State Budgets and Skyrocketing Unemployment


Every state in the U.S. is currently experiencing dramatic budget shortfalls. Unlike the federal government which can run budget deficits and/or print money (both of which the feds are doing on a massive scale), the states have to balance their budgets. (They can borrow money, but not like the feds.)


Because of the economic collapse in America, most of the states have seen significant decreases in tax revenue. If property values fall, so does property tax collections. If people buy less stuff, sales tax collections fall. If people are earning less, income tax collections fall. Another problem is that states have traditionally looked to the feds for funding for a lot of programs and the cities and counties have looked to the states. (43% of Medicaid funding administered by the states comes from Washington. The Department of Transportation doesn’t build roads – they send money to the states who hire private companies.) Because of the huge budget problems in Washington, there is far less federal money to give to the states and far less money for the states to give to cities and counties. (The new Republican leadership in the House campaigned on a vow to cut domestic spending by $100 billion this year alone. They are now scaling that back, explaining that we are mid-way through the budget year, but next year they really mean it.)


Last year, the states were able to use federal stimulus dollars totaling $135 billion to plug their budget loopholes. That money is gone and there isn’t any more coming.


One of the results of all of this will me huge increases in layoffs at every level of state, county, and local government, and related entities, like school districts. For instance, the Austin Independent School District (AISD) where I live has announced that they are going to layoff 530 employees, including teachers. The part they neglect to mention is that they are further reducing staff by attrition. (People retire or quit because a family member took a job somewhere else.) If somebody who is not essential leaves, they simply do not replace them. There is no number there, but add another 1,000 or so. And here’s the scary part – multiply that by almost every major school district in the country and what does it add up to?


According to the Center on Budget and Policy Priorities, 44 states are facing a combined budget shortfall of $125,000,000,000. (That’s billion.) That doesn’t take into account the under-funding of state, local, county and teacher pensions. Some of the state pension funds could run out of money in the next ten years. (I recently spoke to someone who works in state government here in Austin who tells me that the state is looking at eliminating 40,000 employees.)


In January, the “official” unemployment rate dropped to 9%. Many pundits took ths as a sign that the employment situation is improving. After all, 9% is lower than 9.4%. (The December number.) The problem is that the only reason the number dropped to 9% is because so many unemployed people’s unemployment benefits ran out and when that happens, we stop counting them. Its not like they got jobs or disappeared. They are still out there and still unemployed. When all the soon to be unemployed government employees get added to the unemployment rolls, the percentage will spike back up, but it will still be artificially low. And all of these unemployed people don’t buy as much stuff, so don’t expect the economy to start roaring ahead anytime soon. (Consumer spending is up, but that is due in large part to the fact that so many people are behind on their mortgages. 8 million and growing. If you don’t pay your mortgage, all of a sudden you have more money to spend on other stuff. Unfortunately, that can’t go on forever. But hat is the subject of another post for another day.)


Michael Baumer

<p align=”justify”><a href=””>Law Office of Michael Baumer</a></p>

Leave a Reply

You must be logged in to post a comment.

by Michael Baumer