States Face An Unhappy Fiscal New Year

Isaiah J. Poole

July 1 starts the fiscal new year in many states around the country, and thanks to economic policies pushed by conservative governors or state legislatures, combined with gridlock at the federal level, many of these states will set in motion policies that will make things worse for the unemployed and economically struggling.

The Center for Budget and Policy Priorities outlines the damage in a new report published this week.

Of the 32 states that have enacted budgets, as least 24 are imposing significant cuts. These cuts will delay the nation’s economic recovery and undermine efforts to create jobs.

These enacted budget cuts will cause hundreds of thousands of Arizona families to lose health insurance, force the shortening of the school year for 86,000 preschoolers in Georgia, sharply increase university tuition in North Carolina and Washington, and cost jobless disabled individuals in Michigan one-quarter of their cash assistance, among a range of other impacts.

In addition:

  • Florida is terminating employment for 1,300 public employees and cutting 15,000 children from a school readiness program that helps low-income families obtain high quality child care.
  • Mississippi is for the fourth straight year violating legislative requirements for funding public schools, this year underfunding school districts by 12 percent or $237 million. Previous shortfalls resulted in 2,060 school employee layoffs.
  • Wisconsin is cutting the state’s Earned Income Tax Credit for 152,000 families with two or more children by 21 percent, or an average of $518 for families with three or more children and $154 for families with two children. The state also is cutting $740 million, or about 8 percent, from public school spending.

Many blue-state legislatures and governors have signed off on government cuts as well to meet constitutional balanced budget requirements. But Adam Hersh, an economist at the Center for American Progress Action Fund, discovered something striking when he crunched state unemployment numbers and spending cuts: as a general rule, the states that were undertaking the deepest budget cuts were experiencing the weakest job growth. (The chart he created, which we’ve enhanced, illustrates his point.)

Source: Think Progress
Think Progress

Hersh noted that since December 2007, the start of the Great Recession, through the end of 2010, 24 states have cut government spending by an average of 7.5 percent after adjusting for inflation, while another 25 have expanded government outlays by an average of 11 percent. (Alabama was excluded because of data problems.) His conclusion:

Relative to national economic trends, states that increased spending enjoyed on average:

  • 0.2 percentage point decrease in the unemployment rate
  • 1.4 percent increase in private employment
  • 0.5 percent real economic growth since the start of the recession

In contrast, states that cut spending saw on average:

  • 1 percentage point increase in the unemployment rate
  • 2.1 percent loss of private employment
  • 2.9 percent real economic contraction relative to the national economic trend

Steep state spending cuts have gone hand-in-hand with rising unemployment rates, falling private-sector payroll employment, and lower growth in state’s gross domestic product, or GDP — the sum of all goods and services produced by labor and equipment in each state, less imports.

State and local government vs. private sector job growth
Source: Bureau of Labor Statistics data

The chart above depicts what has happened to state and local government employment in the past 18 months, driven largely by deliberate decision by conservatives to cut public employee payrolls. You can see how much the continued decline undercuts the private sector job growth during the same period. Keep in mind that public sector job cuts have private sector job consequences: The Economic Policy Institute estimates that 30 private-sector employees lose their jobs for every 100 public-sector employees who are laid off. because the subsequent loss of income dampens consumer spending and thus weakens the economy.

Conservatives got one of their main wishes, a number of laboratories where they could demonstrate that cutting taxes on the wealthy and cutting services for the middle-class and the poor would yield more economic growth and more jobs than any progressive alternative. It’s not proving true in Texas, it’s not proving true in Florida, and it is not proving true in states across America. By this time in 2012, voters who put into office Tea Party radicals out of frustration with the economy will have plenty of reason to reconsider their decision.

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