States Lose Tax Revenue
Recession causes $27B shortfall, budget cuts; some states have to lay off workers, hold tax refunds. Many states are hurting for tax revenue

May 22, 2002
By Barbara Hagenbaugh, USA TODAY

State governments are facing their biggest budget crunch in 11 years as rising unemployment, a sinking stock market and a weak business climate are leading to huge declines in tax revenue.

The National Conference of State Legislatures estimates states are facing a $27 billion shortfall this fiscal year. The group will issue a report this week showing April — the most crucial month for tax collections — was "disappointing," NCSL policy specialist Arturo Perez says.

"This is the worst situation that the states have been in since 1991," he says. Then, the United States was recovering from a recession, as it is now.

To close the gap, states are slicing education outlays, laying off workers and holding tax refunds. States also are raising funds by increasing cigarette taxes and college tuitions and expanding lotteries.

Contributing to the tax revenue drop:

• Although the U.S. economy is rebounding, some businesses are still laying off employees. Higher unemployment means less withholding of taxes and more state spending on jobless benefits.
  
• With the decline in the stock market — the Dow Jones industrial average is off 10% from a year ago — capital gains taxes have fallen drastically.
  
• Businesses are struggling. Corporate income taxes paid to states were down more than 18% in the first quarter compared with the same time last year, according to the Nelson A. Rockefeller Institute of Government.
  

States are taking drastic steps to deal with the drop. According to the NCSL, 29 states have cut budgets for higher education, and 17 states have cut outlays for kindergarten through high school. Twenty-five states have cut corrections budgets, and 22 have cut Medicaid spending.

Some states are being creative. Missouri held onto approximately 500,000 taxpayer tax refund checks worth about $196 million. The state said this week it was resuming paying the refunds, so long as it has enough money on hand.

Joe Elstner and his wife, Diane, of Ballwin, Mo., are waiting for their $1,489 refund. "It is a decent chunk of money, and I'd like to have it," Elstner says.

Experts say it may be some time before state tax revenue turns around: The unemployment rate is expected to climb, the stock market is showing no signs of rebounding and businesses are having a tough time raising prices.

http://www.usatoday.com/news/nation/2002/05/23/states-revenue.htm