A historic nosedive in state tax collections extended into the third quarter of the year, and only an infusion of federal economic stimulus money has averted widespread program cuts and worker layoffs.

Tax collections from July through September dropped an average of 8.3% from a year earlier in the eight states that release up-to-date monthly tax figures, a USA TODAY survey found. New York’s tax collections fell 8.9%, despite an income tax hike earlier this year. States reporting partial third-quarter results showed a similar downward spiral in tax collections, including 13.2% drop in Arizona.

Federal stimulus money has protected states from making big cuts in the number of government workers, in aid to schools or in spending on Medicaid, the health care program for the poor. But most federal stimulus money ends in December 2010.

The result is a potential financial cliff for states. “It’s hard to imagine what happens when stimulus money runs out,” says Craig Thiel, a budget expert at the non-partisan Citizens Research Council of Michigan.

The latest declines come on top of a 15% nationwide drop in tax collections during the first six months of the year. “The slide downward continues with no end in sight,” says Robert Ward, head of financial research at the Rockefeller Institute of Government.

The White House has been mum on extending federal aid to states. Most governors present their fiscal year 2011 budgets in January, and legislatures are supposed to approve them by June.

The stimulus program, approved in February, is providing states about $200 billion for spending on health care, education, highways and other programs. The flood of federal cash has plugged most of the hole created by missing tax collections.

In Ohio, tax collections fell 12.1% in the third quarter, but total state revenue dipped just 2.5%. What made the difference: a $363 million infusion of extra cash from the federal government.

New York is facing a “cash crunch” — an inability to pay its bills, similar to what California recently experienced — as early as December. “It’s financial disaster in as far as the eye can see, and it gets worse when the stimulus runs out,” says E.J. McMahon, director of the conservative Empire Center for Public Policy.

The National Governors Association and the National Conference of State Legislatures, two key lobbying groups for states, haven’t taken a position on a second aid package.

The liberal Center on Budget and Policy Priorities suggested in a report last week that aid should be phased out gradually, rather than ended next year.

“The economy is coming back, just not as soon as we had hoped,” says Nick Johnson, director of the center’s state fiscal project.

“There’s a need for additional aid. The question is how you do it,” says Dean Baker, co-director of the liberal Center for Economic and Policy Research.

Arizona state Rep. John Kavanagh, a Republican who chairs the state House Appropriations Committee, has mixed feelings about more federal aid, on top of the $1 billion-plus his state has received.

“The appropriations chair side of me says, ‘Yeah, send more money,’ ” Kavanagh says. “But the citizen side of me says, ‘No way, not another bailout.’ ”

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