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State Tax Revenue Rebounds

By Brian Chappatta

U.S. state tax collections rose 6.1 percent from July 2011 to September 2011, the seventh straight quarter of growth, and now exceed pre-recession levels, according to a report from the Nelson A. Rockefeller Institute of Government. The increase was relative to the same period of 2010, the Albany, New York-based group said yesterday. Preliminary figures from 44 states also show revenue growth of 5.2 percent in October and November compared with the year-earlier period, signaling the streak may extend into the fourth quarter, according to the study. The recovery in revenue, along with Federal Reserve policy of keeping its benchmark interest rate near zero, helped the $3.7 trillion municipal market in 2011 record its biggest yearly rally since at least 1992.

While state collections have caught up to levels from before the 18-month recession that started in December 2007, revenue is still below the peak, which came several months into the contraction, the institute said. For fiscal 2011, 36 states were still below the high-point, the report said. “In recent months, state tax revenue has risen significantly while the overall economy has been growing at a relatively slow pace,’’ Lucy Dadayan, a senior policy analyst at the Rockefeller Institute, wrote in the report. “Such a disparity is not sustainable over time’’. The U.S. unemployment rate fell to 8.5 percent in December, from a peak of 10 percent in October 2009. The rate was 5 percent in December 2007, according to the Bureau of Labor Statistics. Tax-collection growth in the third quarter was the slowest since the same period of 2010, the report showed. At the end of fiscal 2011, collections were 3.5 percent below their peak, the report said.

Downgrades Rule

Downgrades of municipal debt exceeded upgrades for the 12th straight quarter from October 2011 through December 2011, according to Moody’s. About five ratings were cut for every one upgraded in the fourth quarter. The ratio was about 4-to-1 in 2011, with 518 cuts to 125 increases. Those 643 changes represent 3.6 percent of the 18,000 issuers rated by the company. “Against this uncertain backdrop, we foresee elevated downgrade activity persisting across most public finance sectors over the next several quarters, and possibly longer,’’ said Christopher Holmes of Moody’s.

— Brian Chappatta

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