Story Appeared in USA TODAY
Amid the gains in last Friday's jobs report, one sour note stood out — state and local governments are still shrinking.
Economists
had predicted that with the housing bust over, grass-roots governments
would begin replacing some of the 1 million workers they've cut since
2008. Indeed, that was one reason economists thought the economy could
withstand federal cuts and tax hikes this year, Moody's Analytics chief
economist Mark Zandi said.
Since they're not — state and local
governments cut another 3,000 workers in April, even as the economy
added 165,000 jobs in all — that's adding to concerns that the economy
could slow at midyear as the federal sequestration cuts begin to bite.
That's especially true since budget-stressed states such as Illinois
expect to add few if any jobs, said Abdon Pallasch, assistant budget
director for Illinois Gov. Pat Quinn.
"I am surprised that state and local government spending is still declining on a real basis,'' Zandi said.
States
are reluctant to begin hiring again because inflation-adjusted revenues
are still below 2008 levels — even though populations are bigger, and
obligations for Medicaid and pensions are eating up more of the budgets,
said Donald Boyd, executive director of the State Budget Crisis Task
Force and a senior fellow at the Rockefeller Institute in Albany.
Spending on those creates few government jobs, and problems managing
pensions and Medicaid will be around for years, he said.
"They know they're in for tough times, so they're not going to open the floodgates,'' he said.
Illinois
is a good example. Quinn's budget calls for expanding the state
workforce, now about 52,250 and down from nearly 70,000 a decade ago, to
just 53,172 next year. Pallasch said one major reason is that pension
expenses are "gobbling up every dollar,'' with pension spending set to
rise by nearly half from 2012 through 2014.
"The only new hires
we're doing are in a couple of specific programs,'' Pallasch said.
"Other than that, it's pretty much just filling vacancies.''
California
and its local governments have also held off on new hiring despite its
recent state revenue surge, which included nearly $5 billion more
revenue than expected in January. Officials are moving carefully because
the surprise windfall may have been exaggerated by gains in the stock
market, and by taxpayers' maneuvers to claim capital gains in December,
before capital-gains taxes rose in 2013, said Jason Sisney, deputy
legislative analyst for the California Legislature.
Analysts in
California, where state and local governments have shed 150,000 jobs,
will release new budget projections in mid-May, Sisney said. They're
still deciding how to project the stock market's path, a vital decision
in a state where the top 1% of taxpayers pay 40% of the personal income
taxes, he said.
All states still have to worry about
sequestration-driven cuts in federal aid, which will tighten their
fiscal situations for fiscal 2014, said Moody's Analytics economist
Brian Kessler. And because local property taxes are often based on
several years' worth of assessments, rising property values will take
time to boost receipts, Boyd said.
But today's challenges are an
improvement compared with the yawning deficits many states have had to
plug since 2008, Sisney said.
"The current trends are good news for the state's finances.'' he said. "No doubt about that.''
