The drumbeat of negative economic news has continued at an alarming rate. For residents of some regions in the U.S., the noise is even louder.
These are the areas where the already tottering recovery is faltering even more than most. Many, such as Detroit, were caught in the downturn of the auto industry. Others, including Miami, were decimated by the decline in the real estate market. These are weaknesses that are difficult though not impossible to overcome.
In the early days of the recession, government employment rose thanks to federal stimulus funds and hefty rainy day funds. As the economy went south, tax revenue dried up and with it the golden ticket to middle class prosperity that public sector employment once offered. The consequences are serious for the overall economy. Cuts in the federal budget are also starting to be felt in communities where Uncle Sam is a significant employer such as Augusta, Georgia. Wells Fargo economist Mark Vitner is calling for state and local governments to slash 20,000 to 30,000 jobs a month through the middle of 2012, according to the Associated Press.
‘There is also little evidence suggesting that things will be looking up for state and local employment in the next few years,” writes Kim Reuben of the Urban Institute in a blog post. More likely, local job numbers will keep falling as Federal stimulus aid ends, states keep cutting local aid and property tax revenues have started following house prices down. “State and especially local budget cuts translate into employment changes because they spend most of their general fund money on people rather than raw materials or buying things. About half of local spending goes to wages and salaries (more if pensions and other benefits are included) so cuts in local spending mean either lower compensation or fewer people employed. ”
For now, these areas are being forced to implement many of the same types of austerity policies that have proven so unpopular in Europe, such as laying off tens of thousands of public servants including police officers, teachers and fire fighters. Some cities are considering additional levies such as a soda tax to fill their depleted coffers. Others, including San Francisco, are offering generous tax breaks to big companies such as Twitter to get them to stay in their cities. This is the situation behind the 24/7 Wall St. list of the 10 Metropolitan Statistical Areas Suffering the Most From Austerity.
“It’s very, very difficult if you are not growing and you have to deal with a budget gap,” says Nigel Gault, Chief U.S. economist at HIS Global Insight, in an interview. ”The options are not pleasant.”
These choices, of course, are raising taxes or cutting spending. It is a classic Catch-22. Business will decry if taxes increase and may relocate to regions where the burdens are less onerous. Slashing city services presents its own set of issues. For one thing, people don’t want to work for companies in areas where crime is rampant because the local police department is under funded.
Cities, sadly, are becoming accustomed to doing less with less. According to data from the National League Of Cities, 63% of cities polled by the organization last year said they planned to make cuts in public safety spending. A whopping 87% of local governments said they were worse off in 2010 than 2009. Some 250,000 jobs at the state and lo Sentiment may have turned this year because tax receipts are coming in stronger than expected, something that surprised Gault and other experts.
The rebound, though, is nowhere near strong enough for local governments to reopen their spending spigot.
“It means that they don’t have to be cutting as severely but they have to be cutting,” he said, adding that the “the austerity process is a lot more advanced at the cities and states than at the federal level.”
Many regions, including Miami-Dade County, one of the epicenters of the meltdown in the mortgage market, are caught between a rock and a fiscal hard place. As the Miami Herald explained recently, officials found out that their budget deficit for the coming fiscal year would be $230 million, far less than the $400 million that was originally expected. There is one catch, however.
“Both candidates running for Miami-Dade mayor have pledged to eliminate last year’s controversial tax-rate increase. If the tax rate is rolled back, the budget gap would go back to the $400 million level,” the paper says. “Either way, both employee pay cuts and layoffs are in the offing as the county begins to find ways to shrink expenses to meet reduced revenues at a time when voters are in no mood to raise tax rates.”
Cuts in the police and fire departments are on the table. The teachers in Miami-Dade County were somewhat luckier. They were able to avoid layoffs for next year after agreeing to forgo raises for the current school year. Officials in neighboring Broward County are slashing 1,400 teachers from their payroll and similar layoffs are occurring throughout South Florida, according to the Herald. The region, however, did not make the list.
Not surprisingly, many of the cities on the list are in California, where Gov. Jerry Brown wants voters to extend several temporary taxes to bring the Golden State’s fiscal house in order. Republicans are resisting these efforts and there is a showdown between the two sides going on with local governments being caught in the middle.
The data examined by 24/7 Wall St. underscores that the economic recovery is proceeding at an uneven pace. It’s a roller coaster ride for sure, but not one of those sleek, modern thrill rides that are seen in amusement parks. Now, the economy feels like an old, rickety contraption that creeks so much that riders are not sure if it will collapse at the next hair-pin turn.
Methodolgy: 24/7 Wall St. used data from the Bureau of Labor for statistics for estimated government employment and regional unemployment. The employment change figures are from Brookings and the credit ratings are from Moody’s. We also consulted the Milken Institute’s 2010 Best-Performing Cities – 200 Largest Metros list.