Connecticut Tax Revenues Plunge More Than 11 Percent In First Quarter Of 2009
July 21, 2009
HARTFORD - — Connecticut's tax revenues plunged more than 11 percent in the first quarter of the year, part of a nationwide trend that showed the steepest drop in more than 40 years, according to a new study.
"Looking at the bigger picture, this isreally, really bad for all states. It's the worst on record, and it's going to get worse," said Lucy Dadayan, senior policy analyst at the Rockefeller Institute of Government.
Across the country, states that were already struggling financially got hit with a staggering loss of income, according to a 20-page analysis by the institute, the public policy research arm of the State University of New York.
From January to March, state governments collected an average of 11.8 percent less than they did in the first quarter of 2008. All three major revenue sources were hit: Sales tax collections fell by 8.3 percent, personal income taxes by 17.5 percent and corporate income taxes by 18.8 percent. The figures add up to $21 billion that state governments didn't collect.
Those are the steepest declines since the institute started tracking the figures 46 years ago.
"Such extraordinary weakness in revenues, along with continued if more moderate growth in expenditures, make widespread budget shortfalls highly likely this year," the report warned. Connecticut collected roughly $3.7 billion in taxes in the first quarter of 2008, compared to just under $3.3 billion in the same period this year.
"That puts even more pressure on the governor and legislative leaders to come up with a balanced budget for the next two years," said Jim Finley, executive director of the Connecticut Conference of Municipalities. "It's the balance between tax increases and spending cuts."
About 30 states have raised taxes in one form or other since the financial collapse in mid-2008, Dadayan reported. States have frozen or cut spending, consolidated agencies and shut down some operations, but only two have tapped their rainy day reserves, she said.
"Right now they're using stimulus money. Once that runs out, states will be in very bad situations," Dadayan said. "So it's not a bad strategy to keep the rainy day funds for beyond 2011 when stimulus runs out."
Tax revenues began slipping when the recession began in 2007, but the sharpest declines got under way last year. Connecticut's quarterly figures are a little better than the national average, but Dadayan warned of a troubling figure for the state: Personal income tax revenue plummeted by nearly 19 percent in the first 11 months of the fiscal year that just ended. That drop accelerated in April, the deadline for annual income tax filings.
"We see fiscal conditions in Connecticut that are worse than the national average," she said. "Of particular worry are the sharp declines in personal income tax — from cuts in bonuses, cuts in employment in the financial market."
Jeffrey Beckham, undersecretary with the state's Office of Policy and Management, said Friday that current estimates show Connecticut has an $8.5 billion budget gap over the next two years.
"We know we've got a problem," he said. "It's the worst problem in our state's history — in real [dollar] terms and as a percentage [of budget]."
Reprinted with permission of the Hartford Courant.
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