After the deepest recession since the Great Depression, most states are now on the gradual road to tax revenue recovery, according to new data from the Rockefeller Institute of Government.

State tax revenues continued to rebound during the third and fourth quarters of 2010, according to the Institute’s latest quarterly State Revenue Report.

Compared to the same period a year ago, revenues increased 4.5 percent in the third quarter of 2010. Forty-three states reported total tax revenue growth during the third quarter, with 10 showing double-digit growth.

Preliminary figures for October-December 2010, for 41 early-reporting states, “indicate new strength in state tax revenues,” according to the report. Collections in that period were up 6.9 percent compared to a year earlier. Such a gain, if maintained in the full fourth-quarter data that will be available in several weeks, would represent the strongest growth since the second quarter of 2006.

However, these preliminary figures show overall collections for the fourth quarter of 2010 still only about 3 percent above the level of two years ago and just slightly below the level of three years ago. And several important indicators suggest broad state fiscal conditions remain fragile.

These include the record revenue declines during the Great Recession, continued upward trends in state spending, and unemployment rates that remain nearly double their pre-recession levels, to name a few. While some economic indicators signal improvement in overall conditions, fiscal recovery for the states typically lags a national turnaround and is likely to take several years.

“As states begin work on fiscal 2012 budgets, many will be forced to take further unwelcome actions, such as budget cuts and further increases in taxes and charges,” write the report’s authors, Lucy Dadayan and Donald J. Boyd. “Elements driving this still cloudy outlook include expiration of federal stimulus money and expenditure trendlines that would produce increases beyond the level of available revenues. States will continue to search for ways to climb out of a very deep hole.”

For a full copy of the report, visit www.rockinst.org.

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