The Biggest Cities Running Out Of Government Workers

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.

• Read The Biggest Cities Running Out Of Government Workers

‘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.

10. San Francisco-Oakland-Fremont; CA
> Change in Government Employment From Peak: 5.2% (92/100)
> Estimated Government Jobs Lost: 10,000
> Change in Overall Employment From Peak:  9.4% (83/100)
> Unemployment: 9.5%
> April 09-10 Job Growth: -3.6%  (193/200)
> Population: 4,335,391
> Credit rating: Aa2  (San Francisco)

Last year, San Francisco Mayor Gavin Newsome, now California’s lieutenant governor, sent City Hall reeling by sending layoff notices to 15,000 out of the city’s 26,000 workers. His successor Ed Lee has avoided such draconian moves, which were originally feared would take place, in his spending plan but does require “$20 million in concessions from police officers, firefighters and nurses who are due raises and haven’t yet agreed to forgo them,” according to the San Francisco Chronicle. “If they refuse, layoffs are a possibility, the mayor said.”   The outlook for local government employment remains murky. Beacon Analysis recently argued that it didn’t expect the region would not reach its 2008 employment levels until 2015.  Brooking’s MetroMonitor’s latest report labels the San Francisco among the top 20 weakest performers.  It slipped 15 places to 103 places in the Milken rankings.

9. Augusta-Richmond County; GA-SC
> Change In Government Employment From Peak: 5.7%  (91/100)
> Estimated Government Jobs Lost: 1,200
> Change In Overall Employment From Peak:  2.6% (6/100)
> April 09-10 Job Growth: -.57% (39/200)
> Unemployment: 8.4%
> Population: 556,877
> Credit rating: Aa2

The Augusta region has actually fared alright during the recession. In fact, the Brookings Institution’s MetroMonitor published in December 2010 labeled it as one of the 20 Strongest Performing Metro Areas. That momentum may be difficult to sustain.   For instance, tight state budgets are squeezing Georgia Health Sciences University which has resulted in layoffs and furlough days for workers.   The region is getting squeezed by layoffs among major local employers including the U.S. Department of Energy’s Savannah River Site, where the site’s primary contractor announced plans to layoff 1,400 workers by September.   Since that ranking was issued,  Georgia’s second-largest city has been squeezed further. It recently privatized its bus service and its municipal golf course called “The Patch” to close a $7 million budget deficit, which according to the Augusta Herald “some golfers have enjoyed sweetheart deals at the Patch; the talk has long been that favored folks fly free, for instance.”  More cuts are needed, the paper says, adding “The only reason to oppose such attempts at savings is to look out for city employees or their friends, at the expense of the citizenry.”

8. Kansas City; MO-KS
> Changes In Government Employment From Peak: 6.1% (93/100)
> Estimated Government Jobs Lost: 6,500
> Changes In Overall Employment From Peak: 6.2% (48/100)
> Unemployment: 8.1%
> April 09-10 Job Growth: -1.49%  (93/200)
> Population: 2,035,334
> Credit Rating: Aa2 (Kansas City, MO)

Austerity marches on in the Kansas City area.  Johnson County Kansas Administrator Hannes Zacharias recently recommended that the county slash its workforce by 15%, or 600, over the next five years.  Johnson has already cut 200 positions. Zacharias also recommended raises for the workforce of between 1.5% to 2%. something that Steve Rose, a columnist for the Kansas City Star, argues is a bad idea, saying that salaries should be frozen.   The region’s economy is not helped by its dependence on Sprint-Nextel.  Kansas City Mayor Sly James is watching his bottom line as well.  His inauguration gala cost only $50,000.  An editorial in the Kansas City Star recently called for an overhaul to the pension plans for public employees, arguing that “the status quo won’t cut it.”

7. Bakersfield-Delano; CA
> Changes In Government Employment From Peak: 6.8% (94/100)
> Estimated Government Jobs Lost: 2,500
> Changes In Overall Employment From Peak: 8% (66/100)
> Unemployment: 16%
> April 09-10 Job Growth: -2.13% (132/200)
> Population: 839,631
> Credit Rating: A1 (Bakersfield)

Officials in the Bakersfield, CA area have balanced their budgets through layoffs for years.   A fiscal emergency was declared in Kern County in 2009 when all county departments were ordered to trim 20% from their budgets.  Further layoffs remain possible, though Kern officials would like to avoid them. “Since salaries and benefits account for more than half of all General Fund expenditures, layoffs are certainly an option that will need to be explored whenever costs must be reduced,” the county says on its website.   Give Kern County credit for creative spinning.  The Kern Economic Development Corporation said in January: “New research shows that, while Kern County lost jobs in the recession, we have the lowest percentage of job loss in California amongst the metros we most often compete with when it comes to business.”   The region ranked 86 out of 200 of the largest metropolitan areas rated by the Milken Institute.

6. Providence-New Bedford-Fall River; RI-MA
> Change In Local Government Employment: 7.2% (95/100)
> Estimated Government Jobs Lost: 3,000
> Change In Overall Employment From Peak: 8.8% (75/100)
> April 09-10 Job Growth: 2.86% (175/200)
> Unemployment: 10.9%
> Population: 1,600,85
> Credit rating: A3 (Providence)

Yesterday, members of the Providence City Council said they were concerned about the effects of more police layoffs in Rhode Island’s capital city.   Seventy eight layoffs are needed to erase the city’s $110 million deficit, according to a statement the Mayor’s office gave the Providence Journal.   Mayor Angel Tavares garnered national headlines earlier this year when the city gave layoff notices to all 1,926 teachers.  He later explained that they were given as a precautionary measure and that most would keep their jobs.  Providence was rated among the 2o weaker-performing regions by the Brookings Institution’s MetroMonitor.  It was ranked 175 of 200 on the Milken Institute’s 2010 rankings,  up from  183 a year earlier.

5. Fresno; CA
> Change In Government Employment From Peak: 8% (95/100)
> Estimated Government Jobs Lost: 4,000
> Change In Overall Employment From Peak:  12% (93/100)
> April 09-10 Job Growth: -3.01 % (179/200)
> Unemployment: 17%
> Population: 930,450
> Credit Rating: Aa3

Officials in Fresno Unified School District recently said earlier this month that they would lay off 124 teachers instead of the original 257. It’s a rare bit of good news for this battered California community, where layoffs of government workers are common.  Fresno has cut 556 jobs in the last year.  It has been hit especially hard by the meltdown in the real estate market.  The region fell to 124th out of 2000 in the 2010 Milken rankings, down from 115 from a year earlier.   The PR challenges are many for the region.  Here’s how NPR described the area in 2008: ” For some people in California’s central valley, life resembles scenes from The Grapes of Wrath.”

4. New Haven-Milford; CT
> Change in Government Employment From Peak: 8.2% (96/100)
> Estimated Government Jobs Lost: 1,500
> Change in Overall Employment From Peak: 7.7% (61/100)
> April 09-10 Job Growth: 1.84 % (117/200)
> Unemployment: 9.3%
> Population: 862,477
> Credit rating: A1 (New Haven)

The good news for residents of New Haven, Conn. is that the city’s $475.4 million  2011-2012 budget approved in May contains no new tax increases and did not include an unpopular plan to lease the city’s parking meters to an outside company.   The bad news for city workers is that means they are getting squeezed.  In fact, $8 million in labor concessions are included in the figures.   “Citing out-of-control pension and health care costs, to the tune of $105 million next year, Mayor John DeStefano Jr. is aggressively pushing for savings in those two areas during labor negotiations,” according to The New Haven Register.  Earlier this year, 16 police officers were laid off.  High school students protested planned teacher layoffs at City Hall earlier this year.  The region fell 65 places to 153rd place in the 2010 Milken Institute survey.  It was one of  the 20 weakest-performing metro areas in the Brookings Institute’s MetroMonitor rating.

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3. Stockton; CA
> Change In  Government Employment From Peak: 10%
> Estimated Government Jobs Lost: 3,500
> Change In Overall Employment From Peak: 12%
> April 09-10 Job Growth: -2.4% (156/200)
> Unemployment: 17.3%
> Population: 685,306
> Credit rating: A1

Stockton, a California town of about 300,000 in central California, has become synonymous with the economic downturn because of its high foreclosure and unemployment rates.  Last year, the local school district laid off 100 workers.   In March city officials announced that Stockton’s projected deficit had mushroomed to $34 million and that the Police Department had been asked to prepare for 100 layoffs. More misery may be coming.

“The projection assumes no change to current labor agreements and that legal challenges against the city will succeed,” according to The Record newspaper. “Those challenges include lawsuits filed against the city by the police and firefighters unions, challenging the imposition of cuts that include the closure of a Fire Department truck company and the cancellation of scheduled pay raises.”

Budget discussions are ongoing.   The region dropped 20 places on the 2010 Milken list to 186 out of 200 and one of the 20 weakest-performing metro areas on Brookings’ MetroMonitor.

2. Detroit-Warren-Livonia, MI
> Change in Government Employment From Peak:  16.2%
> Estimated Government Jobs Lost: 30,000
> Change In Overall Employment From Peak:   17.9%
> April 09-10 Job Growth: -3.59 % (192/200)
> Unemployment: 11.1%
> Population: 4,296,250
> Credit rating: Ba3 (Detroit)

Perhaps no city illustrates this phenomenon more than Detroit.   According to Mayor Dave Bing’s February State of The City Address,  nearly 1 in 5 Detroiters were out of work and looking for a job.  Bing, a former NBA star, has ambitious plans to revitalize the motor city including demolishing 10,000 dangerous buildings.   He has reason to be optimistic, given the rebound in the U.S. auto industry that boosted Michigan’s economy by 2.9% last year. Nonetheless, its dire financial state has forced it to make drastic cuts to services.  In fact, Bing and the Detroit City Council are in the midst political battle over the budget .  Bing vetoed City Council’s budget plan last month, saying it would result in the layoff of 200 police officers and firefighters,  jeopardizing public safety.  Council members, who trimmed $50 million from Bing’s spending plan,  deny that this is true and recently overrode his veto for a second straight year.  Detroit’s recovery also is hampered by its poor credit ratings.  Detroit lost its investment grade status at Moody’s Investors Service in 2008

1. New Orleans-Metairie-Kenner; LA
> Change in Government Employment from Peak: 21.3 %  (100/100)
> Estimated Government Jobs Lost: 13,000
> Change in Total Employment From Peak: 15.5% (98/100)
> April 09-10 Job Growth: .02% (22/100)
> Unemployment: 7.2%
> Population: 1,167,764
> Credit rating: A3  (New Orleans)

New Orleans tops our list for obvious reasons. The Crescent City was devastated by Hurricane Katrina and the economic slowdown that followed.   Sadly, the city was a haven for corruption and ineptitude for years.

Mayor Mitch Landrieu has vowed to clean up the city’s fiscal mess by, among other things, taking a 10% pay cut along with his top staff.   Last year, he ordered city workers to take 11 days off work without pay to help plug a $67 million budget gap.  In April, the Mayor, whose ambitious goals include getting rid of 10,000 blighted properties, minced no words about the challenges that lie ahead in his State of The City Address.

“… The hangover from past budget practices still lingers. The city’s employee health plan racked up millions more in claims than had been projected last year,” he said. “ These costs will have to come out of this year’s budget. So yet again, we will ask every department in City government to get more efficient, to downsize, and to reduce costs.”

The region’s rating fell to 123rd place on the 2010 Milken Institute rating.   Experts argue that the economy may be improving but it had nowhere to go but up.

–Jonathan Berr