New York, California and Florida are among states reportingrevenue 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 ofestimates for the three months through September, raising concernthat school aid may be cut. In fiscal 2013, New York state may facea $2.4 billion deficit because of smaller Wall Street bonuses andjob cuts, Comptroller Thomas DiNapoli said Oct. 11.

States are projecting combined budget gaps of $31.9 billion infiscal 2013, according to the National Conference of StateLegislatures in Denver. A 14 percent third-quarter drop in theStandard & Poor's 500 Index, the worst performance since theend of 2008, and concern that Europe's debt crisis may spread havedented consumer and business confidence, curbing tax receipts.

“It's going to be quite a while before happy days are here againfor many state legislatures,” John J. Pitney Jr., a politicsprofessor at Claremont McKenna College in Claremont, California,said by telephone. “There is such weak job growth and incomegrowth. Everything that should be up is down.”

A revenue miss of $1 billion in California would triggerautomatic cuts in funding for universities and social services,under the state's 2012 budget. A $2 billion shortfall would spurcuts to schools. For the first three months of the fiscal year,receipts trailed projections by $654 million, or 3.4 percent, thestate Finance Department said yesterday, citing declines incorporation and sales levies.

'Weak' Job Growth

“If you look at job growth in the past five months, it's beenvery weak,” said Robert Dye, chief economist at Comerica Inc., aDallas-based bank holding company. “Especially in August, measuresof consumer confidence nosedived and we remain in a period ofheightened 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 buildingand job growth slow, Amy Baker, the Legislature's chief economist,said, citing an Oct. 11 report. First-quarter receipts fell $106million short of estimates, prompting a cut of 2.5 percent in thestate's revenue outlook for this year.

Weaker collections in recent months reversed a trend in which amajority of states took in more revenue in fiscal 2011 thanprojected, said Michael Leachman, director of state fiscal researchat the Center on Budget and Policy Priorities, a nonprofit researchorganization in Washington. Revenue in most states remains belowpeak levels reached in 2007 and 2008, while demand for health careand education has risen, he said.

Curbing Demand

“States shouldn't be making decisions based on these short-termtrends,” Leachman said by telephone. “If you are only cuttingspending, then you are pulling demand out of the economy.”

The center, which focuses on issues affecting lower-incomeAmericans, said in June that 24 states already were projecting acombined $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 isdeclining, according to an Oct. 11 report from state ComptrollerDiNapoli. Citing a “ripple effect” on the economy, the reportprojected state tax revenue to be weaker than estimated earlier,widening budget deficits.

Rising Illinois Deficit

While Illinois may collect more revenue than projected in thecurrent fiscal year, as income-tax receipts surge, the budgetdeficit 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 taxincreases in state history to cut the deficit, pay bills and helpfund public pensions.

“We're not going to grow out way out of this and they are goingto have to do more in terms of cutting,” said Laurence J. Msall,the nonprofit federation's president, noting that state taxcollections remain below 2008 levels. Msall said the state plans tospend $454 million more than projected revenue in the 2012 budget,after ending fiscal 2011 with a deficit of $4.6 billion that wascarried into this year.

Even in states where revenue growth remains strong, such asTexas and Ohio, it is still forecast to weaken.

Ohio's fiscal first-quarter tax receipts were $35 million, or0.8 percent, above forecast, the state budget office said thisweek. However, September fell 1 percent short of estimates as $511million in sales levies missed by 3.5 percent.

Texas Revenue

Sales-tax receipts in Texas, the most-populous state afterCalifornia, rose to a record $1.76 billion last month, up almost 12percent 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 gasindustries, for the revenue gain.

In fiscal 2011, receipts from sales levies rose 9.4 percent from2010, John Heleman, the comptroller's chief revenue estimator, toldlawmakers last month. He predicted gains would slow this year.

Texas and other states with extensive oil and gas resources arerebounding from the 18-month recession that ended in June 2009faster than the U.S. overall, according to Comerica's Dye.

“While states may have to make slight downward revenuerevisions, most states will not need to make as significant midyearbudget cuts as in fiscal 2009 and fiscal 2010,” said Scott D.Pattison, Executive Director of the National Association of StateBudget Officers, in a Sept. 19 blog posting on the Washington-basedgroup's website.

“It's just really early in most state fiscal years to be able toknow for sure.”

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