Housing slump is putting pinch on state tax revenues

MIAMI -- State tax revenues around the country are growing far more slowly this year and in some cases falling below projections, a result of the housing market slowdown that has curbed voracious spending on real estate, building materials, furniture, and other items.

Nowhere is the downturn more apparent than in Florida, where tax revenue is projected to drop this year for the first time since the energy crisis of the 1970s.

But other states, especially those where housing prices soared in recent years, are also seeing their collections slow, especially in the sales and real estate transfer tax categories. While the economy remains generally strong and it is too early to predict whether the housing slump will have long-term effects, some states will have to adjust their wish lists.

New Jersey could face a $2.5 billion shortfall by mid-2008, Governor Jon S. Corzine has said, and may lease its turnpike or its lottery to a private company to raise money. In California, where income tax receipts in January were $1 billion less than forecast, a legislative analyst has urged budget cuts and warned that the state could have about $2 billion less in revenue this year and next than Governor Arnold Schwarzenegger has projected.

Arizona, California, Nevada, and Florida are expected to suffer disproportionately from the slump.

"It's the year of the housing hangover," said Sean M. Snaith, director of the Institute for Economic Competitiveness at the University of Central Florida.

New home sales nationally fell in February to the lowest rate in seven years, and homeowners who tapped into home equity and spent extravagantly during the housing boom have started to cut back.

Those events threaten revenue streams for such things as building materials and labor, and affect spending on big-ticket items such as cars and furniture, which many homeowners financed with home equity lines of credit.

Chris McCarty, survey research director at the Bureau of Economic and Business Research at the University of Florida, said it would be foolish to "underestimate the effect that the inability to extract equity from homes is going to have."