Has State Revenue Recovered? It Depends on the Numbers

By: - December 19, 2011 12:00 am

It sounds like a simple question: Is state revenue back to pre-recession levels? This month, however, three respected organizations that study state finances couldn’t agree on the answer.

First up was the National Conference of State Legislatures, which declared in a report released December 1, “State tax collections still remain well below pre-recession levels.”

Next up was the Nelson A. Rockefeller Institute of Government, which just a week later reported exactly the opposite: “After seven quarters of growth, overall state tax revenues have recovered to pre-recession figures.”

A few days later, the National Association of State Budget Officers seemed to contradict Rockefeller and agree with NCSL. While noting improving revenue in the last year, NASBO declared : “However, even after this growth, general funds and state revenue remain well below pre-recession levels.”

So, is state revenue back to pre-recession levels or is it well below them? There’s no one right answer. It all depends on how you make the calculation and where the data come from.

The groups get their data from different places. NCSL surveys legislative fiscal officers. NASBO bases its conclusion on the budgets states enacted for the current fiscal year. Meanwhile, Rockefeller looks at actual tax collection information states are reporting.

Another crucial difference between Rockefeller’s analysis and that of NASBO and NCSL is that Rockefeller is looking at quarterly revenue figures. The conclusion that tax revenue is back to pre-recession levels was based on comparing tax collections from July through September of this year to July through September 2007. The recession officially began in December 2007.

NASBO and NCSL, on the other hand, focus on full years. NASBO’s conclusion uses as its baseline the 2008 fiscal year — which ran from July 2007 to June 2008 in most states, straddling the start of the recession. The comparison is with expected revenue for the 2012 fiscal year, which began in July.

So, based on real state tax collection data, Rockefeller can correctly say that revenue for the most recent quarter is running ahead of where it was before the recession began. That’s no guarantee, however, that the full year’s tallies will be higher than four years earlier.

Nor, at their heart, are the three groups coming to different conclusions about the state of state tax revenue. All of them agree that revenue is rising, but that in meaningful ways states are still trying to dig their way out of the hole the recession left.

Lucy Dadayan, a senior policy analyst with Rockefeller, points out that even Rockefeller’s quarterly numbers show that most states are still short of their revenue peak. Many states peaked in 2008, after the recession began. Plus, Dadayan notes that states have only returned to pre-recession revenue if you don’t account for inflation and population growth. Even if their revenue is up nominally, that doesn’t necessarily means states have the money to provide the same level of services they did four years earlier.

“I wouldn’t say states have recovered, but I would say that states are on the road to recovery,” Dadayan says. “After so many quarters of bad news, we wanted to say some good news.”

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.