State tax revenue shortfalls hurting consumers

And don’t forget the broader economy, where raises for workers and funding for education and parks are getting cut

States are scrambling to fill budget shortfalls by cutting spending on things like raises for workers and funding for education and parks as revenue tumbles in a sluggish economy, further hampering U. S. growth.

Total state government payrolls have been stagnant this year and fell by 4,000 in September from the year- ago period, the first annual decline in three years, Labor Department figures show.

And while the Commerce Department this week is expected to report an acceleration in the U. S. economy in the third quarter after a listless nine months, state and local government spending again could subtract from growth. That category has been a drag on the economy in two of the past three quarters.

“I would expect it to be very weak,” economist Dan White of Moody’s Analytics says.

City and county governments rely largely on property tax revenue, which has climbed along with home values in recent years. States, by contrast, draw 43% of their income from personal income taxes and 31% from sales taxes, says John Hicks, head of the National Association of State Budget Officers.

Sixty- four percent of states surveyed fell short of their projected sales tax collections last month, up from an average 42% during the 7year- old economic recovery, according to the Liscio Report, which tracks state finances. And 47% of states took in less than anticipated in personal income taxes withheld by employers, up from a 40% average since the recession.

Virginia Gov. Terry McAuliffe recently said the state faces a $ 1.5 billion budget shortfall over the next two years it will partly close by drawing $ 125 million from raises intended for teachers and state workers. Other states — including Massachusetts, New Mexico, Mississippi and Missouri — are similarly grappling with disappointing income in fiscal 2017, which began July 1 for most states.

The budget crunches began in fiscal 2016. State tax revenue fell 2.1% in the second quarter compared to the year- ago period and is set to rise a meager 1% in the third quarter, based on preliminary estimates, says Don Boyd, Rockefeller’s director of state fiscal policy. Typical increase: about 5%. “It’s a very stressed environment that has gotten worse rather than better,” he says.

State spending, in turn, is expected to rise 2.5% in the current fiscal year, below increases of 3.8% last year and 4.2% in fiscal 2015, Hicks says.

To help cope, Illinois recently drained its $ 275 million rainy day fund to pay for things such as food and medicine in state facilities, leaving the state vulnerable in case of recession.

Massachusetts chopped $ 260 million in spending — including from Medicaid, a kindergarten expansion and state parks — to help close a $ 750 million budget hole.

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