I like to mention it when Arizona gets some “Best of. . .” award.  And there have been lots (see my blog post, From Best Cities for Jobs to North American City of the Future — Greater Phoenix Is It).  Yet the other day we were ranked #1 on a not-so-great list: Business Week’s list of the ten states with the biggest tax shortfalls.

And that prize goes to. . .

1.  Arizona: 13.6% drop in tax revenue; 5.5% drop in home values

2.  Florida: 10.3% drop in tax revenue; 8.15% drop in home values

3.  Rhode Island: 6.2% drop in tax revenue; 3.04% drop in home values

4.  Nevada: 4.9% drop in tax revenue; 10.3% drop in home values

5.  Georgia: 3.8% drop in tax revenue; 2.23% increase in home values

6.  New Jersey: 0.3% drop in tax revenue; 1.15% drop in home values

7.  California: 0.1% increase in tax revenue; 10.58% drop in home values

8.  Washington: 0.2% increase in tax revenue; 2.92% increase in home values

9.  Delaware: 0.3% increase in tax revenue; 1.02% increase in home values

10.  Tennessee: 0.6% increase in tax revenue; 3.9% increase in home values

Not coincidentally, many of the states on the list have been hit the hardest by the real estate downturn.  As property values drop, so do property tax revenues.

“State tax revenue pays for everything from health care to education, but falling home sales, job losses, and weak corporate earnings have drained coffers. A new study reveals the states that will see the biggest shortfall in tax revenue and what that could mean for the residents of the hardest hit.”

Arizona topped the list with the largest tax shortfall.  According to the Business Week data, which comes from the Nelson A. Rockefeller Institute of Government, Arizona’s tax revenue has declined 13.6% in the last year, as property values have fallen 5.5% across the state.

“On Thursday the Arizona legislature approved a budget plan for the coming year that eliminated a $2 billion shortfall by cutting spending for college construction projects and expanding revenue by beefing up photo enforcement and the state lottery.”

The article hinted at what a tax shortfall means for Arizona: cutting spending for the state’s universities, for example.

“Arizona was hit hard by the subprime crisis, and its economy has slowed significantly since mid-2006. Lawmakers are trying to make up a $1.9 billion budget shortfall for fiscal 2009 and are considering borrowing $501 million for school construction, pulling money from the ‘rainy day’ fund, and making cuts to the state universities, the Economic Security Dept., and the Arizona Health Care Cost Containment System of the Dept. of Health Services.”

To note, not all of the states on the list actually had tax revenue declines in the last year.  Yet they still have a spot in the top 10 for existing or impending budget shortfalls.  While tax revenues didn’t fall in California, for example, the state is facing a $17 billion budget deficit.