Only eight states had to resort to hiking taxes in 2004 to balance their books, a sign that states’ fiscal squeeze may finally be over, researchers said in a new report released Nov. 22.

The eight states — Alabama, Arkansas, California, Colorado, New Jersey, Oklahoma, Rhode Island and Virginia — collectively raised $2.6 billion in higher taxes in 2004, considerably less than the $7 billion states raised from higher taxes in 2003, a report from the Nelson A. Rockefeller Institute of Government, the policy research arm of the State University of New York, said.

The tax hikes in 2004 came from both the statehouse and the ballot box. Five of the tax increases came from lawmakers (Alabama, Arkansas, New Jersey, Rhode Island and Virginia) while three came from voters (California, Colorado and Oklahoma) who approved ballot measures in this month’s elections. The most common hike: cigarette and tobacco taxes.

The tax increases included in the report are those that increase or decrease a state’s revenue by at least 1 per cent.

This year’s round of tax hikes may be the last linked to the 2001 recession that forced states to slash programs to fill huge holes in their budgets. “Most states are past the recession effects on their budgets and moving well into recovery,” the report said.

While most states are on more secure financial footing, Rockefeller points to California as an example of a state that used one-time fixes to patch its budget and will have problems in the coming year. California is looking at a $6 billion budget gap for fiscal 2006.

On top of this, states still have to deal with depleted reserve funds and rising Medicaid costs, not to mention pressures to increase spending in education and homeland security, the Rockefeller report said.

The tax hikes in 2004 came from lawmakers in Arkansas and Virginia who raised sales taxes, garnering $360 million and $202 million respectively. New Jersey boosted its personal income tax, bringing in $800 million. Alabama and Rhode Island upped the tobacco tax, adding $88 million and $35 million to their ledgers.

Voters in the 2004 elections in Colorado and Oklahoma agreed to increase tobacco taxes and use the money to expand health care. Colorado expects its higher cigarette tax to bring in $175 million and Oklahoma, $149 million. California voters decided to impose an additional 1 per cent to the personal income tax for those making more than $1 million a year and will use the money for mental health programs. The $750 million raised will go to mental health programs.

Only two states cut taxes: Iowa re-enacted an energy sales tax phase-out that had been suspended for a year costing $63 million and New Hampshire cut $30 million from state coffers to reduce property taxes. —

Contact Pamela M. Prah at pprah@stateline.org