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State Income-Tax Revenues Sink By ERICA ALINI State income-t 1866

State Income-Tax Revenues Sink

By ERICA ALINI

            State income-tax revenue fell 26% in the first four months of 2009 compared to the same period last year, according to a survey of states by the nonprofit Nelson A. Rockefeller Institute of Government.

            The report, conducted by the public-policy research arm of the State University of New York, is one of the most up-todate measures of how deep the recession is digging into Americans' wallets and, consequently, state coffers.

            States are required by law to balance the budget, so lower tax revenues will translate in service cuts, rather than red ink. Already states such as Kansas are slowing the payment of income-tax refunds and delaying payments to local school districts, according to the report.

            Withholdings from the first four months of 2009 were down 6.9% from the same period in 2008, signaling that "many people had a very bad start of the year" with lower salaries and wages, says Don Boyd, a senior fellow at the Rockefeller Institute.

            During April alone, withholding tax collections declined by 2.2 percent compared with 2008. Only five of 37 reporting states had increases in withholding for the January-April months. The five states reporting growth in withholding taxes for the first four months of 2009 are Arkansas, Iowa, North Dakota, West Virginia and Utah. Arizona, Louisiana, New Jersey and New York had the largest declines in withholding tax collections, with over a 10 percent drop for January-April of 2009.

            The time span notably includes the April 15 deadline for filing taxes, a critical time for states to collect revenues.

            The sharp decline was a rude awakening for many states, both because income tax is the main source of revenue and because the drop was deeper than  It was steepest in Arizona, South Carolina, Michigan, California and Vermont. Only Utah, Alabama and North Dakota posted gains.

            For most states, the fiscal year starts on July 1, so many were "in the process of dotting i's and crossing t's" in their 2009-2010 budget agreements when the bad news came. Most states will probably need to square the budget with midyear cuts, the report predicts.

            The plunge in income-tax revenue means some states may have to revise budget agreements for 2009-2010 and may still face gaping holes in 2011, when federal stimulus money runs out.

(Adapted from Wall Street Journal, June 18, 2009)

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