State sees biggest drop in revenue

How hard is the recession hitting Utah? State tax revenues dropped here by a bigger percentage than in any other state during the last quarter of 2008, according to a new study.

The Rockefeller Institute of Government, a New York-based group that studies state and local governments, reported Thursday that Utah tax revenues dropped by 16.5 percent in the fourth quarter, compared to the same quarter a year earlier.

That was the biggest drop it found among the 47 states that report such data early. Nationally, the average drop was 3.6 percent — so the drop in Utah was four times higher.

Economists say part of that revenue drop was because of the economy, and part was from tax changes.

"We went from a boom economy to a recession, while a lot of places were going from a middling economy to a recession," which may be one reason behind Utah's big drop by percentage, said Roger Tew, a former state tax commissioner who researches tax and economic policy for the Utah League of Cities and Towns.

While he had not studied the report specifically, he said that because Utah's economy before the recession had been among the hottest in the nation, "When you're at the top of the heap, you can fall a lot farther than someone else, but you're not necessarily doing worse than anybody."

Andre Baksh, tax economist for the State Tax Commission, said several tax changes (including reducing the sales tax on food) also brought in less revenue. "When you add all those up, it does take a lot out of the base." While he said "the economy is taking a beating right now," the decline in revenues coming from the economy and not tax changes is around 7 percent.

The new report said that for the first quarter since 2002, states nationwide reported an overall drop in all three of their major revenue sources at the same time — sales tax, personal income tax and corporate income tax.

Utah had worst-in-the-nation drops in two of those three categories, the report said.

Its sales tax revenues dropped by 16.8 percent in that quarter (which included Christmas holiday spending), the nation's worst. The national average drop that quarter was 5.9 percent.

Doug Macdonald, a former chief economist for the State Tax Commission who is now an economic consultant, said of that 17 percent drop in sales tax revenue, he figures about three of those percentage points came from a removal of sales tax on food "and the rest came from the economy."

Utah's personal income tax revenues dropped 17.4 percent that quarter, also worst in the nation. The national average drop that quarter was just 0.4 percent.

Macdonald said he figures that up to 12 of those percentage points came from people making mistakes with withholding under a new flat tax system, and the rest from the economy.