By Dennis Cauchon, USA TODAY
Tax collections are surpassing projections, the clearest sign yet that state and local government finances are on the mend as the economy improves.
Sharp rises in tax collections since July, especially in the last three months, have boosted tax revenues to levels not seen since 2008, a review of tax reports shows. Including federal aid, state and local government revenue is running at a record high.
States have added workers each of the last three months and now employ more people than when the downturn started, although local governments continue to trim.
Serious challenges remain: financing long-term pension obligations, rebuilding budget reserves and repaying funds raided for unrelated expenses.
In the short term, though, the outlook is brightening. Nearly every state is reporting tax collections above what it expected and higher than a year ago:
• Georgia. State tax collections are up 7.4% in the first five months of the fiscal year, through November. The state had budgeted for a 4% increase.
• California. Tax collections are up 8.6% — $2.5 billion in the five months ended Nov. 30. State Controller John Chiang says the state shouldn't face a cash crisis for the rest of the budget year.
• Ohio. The hard-hit state reported tax revenue up 7%. "November was another month of strong tax performance," said the state's budget report.
Other solid gains: New York, Illinois, Florida, Michigan, Rhode Island, West Virginia and Hawaii.
"We're getting revenue growth that you'd see in a reasonable expansion," says Wisconsin Department of Revenue chief economist John Koskinen.
State and local revenue rose more than 6% nationwide in the first nine months of 2010, the biggest increase over inflation since 1999, Bureau of Economic Analysis data show.
The $200 billion in federal stimulus aid received since February 2009 offset declines in tax revenue, making Washington the No. 1 source of money.
The federal government will provide $50 billion more in state aid in the next six months. The extra aid declines in the budget year that starts July 1.
State and local government spent a record $2.1 trillion in 2010 — about two-thirds by states. Elected officials would have to make immediate payments of $600 billion for pensions and $1 trillion for retiree health care to make those programs solvent.
Forty-three legislatures start work this month on budgets that must be finished by June 30. "We have marching orders from the public for fiscal austerity," says Indiana state Sen. Brandt Hershman, a Republican who chairs the tax and fiscal policy panel.