Another question this raises is just how much money will be needed in a reauthorization bill, according to sources in Washington. The House Transportation and Infrastructure Committee’s chairman Jim Oberstar wants a $500 billion bill (75 percent for highways) but if states and local governments have nothing in the cupboard raw Washington dollars may have to be increased.

These numbers are appearing as the Federal Reserve reports the national economy is showing “modest improvements” in its latest Beige Book, an eight times year review from businesses across America. The Fed said gathered information “indicated either stabilization or modest improvements in many sectors since the last report, albeit often from depressed levels.” But the Book’s hesitant optimism may reflect a limited relief.

“Many econonists believe that the national recession has ended and that a tepid recovery is now underway,” wrote the authors of the Rockefeller report, the Institute’s senior policy analyst Lucy Dadayan and senior fellow Donald J. Boyd. “In fact, the state coincident economic indexes we include in this report show that 41 states had declining economies in August (compared with three months earlier) — an improvement from the 48 states that were declining in July. Unfortunately for states, an emerging economic recovery does not spell instant budget relief.

“As we have noted previously,” wrote the authors, “some elements of the economy that are very important to state finances — particularly employment and wages — are likely to recover more slowly than gross domestic product. In addition, state tax revenue, when it does begin to recover, will be below its earlier peak for at least several years and will not be sufficient to support spending commitments that are now in place. Despite the recovery, most states will face budget gaps this fiscal year and next, and probably for at least one to two additional years.”

Highway and bridge projects states and local authorities had expected to work on in the near future will inevitably come under scrutiny as states have to back away from commitment, said the Washington executive.

Worst tax collection drop since the ‘60s

The Rockefeller Institute has compiled historical data from the Census Bureau website going back to 1962. The finding: both nominal and inflation adjusted figures indicate that the second quarter of 2009 marked the largest decline in state tax collections at least since 1963. The same is true for combined state and local tax collections.

For the year ending in June 2009, the period corresponding to most states’ fiscal years, total state tax collections declined by $63 billion or 8.2 percent from the previous year, according to the Institute report. That loss is also a record, and is roughly twice the amount states gained during the year in fiscal relief from the federal stimulus package.

Preliminary figures for July and August for 36 early-reporting states show continued deterioration, with overall tax collections dropping 8 percent. Early indications of September income tax payments provide further evidence of more troubling news for states during the third quarter of 2009. Local tax revenue declined by 2.8 percent in nominal terms and 4.2 percent in real terms, marking the first such decline since 2003.