State tax collections, which during the recession experienced their steepest and longest drop since at least the Great Depression, have been climbing back for the last two years and finally surpassed their previous peaks as 2011 drew to a close, according to a report issued on Thursday.
The total amount of tax revenue collected by the states was 3 percent higher than it was during the last quarter of 2007, when the recession hit, according to the report, by the Nelson A. Rockefeller Institute of Government, in Albany. But the recovery has been uneven: 17 states collected less in taxes in the last quarter of 2011 than they did four years earlier.
Surpassing the 2007 peak in collections was an important milestone for the states, which have struggled mightily to balance their budgets in recent years. But huge challenges remain, as their populations and the cost of providing services have continued to rise, and the growth in tax collections has begun to soften.
“You could say that the glass is half-full, but we have to be aware that the glass is still half-empty, and states still have a long way to go before full recovery,” said Lucy Dadayan, a senior policy analyst at the institute, who wrote the report.
The outlook varied by region. The Plains region had the biggest gains, with states there collecting 12.5 percent more in taxes in the last quarter of 2011 than they did during the same period a year earlier, followed by the Great Lakes region, which had an increase of 8.9 percent.
The only region that had a decline was the Far West, which had a 3.9 percent decrease, driven by an 8.3 percent decline in California, where several temporary tax increases lapsed.
While the outlook for states has improved, local governments continue to struggle as property tax collections are hurt by declines in home values. The report warned that “services and functions that are largely funded by local governments, such as education and public safety, are likely to be under severe fiscal pressures for some time if current trends continue.”
Even as tax collections climb back, states are a long way from providing the kinds of services that they did before the recession, according to another report issued on Thursday, by the Center on Budget and Policy Priorities, a research and advocacy group based in Washington.
That report found that states have made $290 billion in spending cuts over the last five years — nearly three times what they raised through tax increases — and that state and local governments have shed more than 600,000 jobs since the recession began.
These cuts, in addition to payment reductions to vendors and nonprofit organizations, have put a drag on the nation’s economic recovery.
“There are long-term effects as well,” the report by the center warned.
“By diminishing the quality of elementary and high schools, making college less affordable and reducing residents’ access to health care, the cuts threaten to make the U.S. economy less competitive in coming decades,” it said.