NCPA - National Center for Policy Analysis

States' Revenue Bonanza Coming To A Halt

January 5, 2001

The weakening economy is forcing some states to trim their revenue-growth estimates for the fiscal year ending June 30, 2001. As consumers slow spending, sales-tax revenues are no longer robust. Then if employment softens, state personal income tax collections could suffer.

Such is the picture painted by a National Conference of State Legislatures report to be issued today.

  • States now face an average revenue-growth estimate of 3.6 percent for the current fiscal year -- down from earlier estimates of 5 percent or more for many states.
  • Iowa, Kansas, Louisiana and Tennessee are among the states facing "serious budget dilemmas," according to the report.
  • Nevertheless, many states still have strong cash reserves accumulated during a decade of roughly 6 percent annual revenue growth.
  • For the first time since the early 1990s, state legislatures will be facing politically painful decisions concerning where to tighten expenditures and scale back services.

Collectively, states had been on track to lower taxes for the sixth consecutive year and deliver the largest tax cuts ever -- more than $9 billion worth of reductions in levies on personal income, business earnings, retail sales, motor fuel and vehicles. For now, most states appear to be trying to follow through -- but not without some second thoughts.

Source: Will Pinkston and Andrew Caffrey, "Suddenly, States' Budget Picture Isn't as Pretty Anymore," Wall Street Journal, January 5, 2001.


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