By Paul Wiseman
Washington — In a healthy economic recovery, states and localities start hiring, expand services and help fuel the nation’s growth.
Then there’s the 2011 recovery.
The U.S. economy is moving ahead, however fitfully. Yet state and local governments still are stuck in recession. Short of cash, they cut 30,000 jobs in May, the seventh consecutive month they’ve shed workers. Rather than add to U.S. economic growth, they’re subtracting from it.
And ordinary Americans are feeling it — from reduced services to fewer teachers, police officers and firefighters.
The Great Recession officially ended two years ago this month. By the same point during previous recoveries, state and local governments were engines of growth: In the two years after the 1990-91 recession ended, for example, they’d added 430,000 jobs. At the same point after the 2001 recession ended, they had added 249,000.
This time is different. More than 467,000 state and local government jobs have vanished since the recession officially ended in June 2009, including 188,000 in schools.
Few see the pain subsiding soon. Mark Vitner, senior economist at Wells Fargo Securities, expects state and local governments to slash 20,000 to 30,000 jobs a month through the middle of 2012.
Joel Naroff of Naroff Economic Advisors said that when states cut spending to balance their budgets, as required annually, a ripple effect multiplies the damage: Companies that do business with states and localities suffer. These companies, in turn, scale back their own hiring.
“There’s a whole slew of private companies that have to cut back when they don’t get the (government) contracts they had been getting,” Naroff said. “You can’t balance a budget and say everything’s going to be beautiful.”
Moody’s Analytics estimates that each job in state and local government supports an additional 1.3 jobs elsewhere in the economy.
For a while, federal stimulus spending cushioned the blow to state and local finances. But that money is running out. And it probably won’t be replenished. The federal government is preparing to cut its own spending to shrink huge budget deficits.
States such as Wisconsin, New Jersey and Ohio have first-term governors who “are trying to make their names by cutting spending,” Naroff said. “It wasn’t the ‘in thing’ before to become a governor and immediately slash and burn. Now, you’ve got economic and political realities that are different from any time before.”
Analysts are keeping their fingers crossed that state governments might be on the verge of a rebound. State tax revenue is forecast to rise 2.1 percent in the fiscal year that starts July 1, according to a report last week from the National Governors Association and the National Association of State Budget Officers.
But 29 states say they’ll still spend less in the 2012 fiscal year than in 2008. And local governments still are waiting for a recovery in tax revenue. They rely heavily on property tax revenue, which continues to sink with the collapse in home prices in many areas.
“The state revenues are coming back, but the local revenues probably haven’t seen the worst of it,” says Christopher Hoene, director of research at the National League of Cities. “We still have another year to go for sure.”
More on the jobs picture
- Wisconsin sees slight construction growth over last year, industry jobs excel
- Report: Construction costs fall, employment growth softens in 2Q
- Unemployment fund rebounds after running deficits during Great Recession
- August construction employment rises again in Wisconsin, nationally
- Industry unemployment falls in all 50 states; Wisconsin at 3.4 percent
- Walker’s graduation pledge reminiscent of jobs promise
- Foxconn deal requires state to act soon on tax breaks
- State’s unemployment drops to 3.1 percent in May
- Tax credit paying off for job cutters
- Panel to approve drug tests for jobs programs