Most U.S. States Cut Jobs as Tax Collections Erode, Study Says

Most U.S. states cut government jobs last quarter as cities, counties and public agencies coped with falling tax revenue in the wake of the recession, a study found.

State government payrolls dropped in 28 states in April through June, compared with the same period a year earlier, while employment in local government fell in 30 states, according to an analysis released today by the Nelson A. Rockefeller Institute of Government in Albany, New York.

State payrolls have fallen 0.8 percent and local government employment has dropped 1.4 percent since their peak in mid-2008 after the recession began, according to the institute. Those declines are less than the 6.8 percent drop in private-sector jobs, according to the institute.

“This is broadly consistent with past recessions, in which state and local government employment has been far more stable than private sector employment,” Donald Boyd and Lucy Dadayan wrote in the report. “The state and local government declines, while widespread, are nowhere near as large or as numerous as the declines in private sector employment.”

While the economy has been expanding and businesses have begun adding jobs, state and local government officials are still struggling to erase budget shortfalls that followed the longest recession since the Great Depression. Those deficits emerged as tax revenue fell and they faced increase demand for services, such as Medicaid, by unemployed residents.

Budget Deficits

States have projected total budget deficits of $127 billion through 2012, according to a report last month by the National Governors Association and the National Association of State Budget Officers. At the city level, spending cuts are expected to accelerate if taxes and fees aren’t raised, according to a majority of officials surveyed by the National League of Cities.

The cutbacks have weighed on the economy. State and local government spending fell at an annual pace of 3.8 percent during the first three months of this year, the steepest drop since the onset of the recession, and has dropped in all but one quarter since October 2008, according to the U.S. Department of Commerce.

Jan Hatzius, Goldman Sachs Group Inc. chief U.S. economist, said in a research note this week that cutbacks in state and local governments will shave 0.75 percentage point off the annualized pace of real growth in U.S. gross domestic product.

Hawaii, Nevada

Among those states that cut jobs, public payrolls shrank 1.9 percent in New York, 1.8 percent in California and 1.3 percent in Illinois last quarter, according to the Rockefeller Institute’s analysis of U.S. Labor Department data. Hawaii and Nevada led the declines with drops of 3.8 percent and 3.6 percent, respectively. Employment rose in states including New Jersey, Massachusetts and Texas.

The disappearance of some federal aid, which helped local governments since last year, may accelerate jobs cuts to teachers, according to the Rockefeller Institute. The U.S. Senate yesterday, when it approved funding for the war in Afghanistan, didn’t include $10 billion in state aid sought by the House to prevent the dismissal of an estimated 140,000 teachers.

“With states continuing to face harsh fiscal realities, declines in education employment are likely just beginning,” the Rockefeller researchers wrote.

To contact the reporters on this story: William Selway in Washington at wselway@bloomberg.net

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