The Dow Jones Industrial Average is on its way to posting another triple-digit gain Monday, as more encouraging data on the housing market boost hopes that happy days are here again for the U.S. economy.

Tell that to state governments.

State tax revenues have been in a freefall over the last year -- the steepest drop in tax collections seen in more than 50 years. Overall state tax revenues dropped 10.7% in the third quarter, compared to the same period a year earlier, in the 44 states providing tax data to the Nelson A. Rockefeller Institute of Government at the State University of New York. (Find the complete report here.)

Personal-income taxes fell 11.4%, while sales-tax revenues declined 8.2%. (About 80% of state tax revenues come from sales and personal-income taxes.) It was the fourth-straight quarter that both income-tax revenue and sales-tax collections declined, year-over-year. But the biggest drop by far was in corporate-tax revenue -- down a whopping 19.4% in the period in 44 states surveyed by the Rockefeller Institute.

(To see how your state compares to others in where its tax revenue comes from, click here.)

The drop in tax collections comes at a time when state and local government are struggling to keep up with demands from laid-off workers, and their families, who are desperately in need of unemployment benefits, food stamps, housing subsidies and health-care insurance. In order to make up for the severe budget shortfalls the drop in tax revenue has caused, many states are being forced to lay off their own state workers, borrow federal funds to pay for unemployment benefits, and slash funding for education and other vital government programs.

Increasingly, states are having to balance budgets on taxpayers' backs. At least seven states have already raised personal income and sales taxes to make up for budget shortfalls, according to an annual review of state legislative actions by Stateline.org, an online news site that tracks state governments. Seven more states have sharply increased " sin taxes" on cigarette and alcohol, and nearly a dozen have raised fees on everything from car registration to professional licenses to court fees. At least a dozen more states are now considering hiking their own taxes and fees to make up for the lost revenue.

Public education is also suffering from severe government cutbacks, forcing many public colleges and universities to hike tuition and boost student fees at an alarming rate. The University of California became the poster child for skyrocketing tuition last week, when it sparked a near riot among its students after approving a 32% increase (or about $2,500 a year) in tuition starting next fall.

The good news -- if there is any good news to be had in this fiscal mess -- is that states may now be experiencing the worst of the fallout from the Recession. Traditionally, state revenues are a lagging indicator of the strength of the country's overall economy, and state budgets are typically hammered the hardest in the year or two after a recession officially ends.

Still, many states are forecasting continued declines in revenues and some worry whether tax collections will be hit even harder when the federal government stops pumping stimulus dollars into the economy. Either way, state residents can expect to pay more in taxes and fees -- and college will become even less affordable for students than it is already -- until this economy "recovery" translates to tax dollars in the states' coffers.

Terri Cullen is an award-winning financial journalist. She was one of the original team of editors who helped to launch The Wall Street Journal Online. Terri is also the author of "The Wall Street Journal. Complete Identity Theft Guidebook." Read her bio to learn more about her.

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