The U.S. Census has released its 2009 survey of state and local expenditures, and not surprisingly, it shows a massive decline in revenues, down 22 percent from 2008, including a 19 percent decline in corporate tax collections and an 11 percent decline in collections from personal income taxes. Despite the decline, spending increased 4.8 percent. One category of growth, salaries and wages, increased by 3.3 percent (not including the cost of pensions and health insurance). That was actually modest growth compared to most years in the previous decade. From 1999 through 2009, according to previous Census' surveys, salaries and wages rose nearly 60 percent to $827 billion. In that same period inflation grew by 27 percent and the U.S. population, which typically drives local government hiring, increased by 13 percent.
Had states and localities kept their spending on employee wages to the growth in inflation plus population, they would have spent $100 billion less on pay alone. Instead, as I showed here, local governments have hired robustly during the past 20 years, fueling a growth in employee costs that are helping to strain budgets. As the chart on the previous page shows, when you increase worker ranks rapidly, your spending grows quickly.