- The Washington Times - Sunday, August 8, 2010

State and local governments this summer gained the dubious distinction of being the nation’s biggest source of job losses — a trend that likely helped to break a stalemate in Congress last week over providing states with additional aid.

Facing budget shortfalls estimated at more than $60 billion for the fiscal year that started July 1, state and local governments laid off a whopping 48,000 of their staff in education and other areas last month — by far the biggest layoff of permanent workers among any of the major sectors that employ Americans, according to a Labor Department report released Friday.

The huge job losses in government last month included a layoff of 143,000 temporary census workers by the federal government that had been widely expected. Together with other federal job losses, they overwhelmed a tepid gain of 71,000 private jobs to produce a net 131,000 jobs lost during the month.

While federal census layoffs can be written off as a once-a-decade anomaly, the troubles at the state and local levels promise to be a fixture for some time to come. The deep recession pared the revenues of state and local governments by 10 percent on average, and most of them are now slashing spending to bring it in line with what is likely to be significantly lower revenues as the economy gradually recovers.

The current fiscal year, 2011, “will be the worst for states before modest revenue growth begins in 2012,” said Raymond C. Scheppach, executive director of the National Governors Association. While the overall economy has started to improve, government revenues typically lag by a year or two.

Even with last year’s generous federal aid, states cut spending almost 11 percent to $579 billion from $646 billion in 2008, he said. The governors group has been urging Congress to gradually phase out last year’s stimulus funding for states rather than let it all expire at the end of this year to prevent even bigger fiscal shocks and budget cuts.

The two-quarter, $26 billion extension of federal aid for Medicaid and education approved by the Senate last week is the “most efficient way to help states avoid further layoffs and service cuts that could otherwise slow recovery,” Mr. Scheppach said.

Economists worry that the deep budget and employment cuts at the local level could contribute to a relapse in the economy after a year of growth.

Federal Reserve Chairman Ben S. Bernanke, in a speech to state legislators last week, said the sharp decline in state revenues and resulting deep cuts in work forces and services are “part of the reason for the sluggishness of the national recovery.”

Even before the 48,000 job losses recorded last month, Mr. Bernanke estimated that states and cities collectively had laid off more than 200,000 employees since 2007.

A major reason for firing and furloughing thousands of employees was that states were forced to fund an 11 percent increase in Medicaid spending resulting from the recession, he said. The loss of income and jobs during the recession made millions more people eligible for the free health care program.

“With revenues down and Medicaid spending up, other categories of spending by state governments have been tightly squeezed,” he said. “Assistance from the federal government, especially through the fiscal stimulus package, has eased, but certainly not eliminated, the budget difficulties.”

Mr. Bernanke’s concern may have helped dissolve a stalemate over extending federal aid in the Senate. Despite the dire straits of many local governments, providing further aid after last year’s $862 billion stimulus bill was difficult for members of Congress who are increasingly wary about keeping a lid on the federal government’s own gaping deficits.

Republicans held up the aid in the Senate for several months, despite President Obama’s repeated pleas on behalf of the states. Mr. Bernanke’s speech may have influenced two moderate Republicans — Sens. Olympia J. Snowe and Susan Collins of Maine — who voted with Democrats to send the Senate bill to the House.

The House had adjourned for its summer recess, but House Speaker Nancy Pelosi, California Democrat, called the House back for a session Tuesday to give final approval to the bill and send it to the president. The $26 billion in the bill is less than half of what the White House originally requested.

“The extra aid working its way through Congress cannot arrive soon enough,” said Nigel Gault, chief U.S. economist at IHS Global Insight. He said the dramatic slowdown in job creation and growth since the spring — including mounting layoffs at the local level — poses a threat of a double-dip recession.

“With state and local government shedding 48,000 jobs in July, this relief is crucial” to keep propping up the extremely weak job market, said Heidi Shierholz with the Economic Policy Institute, a labor-backed think tank.

Republicans and their allies continued to argue against the aid, saying state and local governments must come to terms with their lower revenues and make appropriate cuts.

Bill Wilson of Americans for Limited Government called it a “bailout of public employee unions” since most of the jobs saved will be among heavily unionized teachers and other public employees. Public employees unions are among the Democratic Party’s largest and most vociferous supporters.

“With teacher unions alone garnering around $40 million in dues money from their $10 billion chunk of the bill, it is easy to understand how the big public employee union handlers were able to get [Mrs. Pelosi] to put off her previously scheduled work period to come back to D.C.,” he said.

Mr. Wilson added that the way Congress paid for part of the state aid — by raising taxes on corporations that earn money abroad — will end up killing far more private jobs than the public jobs it preserves.

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