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Revenue Outlook Still Gloomy For Connecticut, Other States

DON STACOM

October 16, 2009

HARTFORD - The recession is continuing to eat into the income of state governments, cutting nearly 20 percent of Connecticut's revenues in the second quarter of this year, a new economic report shows.

States across the nation saw their worst revenue decline since analysts began tracking the figures nearly 40 years ago. And despite some economists' conclusion that the recession is ending, the near-term outlook for state finances is bleak, the report said.

"Some elements of the economy that are very important to state finances particularly employment and wages are likely to recover more slowly than gross domestic product," the Rockefeller Institute of Government reported Thursday. "Despite the recovery, most states will face budget gaps this fiscal year and next, and probably for at least one to two additional years."

Connecticut fared worse than other New England states in the April-to-June quarter, taking in $3.6 billion in sales, income and corporate taxes, compared to $4.5 billion in the same period last year. That puts Connecticut's revenue loss at 19.8 percent, worse than the 16.6 percent average across the country and throughout New England.

Twelve states lost an even greater share of their income than Connecticut did; the worst, Alaska, plummeted by an 86.5 percent. That state's finances are tied closely to the petroleum market.

Connecticut this month boosted a variety of fees and the cigarette tax as part of a new two-year budget, but lawmakers acknowledge that Gov. M. Jodi Rell may have to make mid-year spending cuts if conditions keep worsening.

"We just put some new revenues in place. We'll have to see how stable they are," state Rep. John Geragosian, a New Britain Democrat who is co-chairman of the legislature's appropriations committee, said Thursday evening.

"The stock market just went up tremendously, and that bodes well for future revenues, but not necessarily in 2010," he said. "Wall Street has been coming back. Executives at Goldman Sachs are making twice as much as they did last year, and that will be good for income taxes."

The April-to-June period was the second consecutive quarter of record-breaking declines in income for states. Lucy Dadayan, a co-author of the Rockefeller report, said early indications for Connecticut in the July-to-September period aren't encouraging, either.

"The numbers won't be as bad. But preliminary numbers are about 13.5 percent [down]," said Dadayan, senior policy analyst at the Rockefeller Institute, which is the public policy arm of the State University of New York.

When the final figures are in for July to September, Dadayan projects they will show business tax receipts plunging by nearly 40 percent, with less dramatic dips in sales tax and personal income tax revenues.

"Most states have taken a variety of measures to balance their budgets, including across-the-board budget cuts, tax increases, tapping rainy day funds, and agency consolidations," the 23-page report says. "The continued weakening of state tax revenues in the second half of 2009 will force states to take more drastic measures."

Reprinted with permission of the Hartford Courant. To view other stories on this topic, search the Hartford Courant Archives at http://www.courant.com/archives.
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