State and Local Government: The Other Shoe

August 6, 2010 by Emsi Burning Glass

image of Lightcast gradiant

Yesterday, the Wall Street Journal posted this preview of the jobs report:

The consensus headline figure calls for a 60,000 decline in payrolls for July. But the key number to watch will be the private sector jobs number. In Thursday’s Journal, Sudeep Reddy reported that economists expect the Labor Department’s Friday employment report to show that private-sector employers added about 100,000 jobs last month.

Today’s Bureau of Labor Statistics’ report starts with this paragraph:

Total nonfarm payroll employment declined by 131,000 in July, and the unem-
ployment rate was unchanged at 9.5 percent, the U.S. Bureau of Labor Statis-
tics reported today. Federal government employment fell, as 143,000 temporary
workers hired for the decennial census completed their work. Private-sector
payroll employment edged up by 71,000.

Seventy-six percent of the government job losses are due to federal job losses, which are mostly jobs “lost” as the Census winds down. But the focus should be on the state and local governmentsCatherine Rampell and Conor Dougherty both have great articles how the new employment numbers are shaping up for these employers.

Rampell points out:

State and local finances — and thus, state and local employment — are largely dependent on state and local tax revenues. State and local tax revenues depend on what’s going on in the private sector: whether people are buying (sales taxes), whether companies are making money (corporate income taxes), and so on.

And as long as the private sector drags, state and local government will follow suit, but with a budget cycle lag:

There’s a lag, though, between the time things go south in the private sector and the time when state governments finally incorporate those tax revenue declines into their new budgets.

Dougherty lays out the forecast succinctly:

Friday’s report suggests job losses could continue to accelerate as states grapple with weak tax revenues and the loss of federal budget support later this year.

Even with stopgaps like the senate’s $26 billion aid package, the mid-term outlook does not look good for state and Local revenues- and their budgets still have a ways to go. Dougherty:

Still, states that have released forecasts for their 2012 and 2013 fiscal years face cumulative deficits estimated at $136.4 billion, according to a recent report by the National Conference of State Legislatures. With stimulus funds going away and growing uncertainty about the economic recovery, the NCSL report said, fiscal 2011 “may turn out to be the calm before the fiscal tempest.”