Capitol Alert

California post-recession tax revenue growth exceeds U.S. average

An oil truck sits in a dirt lot near a new housing development in North Dakota earlier this year. Oil has propelled the economy in the state, where tax revenue in the second quarter of 2014 exceeded the state’s pre-recession peak by 119.2 percent.
An oil truck sits in a dirt lot near a new housing development in North Dakota earlier this year. Oil has propelled the economy in the state, where tax revenue in the second quarter of 2014 exceeded the state’s pre-recession peak by 119.2 percent. AP

Despite dropping during the first three months of the year, state government tax revenue continued to surpass pre-recession levels through the end of June, according to a new study by The Pew Charitable Trusts.

California is among 21 states where tax revenue in the second quarter of 2014 surpassed (after adjusting for inflation) what it was before revenue collapsed during the recession, the Pew report found. California received $34.9 billion in tax revenue from April through June of this year, 5.5 percent higher than its pre-recession high of $31.3 billion in the third quarter of 2006. That is more than triple the U.S. average of 1.6 percent.

North Dakota topped all states, with an oil boom increasing tax revenue 119.2 percent over its pre-recession high. Next on the rebound list were Illinois (19.8 percent) and Minnesota (16.3 percent). In California and most of the other 21 states, tax increases helped produce the tax revenue recovery.

In 29 other states, tax revenue trailed pre-recession levels after adjusting for inflation. Alaska revenue is down almost 69 percent from its 2008 peak, but that was when oil prices hit record levels and a new state oil tax took effect. It also is lower in New Mexico (-27.3 percent), Wyoming (-26.5 percent) and Florida (-18.7 percent.)

The chart below shows how California’s total quarterly tax revenue compared to its pre-recession peak, along with the U.S. average.

“As states regain fiscal ground lost in the recession, policymakers face pressure to catch up on investments and spending postponed due to the downturn,” the Pew report reads. “That may be more difficult in states where tax revenue remains below its previous peak. But even a return to peak levels can leave states with little extra to make up for cuts in federal aid or to pay for costs associated with population increases, growth in Medicaid enrollment, deferred needs, and accumulated debts.”

Call Jim Miller, Bee Capitol Bureau, (916) 326-5521. Follow him on Twitter @jimmiller2.

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