State and local governments prepare to cut 500,000 jobs

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  It’s the economic timebomb that we all knew would go off, but kept hoping that a heavenly miracle would save us.

  Well, time is up, and miracles are in short supply.

 The report, a result of a survey by the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties, showed local governments are moving to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011. That suggests 481,000 employees will lose their jobs, according to the report, which said the tally may yet rise.

 That’s bad, but the real story is actually much worse.

  State and local governments have already cut about 200,000 jobs, 95,000 jobs since just the start of the year, and about 3.8% of state budgets, since the start of the recession in December 2007. An additional 481,000 job cuts is devastating, but it doesn’t end there because there are so many private sector jobs dependent on government worker spending.

  Consider the earlier estimate from IHS Global Insight of only 152,000 state and local government job cuts. From that much lower number range, an estimate of a total of 900,000 combined private and public sector job losses would result.

  With that in mind, how many private sector job cuts would result from three times as many state and local government job cuts?

  This all sounds bad enough, and yet it gets still worse.

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 A lot of attention was given to the Congressional deadlock over extending unemployment benefits. Nearly two months late, it finally got passed.

  However, what was forgotten in the fight was that the unemployment extensions were passed as a stand-alone measure. It originally included spending for Medicaid, that got stripped from the final bill.

 Twenty-five states, including Iowa, have already crafted budgets that include an increased federal share of Medicaid expenses. The American Recovery and Reinvestment Act, more commonly known as the federal stimulus, temporarily provided states with a 6.2 percent increase in the portion of Medicaid financed by the federal government. That increase, however, expires in December, right in the middle of Iowa’s fiscal year.

  Republicans in the U.S. Senate helped kill a bill that would have extended the Medicaid funding, along with unemployment insurance and numerous tax credits. While Democrats were able to pass the extension of unemployment benefits as a stand-alone bill, the rest of the bill – including the Medicaid portion – remains stuck in political gridlock.

 The loss of that funding would mean shortfalls in the state budgets of California and New York of $1 Billion each. This is on top of massive budget shortfalls that they are already unable to deal with. The loss of the Medcaid money alone will cost 162,000 jobs, cuts that have yet to be factored into the budgets.

  To give you an idea of just how overwhelming the budget problems are, California’s Governator said he is ready to leave office in December without signing a state budget that is already a month late.

  New York’s state budget is already four months late, with no solution in sight.

 Believe it or not, California and New York are still better situated than Illinois is.

 Illinois has $4.7 billion in unpaid bills because it is only legally authorized to borrow $3.8 Billion. It now takes 153 working days for a vendor to collect from the state.

 “Illinois ended the year in the worst fiscal position in its history,” a report from Hynes’ office concludes.

  The state can’t even replenish its “rainy-day” fund. The backlog of unpaid bills is “more than rainy,” said Hynes spokeswoman Carol Knowles. “It’s a monsoon.”

 Illinois now has a higher risk of default than Iceland, which has already defaulted.

 All told, states face a budget shortfall of $84 billion just this fiscal year.

 Almost half of all states said fiscal 2011 gaps would be 10% or more of their general fund. The largest was Nevada, with its budget deficit amounting to 45% of its general fund, NCSL said.

  New Jersey, Arizona, Maine, North Carolina and three others had gaps of at least 20%.

 Did I forget to mention Arizona? That’s only because they know who to scape-goat for their huge budget deficit – illegal immigrants.

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 The reason why the states are suddenly so desperate is because Obama’s stimulus package papered-over the state budget problems last year. That stimulus money is now winding down.

  State tax revenue has climbed slightly since the dramatic drop in 2008, mostly due to raising taxes and fees by $23.9 Billion in fiscal 2010. Despite that, some states still appear to be broke.

 The Wall Street Journal points out  that “the approaching end of federal stimulus funds could mean trouble ahead in this year’s budgets for many states.” State such as California, Michigan, and New York are up against such large deficits that they may be technically insolvent in the next year. The three face tens of billions of dollars in red ink each.


 Municipal governments account for 13% of the country’s GDP. We can’t afford to just ignore the problem.

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  1. this is simply too big for the states to handle without federal help.

  2. has been the solution. They can layoff all rank and file and still not address the problem.

    Given the executives and managements ability to keep their own game going nothing was really addressed. Oh sure, raises were handed out, top heavy executives have been compensated .. all in all… it kicked the can down the road.

    The faith in management resources is astounding. In the end more worker bees will lose their jobs as executives will turn to management to make those cuts while preserving their own necks and padding their wallets.

  3. California and Illinois are already in the middle of the PIIGS pen, with higher risk of default than Portugal, Ireland, and Spain.

    Thanks for putting so many pieces of this nightmare-puzzle together, gjohnsit.

    • Edger on July 28, 2010 at 03:36

    with money to spend is going to stimulate the hell out the economy…

  4. Or was that just a threat? I remember hearing about it (saw it on CBS News, probably) but never heard if it was a threat or a done deed.

    And if it is a done deed – who gets exempted?

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