State tax revenue up, fear of muni defaults down

State tax revenue overall improved during the first half of the year, a sign that the recent default on a bond payment by Harrisburg, Pa., may not be a harbinger of things to come. Overall state tax revenue grew by 2.2% in the second quarter from a year earlier, according to preliminary data issued by The Nelson A. Rockefeller Institute of Government. “This is the second consecutive quarter that states are reporting growth in overall tax collections on a year-over-year basis,” according to the report. “Such growth is at least partially driven by legislated changes in several states.” Thirty of 47 early-reporting states reported gains in overall tax collections, while 17 saw declines. Personal-income-tax revenue increased by 1.6% for the nation. The report seems to indicate good news for municipal-bond investors, who may have been worried in the wake of Harrisburg's disclosure this week that it was defaulting on a $3.29 million payment on a general-obligation bond. The payment, which was due in two weeks, is insured by Ambac Financial Group Inc., which has said that it would cover the payment. Nevertheless, some experts speculated that the Harrisburg default might signal a wave of muni-bond defaults. But that isn't the case, said Christine Todd, managing director of tax-sensitive strategies at Standish, a subsidiary of BNY Mellon Asset Management that specializes in fixed income. “The Harrisburg situation is an anomaly,” she said. “Where you are seeing a pattern is in the number of states reporting higher revenues.” Muni-bond investors are fully in the clear, however. Of the 17 states that reported declines in tax collections for the second quarter, Wyoming reported the biggest drop, at 28.2%, followed by Louisiana at 22.1%, according to the report. “With revenues still below pre-recession levels and question marks surrounding the national economy, states face continued uncertainty at best — with continuing budget challenges a sure bet,” according to the report.