The worst looks to be over for private-sector unemployment, but it may be just beginning for state and local government workers.
Job Losses
State and local government payrolls typically don’t decline much until a year after the beginning of a recession because budgets are already in place and fairly inflexible.
As a result, payrolls were stable in 2008 and a good part of 2009. But not anymore. Revenue-starved states are taking more drastic steps to balance budgets.
"This is a completely unprecedented crisis," says Ethan Pollack of the Economic Policy Institute. "The budget cuts are going to get more and more severe."
The main trigger will be the winding down of the massive America Recovery and Reinvestment Act, better know as the federal stimulus plan. Tepid to modest economic growth will also hurt.
"A lot of states didn’t go through with the layoffs that were expected because of the stimulus," says Christian Weller, who specializes in economics and public policy for the University of Massachusetts and the Center for American Progress.
The federal government is spending more, not less, so its workers won't be affected by the end of the stimulus program. Still, federal employees represent a relatively small percertage of all government workers, with state and local workers making up the biggest portion.
- Slideshow: America’s 15 Most Recession-Resistant Cities
State and local payrolls peaked in August 2008. Between then and January 2010, 191,000 jobs have been lost, three-quarters of them at the local level.
If those numbers seem small, consider that by one estimate, some 256,000 government jobs have been saved by stimulus funding.
According to a recent survey by the National Association of State Budget Officers 23 states have resorted to layoffs, while 16 states have used furloughs—usually one day a month without pay.
“Without the Recovery Act, the numbers would be higher,” says Brian Sigritz, the group’s director of fiscal studies.
States have closed $89.9 billion in budget gaps for 2010, says Sigritz.
Through fiscal 2010, states will receive $150 billion in funds from the stimulus package. About $70 billion has been spent so far.
"The Recovery Act is insufficient," says Pollack. Economists generally agree that the funds cover about a third of the state budget gaps.
Most Medicaid funding expires at the end of 2010, while so-called stabilization funds will pay out at smaller rates through the first half of 2011. Only about $40 billion in such federal transfers is expected in 2011.
Meanwhile, states are running out of accounting tricks to meet balanced budget laws.
"States are going to worry more about improving their credit quality to sell more debt and raise more money," says Hastings. “And that means cutting spending. What they have been doing is avoiding some of the ugly stuff.”
Pollack says that there’s a “direct correlation between the loss of public sector jobs and private sector ones, especially in the services area. The jobs that suffer the most are private sector jobs.”
States, like corporations, have also discovered outsourcing.
Pollack estimates that about 60-percent of the jobs saved through federal aid to the states has been in the private sector, through spending on such things as road and bridge repair.
The Center on Budget and Policy Priorities estimates than without federal additional aid, states will implement budget cuts that will cost 900,000 private and public sector jobs in 2011 alone.
"The impact will be worse," says Elizabeth McNichols, a senior fellow at the center.
Budgets planning for fiscal year 2011, when states face an estimated $180-billion gap, is now underway. Thirty governors have already proposed budgets, which typically take effect July 1 (The federal budget starts Oct. 1)
According to the center's March 2010 report, South Carolina's governor has proposed reducing the department of education staff by ten percent; Hawaii is looking at about 1200 job cuts; and Wyoming is considering a 50-percent reduction in aid for local governments.
On the local level, the Los Angeles, Calif. United School District says its worst-case budget plan is for 8,000 layoffs, according to a recent report by the National Conference of State Legislators.
Reduced government spending will cut one way, while higher fees and state and local taxes cur another, taking a bite out of discretionary consumer spending. Sales tax revenue will suffer as a result.
State budget recoveries tend to lag the end of a recession by a year or two. In the 25 months following the end of the short and shallow 2001 recession, states cut 71,000, according to the Center on Budget Studies and Priorities
Under the current plan, stimulus funding will be long gone. State budget officers have a name for the moment when it runs out.
"They call it the cliff," says Sigritz.
- Slideshow: Best US Cities to Find Jobs
