a year earlier, according to Comptroller Susan Combs. The state’s fiscal year began Sept. 1. In an Oct. 11 statement, Combs credited business spending increases, led by the oil and gas industries, for the revenue gain.
In fiscal 2011, receipts from sales levies rose 9.4 percent from 2010, John Heleman, the comptroller’s chief revenue estimator, told lawmakers last month. He predicted gains would slow this year.
Texas and other states with extensive oil and gas resources are rebounding from the 18-month recession that ended in June 2009 faster than the U.S. overall, according to Comerica’s Dye.
“While states may have to make slight downward revenue revisions, most states will not need to make as significant midyear budget cuts as in fiscal 2009 and fiscal 2010,” said Scott D. Pattison, Executive Director of the National Association of State Budget Officers, in a Sept. 19 blog posting on the Washington-based group’s website.
“It’s just really early in most state fiscal years to be able to know for sure.”