PROVIDENCE –– The state’s largest revenue sources –– income and sales taxes –– are down sharply through the first 10 months of the fiscal year, a further sign that Rhode Island’s financial problems are mounting as lawmakers struggle to balance the 2008-09 budget facing the largest deficit in nearly two decades.

Economists reported last week that Rhode Island is one of nine states across the country and the only one in New England experiencing an economic recession. State Tax Administrator David M. Sullivan supplied data yesterday detailing the effect of widespread job losses, stagnant wages and weak consumer confidence.

Sales tax collections are down $23 million, or 3.1 percent, compared with the same period last year, Sullivan reported, while income tax revenue is down $9 million, or 1 percent. Should the trend continue through the end of the fiscal year in June, as expected, it would be the first time that the state’s largest two revenue sources collectively fell since the early 1990s.

Governor Carcieri acknowledged the increasingly negative economic outlook in an interview yesterday with radio station WSAR, 1400 AM: “As far as I’m concerned we’re in a recession,” he said.

The weak tax figures were not a complete surprise. Most state officials expected revenues to fall, given poor economic forecasts.

The state’s unemployment rate grew to 6.1 percent as Rhode Island lost 7,200 jobs in the third quarter of last year. Personal income over the last year grew at less than the national average. And Rhode Island’s foreclosure rate was among the highest in the nation.

But the tax receipts reveal a weaker state economy than previously thought.

By contrast, the Massachusetts Department of Revenue reported that it has collected more than $2.7 billion through April — an increase of $400 million, or 17 percent, when compared to the same period last year.

“I thought we had revised the estimates down … to accommodate what the forecast was,” Governor Carcieri’s budget officer, Rosemary Booth Gallogly, said yesterday. “Now we’re seeing the spreads, or the actual revenues, coming in even less than what we estimated.”

The Division of Taxation reported sales and use tax revenue of $709.7 million through April of this fiscal year, compared with $732.4 million during the same 10-month period last year. Roughly 40 percent of the decline is attributed to a drop in tax revenue from automobile sales, according to Gary Sasse, director of the state Department of Revenue.

Income tax revenue has leveled off in recent months, but is still down 1 percent compared with last year: $896 million compared with $905 million. Business taxes did not escape the downturn: The state has collected $104.8 million so far this fiscal year in corporate taxes, down 4.3 percent from the same 10-month period last year of $109.5 million.

In a bit of good news, state lottery receipts totaled $265.8 million, up $33.2 million, 14.3 percent, from last year. The increase is attributed to strong performance by the state’s two video lottery parlors.

State budget analysts representing the House, Senate and governor’s budget office will convene Friday, using the tax data and other information to project revenues and expenditures for the fiscal year that begins in July. Their conclusions will determine the exact size of next year’s projected state budget deficit — now estimated at $384 million — which is expected to grow substantially.

John Simmons, head of the Rhode Island Public Expenditure Council, fears the negative economic outlook may prompt lawmakers to consider raising taxes.

“It is an issue that the General Assembly has to wrestle with,” Simmons said.

The condition of the Rhode Island economy has a direct effect on state spending. Declining income and sales taxes produces less money for social welfare programs, state employee salaries and benefits, and state aid to cities and towns. Carcieri has already proposed widespread reductions to subsidized health-care programs and cash assistance for low-income Rhode Islanders, among a host of potential cuts currently being discussed.

Declining tax revenues are a direct result of a weak state economy, according to Simmons.

“The economy is in a downturn, some say a recession, that we seem to be in by all accounts,” he said. “That necessarily means the revenue side will decrease. As people are unemployed, they spend less money, people are much more hesitant about spending money, so the sales tax comes down and the income tax comes down.”

He continued: “The question is how long will it happen and how deep will it go.”

Sullivan, the tax administrator, said it’s too early to guess when Rhode Island’s economic troubles may turn around.

“There’s been no signs now to show there’s recovery,” he said. “It’s a rough year, but I like to stay optimistic. We’ll rebound.”

speoples@projo.com