All of this is financed by an unexpected surge of tax revenues. State income-tax collections through April tax filing rose by 17% over last year, according to the Nelson A. Rockefeller Institute of Government (at the State University of New York, Albany).
But here’s the rub. In most non-oil states, revenues are up because tax-filers and companies cashed in one-half trillion dollars of capital gains, dividend and other income at the end of 2012—just ahead of President Barack Obama’s federal tax hike. This April’s increase in state revenues was in large part a one-time shot in the arm.
As the Rockefeller Institute notes, state revenue growth in the fourth quarter of 2012 (which is part of fiscal year 2013) surged by “25.2%, up from the 6.7% median increase for the first three payments” of the year based on quarterly tax payments. U.S. Treasury data, a lead indicator about state revenues, reveal that non-withheld federal taxes for the April 2013 tax-filing season were up 37% from the same period last year.
Nevertheless, unless the economy picks up significantly and soon, the higher tax collections will not continue. If they don’t, then states will be saddled with windmills, ballet centers and transit white elephants they can’t afford. This will inevitably prompt new demands for tax hikes.