Dow Rebounds, But Economic Signals Remain Mixed

The Dow Jones industrial average yesterday rose past the 10,000-point milestone for the first time in a year--evidence of a Wall Street rebound from the financial crisis--but fiscal woes are likely to persist, especially for state and local governments.

State tax collections across the nation from April through June dropped by a record 16.6 percent compared with the same period a year earlier, according to a report released today by the Nelson A. Rockefeller Institute of Government. The report observes that tax collections were down by $63 billion for the year ended in June—roughly twice the amount the states had received in stimulus money up to that point.

This dismal data highlights a hard truth: there can be a long delay between the time the economy begins to improve, as some economists believe is happening now, and the time that the change is reflected in state and local finances. Many people were out of work or earning less, income tax collections were down 27.5 percent for the quarter, and sales tax collections were off by 9.5 percent.

Will the economic climate get better soon? Not if history is any guide. While the most recent past recession officially ended at the close of 2001, states faced their worst budget crises in the two years that followed.