Employment woes deepen for US states

May 4, 2012 6:46 pm

Employment woes deepen for US states

By James Politi and Robin Harding in Washington

Mike Crossey has yet to see a light at the end of the tunnel.

As president of the Pennsylvania State Education Association, a teachers union, Mr Crossey saw the loss of 14,000 jobs from the state’s education sector as a result of more than $800m in budget cuts last year.

With an additional $100m in cuts to the education budget projected for the coming fiscal year, Mr Crossey is braced for a further 3,000 to 4,000 job losses .

“We’ve got a lot of frustrated, worried members who are afraid that they are going to lose their jobs, their security – and they are concerned about the kids,” he says.

Among the weakest components of April’s non-farm payroll survey – which found net job growth of 115,000 overall – was the government sector. It shed 15,000 positions last month after losing 12,000 jobs in March and scraping out a gain of 5,000 jobs in February.

Sustained job losses in state and local government have been a defining feature of the recovery since the recession brought on by the 2008 global financial crisis – and they are not finished yet. There are some signs of hope at the state level, but local governments employ more than half of public sector workers, and their woes are deepening.

“The worst point has passed for state governments but not necessarily for local governments,” says Lucy Dadayan, senior policy analyst at the Rockefeller Institute of Government in the New York state capital of Albany.

Job losses from the federal government may also start to accelerate as tight budget controls bite. The near certainty of continued decline in government employment is one reason not to expect dramatic overall growth in jobs even if the recovery picks up steam.

The difference between state and local governments is driven by where they get their money. State governments mainly levy taxes on worker incomes and retail sales. Both were hit early and hard during the recession, plunging states into budget crises, but have begun to bounce back.

Michael Leachman, an analyst at the Center on Budget and Policy Priorities, says there has been an improvement in state revenues recently as the economy improves, and a “levelling off” of job losses. But he warns: “The shortfalls that we are seeing are smaller than in the last couple of years but still large by historical standards.”

Many states are required by law to run balanced budgets. Mr Leachman notes that a number have depleted their reserve funds and will have to rely disproportionately on cuts in order to fill those holes. That bodes poorly for the chances of a jobs recovery in state government.

But the real problem is at the local level. Property taxes make up about two-thirds of local tax revenues and pay the salaries of most teachers. Across much of the US, the damage from the crash in house prices is only now hitting home.

“It takes time to do the assessments [of house prices],” Ms Dadayan says. “Also states don’t cut their aid to local governments immediately.” Now, however, the assessed value of houses is catching up with the fall in their market prices and the state-level squeeze is reaching municipalities.

Local government revenues only began to fall steadily in 2010 – well after the end of the recession – and teacher employment began to drop at the same time. That shows one way in which the aftermath of a financial crisis, featuring a big fall in asset prices, is more traumatic and persistent than a regular recession.

“Many local government officials will be faced with tough choices such as cutting services or increasing taxes and fees,” Ms Dadayan says. “The outlook for local governments throughout the rest of 2012 is not promising.”

Generating higher revenue, however, is not always an option. In Pennsylvania, local governments are constrained by what amounts to a cap on property taxes. If a municipality wants to increase real estate levies above the rate of inflation, it has to put the measure to a referendum and given the unpopularity of property taxes that would pose huge political risks.