Job cuts by states, cities slowing recovery

WASHINGTON — In a healthy economic recovery, states and localities start hiring, expand services and help fuel the nation's growth.

Then there's the 2011 recovery.

The U.S. economy is moving ahead, however fitfully, but cash-strapped state and local governments cut 30,000 jobs in May. That was the seventh consecutive month of public-sector job losses. Rather than add to U.S. economic growth, states and cities are subtracting from it. And ordinary Americans are feeling it — from reduced services to fewer teachers, police officers and firefighters.

The Great Recession officially ended two years ago this month. During previous recoveries, state and local governments were engines of growth by this point: In the two years after the 1990-91 recession ended, for example, they had added 430,000 jobs. They had added 249,000 two years after the 2001 recession ended.

This time is different. More than 467,000 state and local government jobs, including 188,000 in schools, have vanished since the recession officially ended in June 2009.

Few see the pain subsiding soon. Mark Vitner, senior economist at Wells Fargo Securities, expects state and local governments to slash 20,000 to 30,000 jobs a month through the middle of 2012.

Joel Naroff of Naroff Economic Advisors notes that when states cut spending to balance their budgets, as required annually, a ripple effect multiplies the damage: Companies that do business with states and localities suffer. These companies, in turn, scale back their hiring.

"There's a whole slew of private companies that have to cut back when they don't get the [government] contracts they had been getting," Naroff said. "You can't balance a budget and say everything's going to be beautiful."

Moody's Analytics estimates that each job in state and local government supports an additional 1.3 jobs elsewhere in the economy.

The cutbacks stretch across the country:

• Monticello, Ga., has cut its police force in half — to five. The town had planned to eliminate the force entirely until it found the money to keep some officers, Police Chief Bobby Norris says.

• Zanesville, Ohio, recently cut nearly 50 jobs from its schools, mostly through layoffs. "People have to realize: There's just so much money," said Superintendent Terry Martin, who had to close a $7.2 million budget gap through 2016. "We have to watch every dime that we spend."

• In Alameda, Calif., police and firefighters last week couldn't save a drowning man in San Francisco Bay because the Fire Department had cut funding for water-rescue training, wet suits and other equipment.

In Washington state, the Legislature last month cut more than $4 billion to help close a roughly $5 billion shortfall. The budget cuts teacher and state-worker pay, slashes higher-education spending and scales back social-service and health programs.

At the local level, King County dealt with its $60 million shortfall this year by eliminating the jobs of more than a dozen prosecutors and two dozen sheriffs' deputies, and by freezing the wages of most employees, largely through negotiations with unions.

In Seattle, Mayor Mike McGinn in March announced the city needed to trim up to $17 million from this year's budget to cope with anticipated state and federal cuts and lower-than-projected revenue forecasts. The city last fall closed a $67 million shortfall in the 2011 general fund with a combination of cuts and higher fees on everything from pet licenses to swimming-pool admissions. Police hiring was frozen, more than 300 city positions were cut, and McGinn persuaded most employees to reduce their planned raises to the rate of inflation.

The Great Recession of 2007-2009, the longest and deepest downturn since the 1930s, dried up state and local tax revenue. The economic crisis also escalated demands for social programs, such as Medicaid and unemployment benefits, and "ate through their rainy-day funds," noted Michael Gapen, senior U.S. economist at Barclays Capital.

Federal stimulus spending cushioned the blow to state and local finances, but that money is running out. And it probably won't be replenished. The federal government is preparing to cut its spending to shrink huge budget deficits.

States such as Wisconsin, New Jersey and Ohio have first-term governors who "are trying to make their names by cutting spending," Naroff said. "It wasn't the 'in thing' before to become a governor and immediately slash and burn. Now, you've got economic and political realities that are different from any time before."

Analysts hold out hope that state governments are on the verge of a rebound. State tax revenue is forecast to rise 2.1 percent in the fiscal year that starts July 1, according to a report last week from the National Governors Association and the National Association of State Budget Officers.

But 29 states expect to spend less in the 2012 fiscal year than in 2008. And local governments still are waiting for a recovery in tax revenue. They rely heavily on property taxes, which continue to sink with the collapse in home prices in many areas.

"The state revenues are coming back, but the local revenues probably haven't seen the worst of it," said Christopher Hoene, director of research at the National League of Cities. "We still have another year to go for sure."

Steven Leslie, financial services analyst for the Economist Intelligence Unit, a research firm, predicts tight government spending at the local, state and federal levels will persist over a prolonged period of slow growth.

"If I were going to tell college graduates what careers to follow," he said, "I wouldn't recommend public service."

Seattle Times staff reporters Lynn Thompson, Keith Ervin and Andrew Garber contributed to this report.