States across the country experienced continuing sharp declines in tax revenue during the third quarter of the year, meaning more spending cuts and perhaps more tax increases are on the way.
The latest report from the Nelson A. Rockefeller Institute of Government found that overall tax revenues declined 10.7 percent for the 44 states reporting third-quarter results, from $134 billion in the third quarter of 2008 to $119.7 billion in the same period this year.
Revenue from personal income taxes fell 11.4 percent and sales tax revenue dropped 8.2 percent. The Rockefeller Institute expects the trend to continue in the fourth quarter.
States in the Southeast region experienced the smallest overall decline in tax revenue collections, falling 8.1 percent. States in the Southwest and Rocky Mountain regions saw the largest declines of 21.5 percent and 15.7 percent, respectively.
The drop in tax revenue is going to force some hard choices for the states, and could mean further spending cuts and layoffs by state and local governments next year. Stimulus money from Washington is still dribbling into the pipeline, and the Obama administrations renewed commitment to reducing unemployment could mean more infrastructure spending and further aid to states that threaten layoffs, possibly even a job creation tax credit. But whatever happens, the overall trend does not look positive.