Long and Uncertain Recovery for State Budgets

January 9, 2012 at 2:36 pm

Our latest update on state budget shortfalls shows that states continue to face a long and uncertain recovery.

The report finds that:

  • States’ budget challenges remain considerable. Twenty-nine states have projected or have addressed budget gaps totaling $44 billion for fiscal year 2013, which begins July 1 in most states.  (See map.)  This number is almost certain to grow as governors release new gap projections along with their budgets in the coming months.  States will have to close these gaps before the fiscal year begins, since nearly every state is required to balance its budget.  (These 29 states include some states with two-year budget cycles ending in fiscal year 2013, most of which have already closed their projected 2013 shortfalls through spending cuts and other measures scheduled to take effect next year.)
  • State finances are recovering, but slowly. Shortfalls are generally smaller than in previous years.  But they remain large by historical standards, as the economy continues to be weak and unemployment is still high.

Revenues remain below the amount needed to sustain services like education and public safety, in part because states are coming out of such a deep hole.  State revenues plunged as a result of the recession, and, while they are now growing again, it would take years of growth at the current rate to maintain services at anywhere near pre-recession levels, as my colleague Elizabeth McNichol has pointed out.

Moreover, states are facing serious headwinds that will slow their recovery.  Emergency federal aid to states has largely expired, and large cuts in federal spending scheduled for coming years will likely affect ongoing federal funding for states and localities.  Growth in the broader economy has been sluggish, as well.

Given these challenges, states should take a balanced approach as they prepare their budgets for the coming year — one that draws on reserves (in states that have them) and raises additional revenue, rather than relying on cuts alone.

The budget that California governor Jerry Brown proposed last week provides a good example:  while it makes $4.2 billion in cuts to Temporary Assistance for Needy Families (TANF), Medicaid, and a host of other programs, it also raises $4.7 billion in additional revenue, primarily by creating new income tax rates for very high earners and raising the sales tax rate by half a percentage point.  As Governor Brown recognized, a cuts-only approach would deepen the already severe cuts that states have made over the last several years to services that are critical to states’ economic futures, like K-12 education.

In Case You Missed It…

January 6, 2012 at 5:44 pm

This week on Off the Charts, we discussed the federal budget and taxes, the economy, state budgets, and income inequality.

  • On the federal budget and taxes, Robert Greenstein warned that a potential provision of an upcoming payroll tax bill would deny unemployment benefits to hundreds of thousands of workers.  We pointed to our new report showing that the tight annual funding limits scheduled for 2013-2021 will squeeze non-defense appropriations even more than defense, and Chuck Marr explained that Mitt Romney’s tax plan would worsen both deficits and inequality.
  • On the economy, Chad Stone outlined the implications of the December jobs report, highlighting our updated chart book.
  • On state budgets, Michael Leachman tallied the continuing decline in state and local public employment resulting from the recession.  Also, as state policymakers look ahead to fiscal year 2013, we highlighted two CBPP reports showing the cuts in education and other public services that states are implementing this year.
  • On income inequality, Hannah Shaw discussed a new Congressional Research Service report finding that income growth at the top far outpaced growth elsewhere on the income ladder between 1996 and 2006.

In other news, we released reports on coming reductions in funding for defense and non-defense programs and a proposal to deny unemployment insurance to less-educated workers, as well as a statement on the December jobs report.

Local Government Job Losses Continue

January 6, 2012 at 5:37 pm

Local governments cut 14,000 jobs last month, today’s Labor Department report finds, the 34th month out of the last 41 in which total state and local employment shrank.  (State employment was flat in December.)  States and localities have cut 656,000 jobs since employment peaked in August 2008.

Local Government Job Losses Continue

The job cuts, which states and localities are imposing to help close their budget gaps, have been widespread.  Since the recession started in December 2007, state and local governments have cut a net 464,000 jobs.  They include:

  • Local school districts have cut 214,000 positions.
  • Cities, counties, and other local governments have cut 188,000 jobs.
  • State governments have cut 62,000 jobs.

These job losses have happened at a time when demand for the services that state and local governments provide has risen sharply.  For example, an estimated 5.6 million more people will be eligible for Medicaid in 2012 than were enrolled in 2008, mainly because so many families lost their health insurance when they lost their jobs.  And states expect to have 350,000 more public school students and 1.7 million more public college and university students in the school year that starts later this year than they did when the recession began.  The numbers of senior citizens, young children, and unemployed individuals — three groups that tend to use more public services — also have grown.

Given the labor-intensive nature of most public services — teaching, policing, firefighting, and the like — it’s hard to see how governments can continue to cut so many workers without seriously harming the quality of life of the communities they serve.

An Appalling Idea, Even by Washington Standards

January 6, 2012 at 3:08 pm

For legislation to extend the payroll tax cut through the end of 2012, House Republicans are expected to push for a provision on unemployment insurance (UI) that is appalling even by current Washington standards.  Neither President Obama nor Congress should accept any payroll-tax legislation that includes it.  Here’s why:

The provision, part of a full-year payroll-tax bill that the House passed in December, would deny UI benefits to any worker who lacks a high school diploma or GED and is not enrolled in classes to get one or the other — regardless of how long the person worked or whether he or she has access to adult education, which itself has been subject to significant budget cuts in the past few years and is heavily oversubscribed.

The proposal would deny UI benefits to hundreds of thousands of workers — many of them middle-aged — who have worked hard, played by the rules, and effectively paid UI taxes for years and who then were laid off due to no fault of their own.

This would violate the basic compact that the UI system has embodied since its creation under President Roosevelt in 1935 — that people who have amassed a sufficient record of work, and on whose behalf UI taxes have faithfully been paid, may receive UI benefits for a temporary period if they are laid off and are searching for a new job.

Older workers would be hit the hardest.  Nearly half (47 percent) of UI recipients with less than a high school education or the equivalent are over age 45, and 35 percent are age 50 or over, Census data show.  In 2010, half a million workers age 50 or over who received UI lacked a high school diploma.  By contrast, less than one-fifth of UI recipients without a high school diploma or the equivalent are under age 30.

For most of these individuals, who may have worked for 30 years or more, returning to high school makes little sense.  And adult education, even when it might be useful because the workers are younger, very often isn’t available due in part to federal and state budget cuts.

Virtually every state had waiting lists in local adult education programs in 2009-2010, according to the most recent survey, and the number of people on waiting lists doubled just between 2008 and 2009-2010.

Furthermore, the shortage of adult education slots has almost certainly grown significantly since 2009-2010 because of substantial budget cuts in adult education since then.

Federal funding for career, technical, and adult education in fiscal year 2012 is 15 percent below the fiscal year 2008 level, after adjusting for inflation, and 23 percent below the 2006 level — largely as a result of cuts made by the current Congress.  In addition, a number of states have cut state funding for adult education significantly or eliminated it altogether.  And more cuts in federal funding are almost certainly coming as a result of the Budget Control Act’s austere caps on discretionary funding and the additional, automatic cuts (or “sequestration”) that will occur starting in January 2013.

The proposal will primarily affect workers who were paid low or modest wages (since people with less education tend to be paid less) and who consequently are unlikely to have much in the way of assets to help them weather their period of unemployment.

Moreover, the people affected will, in many cases, have paid significant UI taxes over the years.  UI taxes are generally levied on the first $7,000 of a worker’s wages (this figure is somewhat higher in some states).  Although employers pay the tax, economists agree that employees largely bear the burden of the tax in the form of lower wages than they would otherwise receive.  And since the tax is levied on only the first $7,000 (or a similar figure) in annual wages, it constitutes a larger share of the wages of lower-wage workers than of higher-wage ones.

To add insult to injury, the proposal would allow people without a high school diploma or GED to receive benefits only if they enroll in classes for which there often would be no slots available — in part because of budget cuts approved by some of the same policymakers who now embrace this new requirement.

President Obama and lawmakers of both parties face a crucial test.  They claim to care about average Americans who are trying to find work in an economy that still struggles to create jobs.  If they give in to House Republicans and agree to this provision as part of a final package on the payroll tax cut, their claims will ring thin — and they will deserve the strong criticism that will come their way.

Today’s Jobs Report In Pictures

January 6, 2012 at 9:20 am

Today’s employment report shows glimmers of hope for the job market, most notably the addition of 200,000 payroll jobs in December. Yet a strong jobs recovery remains elusive. The overall jobs deficit remains large, the labor force shrank for the second straight month and the proportion of people aged 16 and over who have a job continues to be depressed. Jobs are still hard to find, especially for the long-term unemployed.

Below are some charts to show how the new figures look in historical context. See our statement with further analysis.

See our chart book for more.