Though tax revenue is starting to rise, states are still wrestling with multi-billion-dollar budget gaps. Federal stimulus funds helped minimize job cuts until now, but that money essentially runs out on June 30.
So states are planning to slash funds for education, social services and local governments, as well as downsize their payrolls even more, in the coming fiscal year.
And that's the good news.
The bad news is that local governments are in even worse shape. Not only are they losing state aid, but they are finally feeling the fallout from the mortgage meltdown. Property tax assessments, a major funding source for municipalities, have only started to drop.
And that bad news is compounded by worse news. Because even as sales and income tax revenues are rising in those states that have them, digging out of the financial quagmire so many of them have fallen into likely will take a couple of years or longer, perhaps much longer.
Property-tax revenue, which always takes time to adjust to fresh assessments of value, and which state and local governments depend on for much of their income, is, in many cases, only now showing reductions from the impact of the housing crash. Property taxes are a major funder of schools in every state. Not surprisingly, as we are all too well aware, teacher lay-offs are a major part of how many states—and not just Republican-dominated ones—are dealing with their financial crises.
While income and sales tax revenues have been rising, the Center for Budget and Policy Priorities views state and local government prospects for fiscal 2012 to be as grim, if not worse, than the past two years. That, in part, is because most of the federal stimulus money these governments received as part of the Obama administration's American Recovery and Reinvestment Act passed in February 2009 has been spent, although some states have kept large amounts of these funds in reserve. Nebraska, for instance, still has available 38 percent of the federal dollars it received through the program.
Even so, 26 states are already projecting an aggregate shortfall of $75 billion in fiscal 2013. And that is after draconian cuts to government programs, including large numbers of lay-offs.
State and local government spending has a tremendous impact on infrastructure, schools, medical care and public services such as policing and fire fighting. Many of them carry out extensive regulatory tasks as well. Moreover, plenty of small businesses depend on them for their very existence. That fact is no doubt one of the reasons that some small businesses, according to the latest survey by the National Federation of Independent Businesses, are not only not hiring at their traditional levels during a recovery from recession, but have also begun laying off workers. This may be why initial claims for unemployment insurance remain stubbornly high.
It's a vicious circle. Fewer private-sector jobs, less tax revenue; less tax revenue, fewer public-sector jobs. And no end in sight. The Republicans' proposal for more jobs: Cut taxes. The Democrats': Cross fingers.