The two-year slide in tax collections that opened a $196 billion gap in U.S. state budgets has stopped, according to a Bloomberg article dated March 30th, easing pressure on credit ratings and giving leeway to lawmakers as they craft spending plans for next year. The 15 largest states by population forecast a 3.9 percent gain in tax revenue in fiscal 2011. The 50 states on average may increase collections by about 3.5 percent, the first time in two years the figure is expected to grow. Per their respective controllers, California took in 3.9 percent more since December than projected in January, New York got $129 million above forecasts in its budget year through February. In New Jersey, the second-wealthiest state per capita, January sales-tax collections were 1.9 percent higher than a year earlier, the first annual increase in 19 months.
States collected about $79 billion less in sales, income and corporate taxes in 2009 than in 2008, as the economy struggled through its deepest slump since the Great Depression. The end of the collections crash will ease fiscal strains in the states and hopefully return them to better financial standing. Still, states are clearly not out of the woods as housing and employment concerns, and the end in 2011 of help from the American Recovery and Reinvestment Act, will continue to pose signifiant challenges.
Despite the fact that state budgets are still under considerable stress, it is important to note that no state general obligation bond has defaulted since the Civil War. While we expect there to be bumps in the road as the states attempt to regain solid footing, the trend is positive. The opportunity arises when there is disparity between perception and value. MainLine West is deeply involved each and every day in the municipal markets in order to identify those values, while continously monitoring the creditworthiness of existing client holdings.