Even with fresh aid, state and local workers face more layoffs

Little relief seen for state and local layoffs

WASHINGTON — An injection of $26 billion in federal aid won’t be enough to save the jobs of more than a half million people who work for state and local governments or for companies that do business with them.

Economists say state and local budget gaps are so vast that up to 30,000 public jobs will be cut each month at least through year’s end. And private companies that contract with states and localities are likely to cut even more deeply.

All told, 600,000 to 700,000 jobs will likely vanish over the next 12 months at states, localities, private contractors and other businesses that depend on government business, according to the Center on Budget and Policy Priorities, a Washington think tank.

The July unemployment report, released Friday, showed state and local governments cut 48,000 jobs last month — the most in a year.

State and local governments already have shed 169,000 jobs this year. And since their peak in 2008, state and local payrolls have shrunk by 316,000; that figure does not include private sector jobs tied to government spending.

Federal Reserve Chairman Ben Bernanke warned last week that cuts in state and local spending and jobs were helping to slow the economic recovery. And two-thirds of economists who responded to the latest quarterly AP Economy Survey said they thought states’ budget crises posed a significant or severe threat to the economy.

When states and localities slash services and jobs, so do companies that contract with those governments to build school buildings or repair bridges. And the cutbacks ripple through the national economy, causing individuals to spend less, too. Full-time state and local government workers earn an average of $82,800 in wages and benefits annually, according to Labor Department data.

The drop in state and local government spending in the first three months of this year shaved about half a percentage point off national economic activity.

The cuts stem from shrinking state income and tax revenue resulting from the recession. Total state revenue fell 11 percent from fiscal year 2008, when the recession began, to fiscal 2010, the National Association of State Budget Officers has estimated.

In Colorado Springs, the city has turned off thousands of streetlights to save $1.2 million a year, The Gazette newspaper of Colorado Springs reported. In Pittsburgh, the transit authority unveiled a plan last month to reduce service and at least 500 of its 2,700 jobs, according to the Pittsburgh Post-Gazette.

An expected infusion of federal aid will help blunt the damage. The Senate last week approved a $26 billion package of aid to states in hopes of saving the jobs of teachers and other public workers. Approval by the House is expected this week.

“Without the money, I would have to say the worst of the layoffs would be yet to come,” says Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers. “It’s definitely a help.”

But even with the aid, states face a collective gap of $62.3 billion in the 2011 budget year, which started July 1 for most states. An additional $53.4 billion shortfall is expected in the 2012 fiscal year, Sigritz says.

Unlike the federal government, every state but Vermont requires a balanced budget. That’s why the pace of both service cuts and layoffs is expected to persist. The cuts are occurring even while the struggling economy has forced more people to turn to states for health care and other social services.

The just-ended 2010 budget year “presented the most difficult challenge for states’ financial management since the Great Depression,” the budget officers’ association says. States’ spending and revenue aren’t likely to return to pre-recession levels until fiscal year 2012 or later, the group says.

AP Business Writer Christopher Leonard in St. Louis contributed to this report.