The Next Depression Part 40 - States In Stress


States In Stress

By Andrea Orr
Economic Policy Institute
November 23, 2009

STATE and LOCAL GOVERNMENTS are turning to DESPERATE MEASURES to fill massive budget shortfalls. The University of Californias Board of Regents has voted to RAUSE UNDERGRADUATE TUITION BY 32%. Arizona has considered SELLING IT’S CAPITOL BUILDING. The mayor of Pittsburgh, Pennsylvania is proposing a TAX ON COLLEGE TUITITION. And many school districts around the country have floated the idea of squeezing more lessons into fewer days to save on power bills.

All of this, at a time that many economists say the Great Recession is over.

On November 20, EPI hosted a panel of economists along with the mayor of Trenton, New Jersey, who outlined the severe budget shortfalls state and local governments were facing that could require them to make further job cuts. “The mission is not yet accomplished on Main Street,” said Trenton, New Jersey Mayor DOUGLAS PALMER, who delivered the keynote address at the event, SPURRING JOB CREATION: THE ROLE OF FEDERAL AID TO STATE AND LOCAL GOVERNMENTS. Palmer offered a long list of American cities where the jobless rate was well above the nationwide level of 10.2%. Unemployment is 13.4% in Las Vegas, 14.9% in Providence, Rhode Island, and 17% in Trenton.

“I cannot walk down the street to the grocery store, or hold a public meeting, without people - many people - coming up and asking me for a job,” Palmer said. “No one anticipated the depth of this recession and its impact on jobs.”

Mark Zandi, the chief economist for and one of the panelists at the event, said that while stimulus investments made under the Recovery Act had provided a significant source of growth, the economic recovery remained very fragile, especially for state and local governments that were suffering steep declines in tax revenues and faced a total $150 billion fiscal hole in 2011.

“We’re at a point where its appropriate for policy makers to provide additional aid,” said Zandi, who said he recommended more federal aid to state and local governments for the fiscal year 2011, which starts next summer.

And panelist Iris Lav, a senior advisor at the Center on Budget and Policy Priorities, said that major budget cuts were looming at the state and local level that could cost the country 900,000 jobs next year alone. To critics who say states should make the difficult decisions to cut spending in order to balance their budgets, she posed some hypothetical questions to illustrate how so many states had already cut to the bone: “Who is willing to have their public school closed? Who is willing to care for that elderly relative?”

Echoing that argument that the almost unprecedented severity of the current downturn called for unusual measures, Zandi said that he would not typically recommend such a level of federal aid. “But this is different,” he said. “The hole is turning out to be larger than we thought and deeper than we thought.”

EPI last month outlined a five-part approach to large-scale job creation that included a recommendation for additional aid to state governments. In the Briefing Paper, Dire States, EPI Policy Analyst Ethan Pollack shows how budget shortfalls at the state and local level will result in additional layoffs and delay a robust recovery unless additional aid is provided.

Speaking at the November 19 event Pollack stressed that such cuts would affect jobs in both the public and private sectors.

“They are going to be laying off teachers, police officers, and fire fighters that they need,” Pollack said during a presentation at the November 19 event. But he stressed that the private sector would be the hardest hit by state and local budget cuts. Many state and local services, such as infrastructure and health care, are actually provided by private employees using public funds, he said. Even when the government provides the services themselves, those public employees still need materials provided by the private sector, like office supplies, police cars, and fire hoses.  And as public and private workers lose income as a result of the budget cuts, they reduce their consumer spending, causing more job losses in the private sector.

“This is not just about supporting government employees,” said Pollack.  “If we DO NOTHING, the entire economy will suffer.”



Payroll taxes increase for many employers across USA

By Olga Pierce, ProPublica
January 20, 2010

Last year was the worst Don Miller had seen in more than 20 years of running a graphic printing business here.

Business slumped 15%, and he had to lay off two of the three workers who helped him print stickers and signs for Navy ships.

Miller hopes to bring them back, but hiring will be more expensive for all Virginia business owners this year. The recession has emptied Virginia’s unemployment insurance trust fund, and the state is making up for it by raising taxes on employers and cutting jobless benefits for seniors.

In 2009, the average business owner paid $95 per employee. This year, the tax will be $171, according to estimates by the state workforce agency. “It’s another added expense to hiring somebody,” Miller says. “Everything’s going up, and business is going down.”

Similar tax increases are hitting employers nationwide this year as states struggle to pay the 5.5 million Americans currently collecting state jobless benefits. So far, high unemployment and, in many cases, poor planning have prompted 25 states to borrow more than $25 billion from the federal government to keep benefit checks in the mail.

In other states, unemployment compensation funds are still in the black, but reserves are rapidly dwindling. Nine more states likely will be borrowing by mid-year, according to a ProPublica analysis of state revenue and benefits.

Tax on businesses

Business owners in 36 states face tax increases ranging from a few dollars to nearly $1,000 per worker. Six states are scaling back or freezing benefits for the unemployed:

· Jobless Pennsylvania workers will get 2.3% less in benefits starting this month, while the average tax this year for businesses will increase to $432 from $384 per worker.

· Hawaii’s employers face an average increase to $1,070 from $90 per worker. The state also proposes decreasing the maximum benefit by as much as a third about $190 per week.

· Texas, where the trust fund is $1.4 billion in the red, has increased the average tax on employers to about $165 from $89 per worker.

Instead of fulfilling the unemployment insurance system’s purpose of stimulating the economy, these measures may contribute to joblessness, says Gary Burtless, an economist who studies labor policy at the Brookings Institution, a think tank. “We don’t want to pick this moment of all moments to boost taxes on employers,” Burtless says. “We want to encourage employers as much as possible to add to their payrolls.”

Workers are being hurt in another way ח through benefit cuts. In Roanoke, Va., James Hay, 70, received a letter from the state informing him that his monthly unemploymentbenefits are being cut to $100 from about $800 because state law limits payments to Social Security recipients when the state’s fund runs low.

“I was devastated when I read it,” Hay says. “I thought, ‘Lord, what am I going to buy heating oil with this winter?’ “

Like many other seniors, Hay was working full time to supplement his $1,400 monthly Social Security check, which he says was not enough to support him, his granddaughter and her two young children. Then the asphalt factory laid him off.

Unemployment insurance made up for some of the lost income, but now Hay is not sure how his family will get by. “We’ll just have to do whatever we can do,” he says. “I hope and pray we’ll be all right.”

States borrow heavily

The state hopes to save about $11 million through the cuts to seniors but anticipates borrowing $1.3 billion to replenish its unemployment fund before the recession ends.

“The middle of a recession is when people need help most,” says Maurice Emsellem, policy co-director of the National Employment Law Project, an advocacy group for low-wage workers. Cutting unemployment benefits, he says, “undermines the fundamental goals of the program boosting the economy and keeping people out of poverty in an economic downturn.”

Many states such as Virginia are already at or near the highest payroll tax rates allowed by law, and others have pushed politically difficult tax increases through their legislatures, making further benefit cuts likely if high unemployment persists, says Rich Hobbie, executive director of the National Association of State Workforce Agencies.

Some of the pain might have been avoidable. Long before the recession began, Virginia and many other states that have imposed tax increases or benefit cuts let their trust funds dwindle well below the 18 months of reserves the U.S. Labor Department recommends.

Virginia had to slow down federal borrowing despite the impact on businesses and seniors, says Republican state Sen. John Watkins, chairman of the Virginia Commission for the Unemployment Insurance Trust Fund. “I have angst for people who are unemployed,” he says. “But our trust fund is busted ח it’s gone.”

Pierce reports for ProPublica, an independent, non-profit newsroom based in New York. USA TODAY editors worked with her in preparing this story for publication.