Image: State budget Furloughs
Rich Pedroncelli  /  AP file
At a Feb. 6 rally in Sacramento, California state employees protest the furloughs imposed by Gov. Arnold Schwarzenegger. He ordered most employees to take two unpaid days off a month.
By Tom Curry National affairs writer
updated 2/20/2009 8:43:38 AM ET 2009-02-20T13:43:38

Despite a dizzying decline in tax revenues, many states aren’t lopping their payrolls as fast as private sector employers. And some intend to use part of the federal stimulus windfall headed their way to keep employees on their payrolls — at least for now.

The recession and its ruinous impact on state finances will be the premier topic of discussion as the nations’ governors gather in Washington this weekend for their annual winter meeting.

Pressure to cut state workforces is growing in many statehouses as legislatures struggle with widening budget deficits. Some states began cutting workers in 2007 as the economy began slowing, but many continued to hire, adding about 1 percent to the cumulative state head count in the year ending in October 2008.

But even though state government employment has grown substantially in the last decade, trimming state payrolls is a politically risky move that can both alienate unions and citizens hurt by the resulting reduction in services. That explains why many governors and legislatures are doing everything in their power to avoid issuing pink slips.

In California, for example, Gov. Arnold Schwarzenegger sent layoff notices to 20,000 state workers earlier in the week as the state Legislature remained stymied over the budget package aiming to plug a $42 billion deficit.

Some California workers spared
But on Thursday, the governor signed a budget package that, along with incoming funds from the $787 billion stimulus bill that President Barack Obama signed into law on Tuesday, will keep many of those workers on the job. There will be some furloughs and layoffs, Schwarzenegger spokesman Aaron McLear told, but far fewer than there would have if no accord had been reached. Details are being worked out by departments and will become clear in the next several months, he added.

Other states also are struggling — not always successfully — to keep employees on their payrolls:

  • In Tennessee, where the state is projecting a $1 billion budget shortfall, Gov. Phil Bredesen said layoffs of state employees are possible even though the state will receive more than $4 billion from the stimulus bill.
  • Pennsylvania avoided laying off any state workers in the current fiscal year, despite a projected budget deficit of $2.3 billion, but Gov. Ed Rendell recently proposed a budget for fiscal 2010, which begins in July, that would eliminate between 300 and 900 jobs.
  • Facing a $1.6 billion budget shortfall, Arizona has laid off 350 state employees.

In some states, government employees become political footballs as officials try to close yawning budget deficits.

In South Carolina, for example, where an unemployment rate of 9.5 percent — third-highest in the nation — and a plunge in tax revenue have triggered a budget crisis, Republican Gov. Mark Sanford has been an outspoken critic of what he sees as a boom-bust mentality in his GOP-controlled state Legislature’s spending.

“I have believed for a very long time that this day would come, and as a consequence I have fought with many in your leadership on spending,” Sanford said last month in his State of the State address. “Here in South Carolina every few years we overspend when times are good and then cut past muscle and right into bone when times aren’t so good.”

Growth of S.C. workforce defended
But Democratic state Sen. Brad Hutto said Sanford’s analysis does not reflect what really happened in South Carolina.

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“We have a growing population, therefore we have a growing need for state employees,” Hutto said. “We’re building new subdivisions, new schools, new roads — all these have public-sector jobs related to them.”

The state has so far trimmed its payroll by a mere 400 jobs — from 64,811 to 64,411 — since June 30, 2008, shedding 247 employees through a reduction in force and the remainder through voluntary buyouts and attrition. Sanford’s proposed budget for fiscal 2010, which calls for a $1 billion reduction in outlays from last year’s levels, would achieve a small slice of those savings by cutting 90 administrative positions in the state Department of Education.

Sanford’s spokesman Joel Sawyer said the governor and his staff “don’t have the answer yet” on how many state jobs might be saved as a result of the $2.8 billion that is on the way to South Carolina as its share of the stimulus package.

No matter how many state jobs are lost, the bloodletting may only be beginning.

According to the National Conference of State Legislatures (NCSL), 43 states have budget shortfalls totaling $183 billion for the fiscal year that began last July. That figure is expected to grow to more than $200 billion for the fiscal year that begins on July 1.

The seven that are not facing projected budget gaps — Arkansas, Montana, North Dakota, Oklahoma, Texas, West Virginia and Wyoming — also may soon encounter red ink as the national economic slump deepens, though at least some likely have sufficient reserves to cover the shortfalls, the group said.

Growth outpaces federal, private sectors
State workforces would seem to be attractive targets for budget cutters. They have outpaced growth in both the federal government and the private sector over the past decade, said David Shaffer, a senior fellow at the Rockefeller Institute of Government at the State University of New York.

His analysis of data from the U.S. Bureau of Labor Statistics (BLS) indicates that state employment grew by 11 percent — to a total of 5.1 million — between 1998 and 2007, compared to a 1 percent decline in federal employment and an 8.1 percent growth in U.S. private-sector employment over the same period.

Some states appear to have grown much faster than others, though direct comparisons are not possible because different states employ different counting methods. Some, for example, consider faculty at state universities to be state employees, while others do not.

But rather than cutting their workforces back now, at a time when the recession is increasing demand for state services, many states plan to use some funding from the federal stimulus to delay the day of reckoning.

One of the provisions they will be able to tap is an infusion of $87 billion through the joint federal-state Medicaid program.

Some states have indicated that they will use some of the money from a 6.2 percent increase in federal Medicaid spending for all states — and much more than that for some — to free up up state funds for other programs, sparing an unknown number of jobs that might otherwise have been lost immediately.

The stimulus also will give states $25 billion for public schools, most of which will be funneled to local school districts.

More than 300,000 teaching jobs saved
The Education Commission for the States estimates that nationally the stimulus money will create or save 267,000 public school teaching jobs and 40,000 teaching aides’ jobs this year.

Donald Boyd, a senior fellow at the Rockefeller Institute of Government at the State University of New York, said that state government employees typically fare relatively well in economic downturns.

“State and local government employment is far less cyclical than private-sector employment,” he said. “We see this in recession after recession. That does not mean that states don't slow their hiring or even lay workers off in recessions. They do. But there is less of it than in the private sector, and it happens with a lag.”

Boyd said that “multiyear labor contracts often make it difficult to cut employment quickly, and presumably the large state and local workforce, which includes many voters, is also a large constituency that is hard to go against.”

And state employee unions often are major contributors in gubernatorial and state legislative races, making it politically risky to take them on.

But Boyd also pointed out that cutting employees isn’t a cost-effective approach to erasing a budget deficit, as their wages account for about 15 percent of total expenditures for state governments.

“So if a state like California, with a budget gap of about 25 percent of expenditures, laid off every single state worker — every prison guard, highway worker, university professor and legislator — it would have solved only about two thirds of its budget problem,” he said.

More layoffs expected
That means states will have to cut other spending, and in some cases raise taxes, to meet their balanced budget mandates, he said. It also will mean more layoffs, he said.

In a research paper issued Thursday, Boyd wrote that even under optimistic assumptions the stimulus windfall “is not large enough or sustained enough to eliminate the need for significant state spending cuts or tax increases. Tax revenue is unlikely to recover sharply enough or significantly enough — based on analysis of the last three recessions — to replace the stimulus funds that disappear.”

That falls into line with what the National Conference of State Legislatures expects, given that states continued to experience significant budget gaps in fiscal year 2003 and fiscal year 2004, well after the 2001 recession ended.

That’s why lawmakers, as they begin work on their budgets for fiscal year 2010, are preparing now for the difficult decisions that need to be made on layoffs.

“Policymakers are well aware that state recovery lags national recovery and are working accordingly as they deliberate on their FY 2010 budgets,” said Corina Eckl, the director of NSCL’s Fiscal Affairs Program. “This is a long way of saying that states are biting the bullet now.”

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