State and local governments will be forced to lay off more workers and slash spending over the next few years because of budget shortfalls caused by lower tax revenues from the recession, according to a report from the Economic Policy Institute released Thursday, Nov. 19.
The ripple effect will threaten government contracts with companies and the accompanying private sector jobs.
"If you cut a policeman, you're also cutting demand for a lot of the supplier industry," said Ethan Pollack, a fiscal policy analyst for the Economic Policy Institute, a nonprofit and nonpartisan group that conducts research on economic activity.
Theoretically this means the supplier of that officer's uniform, car or other equipment and accessories will have less business.
Pollack authored the briefing paper released Thursday titled "Dire States: State and Local Budget Relief Needed to Prevent Job Losses and Ensure a Robust Recovery." It paints a sobering picture for the future of the country's labor and unemployment.
For each dollar of budget cuts, over half of the jobs and economic activity lost will be in the private sector, according to the report. This will result in fewer government partnerships with private companies.
"The report basically focuses on the magnitude of the shortfall, and then also the fact that it will mainly impact the private sector," Pollack said. "If policymakers really want to ensure that we have a robust economy, then they need to provide more budget relief to make sure that state and local governments don't drag everything back down."
Shortfalls tend to grow for two years after a recession's end, so the report projects budgets deficits will persist through 2012. According to the document, states will face an estimated $369 billion shortfall in the current fiscal year and the next two years. Local governments are projected to face an additional $100 billion shortfall over the same period.
Unlike the federal government, state and local powers must balance their budgets, forcing them to make dramatic moves in order to stabilize their finances. However, state and local jurisdictions have received some help in the form of $52.2 billion in budget relief so far of the $144 billion they should receive in stimulus dollars.
The report claims that the stimulus has saved 360,000 to 500,000 jobs that would be gone otherwise.