Moody’s: R.I. one of states facing ‘muted revenue growth’

THE MAP SHOWS how regional economic trends play a role in tax revenue growth; here, employment growth in March compared with March 2015 is shown. Rhode Island's growth was between 1 and 1.99 percent. / COURTESY MOODY'S INVESTORS SERVICE
THE MAP SHOWS how regional economic trends play a role in tax revenue growth; here, employment growth in March compared with March 2015 is shown. Rhode Island's growth was between 1 and 1.99 percent. / COURTESY MOODY'S INVESTORS SERVICE

(Updated 12:50 p.m.)
PROVIDENCE – Rhode Island is one of several states facing “muted revenue growth” in 2016, Moody’s Investors Service said Friday in its report “States – US: State Tax Revenues Still Growing, but at a Slower Pace.”

The Ocean State, rated Aa2 stable, was noted as a laggard for the state’s projection of 0.4 percent in lower overall tax revenue this year, as well as little middle class job growth, and its high unemployment rate, which has been above the national rate for 10 years and usually is the highest in New England.
The R.I. Department of Revenue said that for the first nine months of the fiscal year, cash collections increased nearly 3 percent compared with the prior fiscal period, to $2.6 billion, from $2.5 billion, noting increases in personal income tax revenue over the year of 6.5 percent, and sales and use tax of 2.9 percent. The 0.4 percent projected decline was discussed during the state’s Revenue Estimating Conference in the fall.
Moody’s said Rhode Island’s growth in combined income and sales tax revenue is expected to be 0.8 percent, a drop from 7.8 percent growth last year.
In comparison, Massachusetts was singled out as a “strong performer” with an Aa1 stable rating. Growth in combined income and sales tax revenue is expected to be 4 percent this year. In comparison, Washington’s (Aa 1 stable) growth is expected to be the highest at 7.2 percent, while North Dakota’s is expected to be the lowest, at a 23.2 percent decline.
Moody’s said economic growth is expected to be slowest in energy-producing states such as North Dakota, which was rated Aa 1 negative.
Moody’s said tax revenue growth for U.S. states remains positive overall, but the pace of growth will slow slightly in 2016. After growing more than 5.5 percent last year, aggregate tax revenue growth is likely to be less than 4 percent for 2016, Moody’s said.

“Reasons for the slowdown among non-energy states include lackluster stock market performance, cautious discretionary spending and sluggish overall growth,” Moody’s AVP-Analyst Dan Seymour said in a statement.

Low commodity prices are driving the tax revenue slowdown, but Moody’s said many Western states, including California (Aa3 stable), Oregon (Aa1 stable), Utah (Aaa stable) and Colorado (Aa1 stable) are seeing healthy growth, thanks to an “advantageous industrial base, dynamic demographics, and a well-educated workforce,” Moody’s said.

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