Recession Continues to Take Toll on State Revenues

August 3, 2009

Pennsylvania embarked on year two of the state budget crisis in July, as revenue collections for the month hit a three-year low.
 
Budget proposals for the 2009-10 Fiscal Year now before the state Legislature are based on zero growth in revenues from 2008-09. One month into the new fiscal year, revenue is $95 million less than last July. Collections for the month also trail those in July 2007 and July 2006.
 
Total collections for the month of July were about $1.7 billion, according to the state Department of Revenue, which released the report today. 

In addition to cutting discretionary programs and tapping reserve funds, the state should consider revenue measures, such as requiring online retailers to collect sales tax, closing corporate tax loopholes, introducing a severance tax on natural gas production and enacting an excise tax on cigars and smokeless tobacco.
 
Pennsylvania's revenue shortfall is a result of the worst economic downturn in decades. The impact has been felt across the nation.
 
At the federal level, tax receipts are on track for the biggest single-year decline since the Great Depression, according to an Associated Press report today.
 
Nearly every state has had to close significant shortfalls in their budgets created by recession-driven revenue declines. The Rockefeller Institute of Government reports that state tax collections during the first three months of 2009 dropped by nearly 12% from a year before - the biggest single-year decline in revenue collections in 46 years.
 
At least 30 states have balanced their budgets with a combination of program cuts, budget reserves and additional revenues. For the 2009-10 Fiscal Year, the states have had to close a combined $163 billion in state revenue shortfalls.
 
Pennsylvania is one of four states without a budget one month into the new fiscal year. All three other states - Arizona, Connecticut and North Carolina - are moving in the direction of enacting tax increases to balance their budgets, after finding that cuts alone are not enough.
 
In Connecticut, Republican Governor Jodi Rell, after initially opposing additional taxes, is proposing increases in corporate, cigarette and alcohol taxes. She said last week that she has "exhausted the cuts" that can be made to close an $8.55 billion two-year shortfall.