Tens of thousands of state and local layoffs expected in months ahead

As  previously noted, one reason economic recovery has been pinched is because state and local governments are laying off a large number of employees, with no end in sight. In fact, the 2012 fiscal year, which for many governments begins Saturday, may see the biggest cuts so far.

The impact goes well beyond the laid-off employees and their families. In some places, the school year has been shortened and class sizes increased, fire-fighting capability reduced, police forces cut back and library hours eliminated. Tens of thousands of additional layoffs are expected to exacerbate these cutbacks.

Michael Leachman, Erica Williams and Nicholas Johnson at the Center on Budget and Policy Priorities point out that these troubles are likely to continue even though 20 states have reported that their tax collections have modestly improved since they put together their budgets. The problem is that the hole created by the recession is the deepest on record. In the first quarter of 2011, state revenues were 9 percent below their pre-recession peak and, with the relief provided by the Obama administration ended as of Friday, shortfalls are going to continue for some time. There are available measures to ease the pain, keep more people working, and more services operating, but that's not what's typically happening:

Because states still face these very large budget gaps, their best strategy will remain a balanced combination of modest spending cuts, new revenue measures to strengthen the revenue recovery, and (in a few states) utilization of remaining reserves. Instead, most states that have enacted budgets so far relied almost entirely on cuts to close their shortfalls?making the cuts they imposed deeper than necessary and impeding the economic recovery.

Only a few states raised revenue to help resolve their fiscal year 2012 budget shortfalls. Hawaii, for example, raised over $600 million in new tax revenue over the biennium by limiting tax exemptions for businesses and by eliminating the standard deduction and capping itemized deductions for higher-income individuals, among other actions. Illinois lawmakers enacted personal and corporate income tax increases to help address the state?s budget shortfalls for the current and upcoming year.

A few states made their problems worse by cutting taxes. Georgia, for example, enacted nearly $100 million in tax cuts, including $46 million to allow top income earners to claim unlimited itemized deductions on their income taxes. And Arizona reduced the corporate income tax rate and commercial property taxes, costing the state $38 million in fiscal year 2012, or 4 percent of the state?s 2012 budget shortfall.

The federal response to this? Deficit reduction through slashing discretionary spending, which would deepen cuts at the state and local level and further slow down economic recovery. With the recession officially over the past 24 months, for many Americans the worst is yet to come.

Source: http://feeds.dailykos.com/~r/dailykos/index/~3/iWACssd6jAU/-Tens-of-thousands-of-state-and-local-layoffs-expected-in-months-ahead

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