The latest hit to the economy could come from state houses and city halls across the nation, which are in their worst budget crisis in years.
With falling revenue from sales and income taxes, and property-tax declines looming, states, cities and towns have already laid off tens of thousands of government employees. Many expect more job cuts ahead as public officials struggle to balance their budgets.
The American Federation of State, County and Municipal Employees, a public employees union, says about 45,000 government layoffs have been announced this year.
There are 29 states, including California, Florida and Ohio, facing a combined budget shortfall of at least $48 billion in the fiscal year that starts July 1, according to the Center on Budget and Policy Priorities (CBPP), a liberal think tank.
There are nearly 20 million state and local government employees in the country. So a 1% decline in employment at cities, towns, schools and states would result in a job loss of almost 200,000 people, a much larger amount than we’ve seen from battered sectors such as automakers or home builders in the past two years.
Even in states, towns and cities not yet laying off people, hiring freezes and early retirement packages are now common, said Robin Prunty, senior director in the public finance department of credit rating agency Standard & Poor’s.
Tennessee plans to cut 2,000 positions, or about 5% of that state’s work force, according to the CBPP.
And it will probably get worse before it gets better — even if the national economy starts to show signs of improvement.
That’s because income and property taxes are likely to see declines lag the current slowdown. Sales tax declines are an early sign of a weakening economy.
But the drop in income taxes from job losses this year might not hit government revenue until next year while a drop in property taxes from a house being sold in the foreclosure process might not be felt in property tax collections for more than a year.
Still, the problems are already serious enough to cause widespread budget problems and repeated downward revisions in spending plans.
