May 5, 2009

Federal grants surpass state tax revenues

Revenue streams for state and local governments shifted dramatically in the first quarter of 2009, the U.S. Bureau of Economic Analysis said.

Since the mid-1970s, the largest source of funding for state and local governments has been sales tax. In the years before that, property taxes were the largest source of state and local government revenue, USA Today reported Tuesday.

With a combined increase in federal aid and a decrease in tax revenues due to the recession, federal grants, up 15 percent to $437 billion in the first quarter, have taken over as the No. 1 revenue source in state and local budgets.

The shift, however, comes with a price, Indiana state Sen. Jim Buck said, that being increased federal control and a growing debt burden.

Nick Johnson at the Center on Budget and Policy Priorities said federal intervention has more to do with the severity of the recession than anything else.

The Bureau of Economic Analysis said sales tax revenues fell at the end of 2008 for the first time since it began tracking the data in 1958. Property tax revenues are mostly holding steady, but income tax revenues have dropped sharply as capital gains on investments have dropped, the newspaper said.