The Rockefeller Institute of Government, the public policy research arm of the State University of New York, warned in its latest quarterly report that, as the economic distress on Wall Street spreads nationally, states may be forced to curtail spending. The report noted that the 3.6 percent tax revenue increase observed in 2007 masked underlying declines in state sales taxes (1.4 percent), corporate income taxes (8.3 percent), and motor fuel taxes (3.4 percent). These declines, offset by an ephemeral 6.6 percent increase in income tax collections, may be taken as an indication that states will face revenue shortfalls in FY2008-09.
Some states have already announced midyear budget cuts. Georgia is withholding six percent of funding to most of its departments, and plans larger cuts in January; Ohio's governor called for $540 million in budget cuts; and New York's governor ordered state agencies to curtail spending by ten percent and advised them not to expect appropriations increases in FY2009-10..