State tax revenues grew again in the second quarter of 2011 — the end of the fiscal year for 46 states — marking six straight quarters of year-over-year growth and the strongest annual gains (8.4%) since 2005, according to a Rockefeller Institute of Government report.

Although revenues remain lower than they were four years ago, the increase indicates states are beginning to recover from one of the worst fiscal conditions since the Great Depression.

But for local governments, tax collections have headed in the opposite direction. The second quarter of 2011 marked the third consecutive quarter of declines in local property tax revenues. In total, local property taxes were down by 1% in the second quarter of 2011 compared to the same quarter of 2010.

The National Association of State Budget Officers (NASBO) also reports that 2011 state fiscal conditions are somewhat improved compared to 2009 and 2010, which coincides with national economic trends. However, states still face numerous challenges as they enter 2012, warn NASBO, including an end to funding from the American Recovery and Reinvestment Act of 2009.

“So far, 83% of 2009 stimulus money has been spent,” concurs Ed Sullivan, vice president and chief economist for the Portland Cement Association, in his most recent industry forecast, published in November. Sullivan predicts highway spending in 2012 could fall by double digits.

The current economy probably won't support continued increases in tax revenues. The nation's economic climate continues to be impacted by troubles in housing markets, weak consumer confidence, and significant economic challenges in other countries — with little chance of future economic stimulus from the federal government.

Next year will present difficult choices as state and local governments deal with the fallout from cuts in federal aid, which may include discretionary spending and entitlements, specifically FEMA state and local programs and Medicaid, states NASBO.