As the Bureau of Labor Statistics reported Friday, 29 states saw higher unemployment rates in October, with eight others registering no change. You can see an interactive map on the subject here. There is good reason to believe that November's figures will be similar. That situation, and the economic situation in general, has led to what is likely to be a vicious circle in the coming year or more.
As the percentage of employed people drops, their spending dwindles, and this, combined with lower housing values and other economic dislocations, has generated steep tax revenue drops for many states and municipalities.
What that means - because states must balance their budgets - is a coming tsunami of lay-offs, reductions in services and increased fees for institutions like universities. Tuition and fees at the University of California, for instance, will be rising 32% next term.
While dysfunctional California may be the worst off, it's not alone in its predicament. Ten states are worse off than the rest, but the pinch is being felt in many other places. As the Economic Policy Institute has pointed out:
• State and local governments have already begun adopting contractionary fiscal policies in response to budget gaps, but future shortfalls will be much larger — indeed, they will be enormous. Because these shortfalls tend to grow for two years after the end of a recession, they will continue to drag on the economy at least through 2012.
• Even after accounting for the budget relief provided in the recovery act, state governments are still projected to face $369 billion in shortfalls in the current fiscal year and the next two years. Local governments are projected to face an additional $100 billion in shortfalls over that same period.
• These shortfalls will result in hundreds of billions of spending cuts and tax hikes, which will likely result in millions of fewer jobs over the next two and a half years.
• State and local budget cuts not only diminish public services; they also hurt the private sector. For each dollar of budget cuts, over half of the jobs and economic activity lost are likely to be in the private sector.
• To avoid higher unemployment and a heavy economic drag, the federal government should extend the state and local budget relief provided in the recovery act by $150 billion over the next one-and-a-half years, through state fiscal year 2011.
Conservatives, as well deficit hawks among the Democrats, are loath to pass any more stimulus or relief for the states. Besides those who object to any government social spending, some claim to see inflation as a threat despite all indications to the contrary. There are, as well, those calculating rightwing cynics who see any worsening of the economic situation as a big benefit to their objectives in the 2010 elections.
As EPI's briefing paper notes, Congress has a choice. If it decides not to intervene, many states and hundreds of local governments will have to cut services, lay off tens of thousands of employees and raise taxes.
Budget and service cuts, along with lay-offs will, obviously, worsen the economy, increase the possibility that the improvement indicated by a positive gross domestic product in the third quarter will be slowed down, thereby increasing the chances of a "jobless recovery" and a possible return to economic contraction. That's an outcome some experts call a double-dip recession. And it's not just a few outliers pointing to such possibilities. On Thursday, the CEO of 3M added his voice to those suggesting this could happen.
We need to find ways to get the nation's workforce drawing a paycheck again in the short run and then deal with the much-ignored structural economic problems that have grown worse over the past four decades.
If states weren't so dependent on regressive tax systems that depend on levies that punish the poor and let the wealthy skate, the crunch would not be so bad. Making such changes, however, assuming the political will could be ginned up for the purpose, is a long-term effort. Telling a drowning person she should grow some gills may be good advice for next time the house goes under water, but right now she needs to be thrown a life preserver.
Something must be done - and soon - to keep states from being forced to make deeply damaging choices whose impact may well be felt for decades. The Center on Budget and Policy Priorities has some ideas on what might be most effective. Does the Democratic leadership have the gumption to knuckle down the foes of such relief, or will it knuckle under instead?
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ManfromMiddletown had a excellent diary on this subject here.