The BLS jobs report today included the news that government employment shrank again in December, down about 13,000 jobs due almost exclusively to cuts at the local level. You have to wonder how you square that with recent reports like this one in USA Today exclaiming that state and local revenues are 'humming' again. A little context is needed. As the chart below shows, state and local taxes took a steep dip (state taxes actually declined for two consecutive years despite a spate of tax increases in 2009 and 2010) before rising again. Today, state tax collections are just two percent ahead of four years ago, while state and local are six percent higher. Meanwhile, costs have continued to rise, especially personnel costs, producing a continuing squeeze on budgets.
For instance, according to the national league of cities, 70 percent of cities still say that rising health costs are having a negative impact on their budgets, and 74 percent say that rising pension contributions are hurting their budgets, while 48 percent say their tax base is still shrinking. And of course, states are grappling with Medicaid, whose costs they share with the federal government. According to the State Budget Crisis Task Force:
"The rapid growth in Medicaid spending has pushed aside other types of state spending. Medicaid recently surpassed K-12 education as the largest area of state spending when all funds, including federal funds, are considered; Medicaid appears likely to continue to claim a growing share of state resources. "So the 'recovery' in state and local finances needs to be viewed within the context of just how far revenues fell before they continued rising again.
NATIONAL LEAGUE OF CITIES SURVEY