All seven states in the Federal Reserve Bank's Eighth District saw declines in tax revenues from fiscal 2008 to fiscal 2009, according to a report from Fed economist Thomas Garrett.
The report, "Recession Takes Toll on Eighth District Tax Collections," shows that of the states in the district - which covers eastern and southern Missouri, all of Arkansas, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi - Illinois saw the steepest decline at 9.56 percent, while Mississippi saw the smallest drop at 2.23 percent. Missouri's revenues were down 3.87 percent.
The 5.95 percent combined decline of the entire region was slightly less than the 6.09 percent national average.
Garrett said the recession affected the three main tax bases in different ways, leading to variance in the magnitude of revenue declines.
"The degree to which an economic contraction affects consumption, employment and income in each state can explain part of the difference in the performance of the three tax revenue sources across the states," Garrett said in a news release.
He also noted that states get varying amounts of revenue from different types of taxes. So a drop in retail sales will affect Missouri, which gets 25 percent of its total revenue from sales tax, much less than Tennessee, which derives nearly 80 percent of revenue from sales taxes.
Garrett said state budget pressures will continue until economic conditions improve, since better tax revenue is dependent on increases in consumer spending, employment and business investment.
"As long as state governments rely on revenue sources that are linked to economic performance and fail to adequately save during prosperous times, it is certain that states will once again find themselves facing budget shortfalls during the next economic slowdown," Garrett said in the release.
