Tags: States | Cities | Cut | Workers | Boost | Taxes | Deficits

Experts: Wave of Layoffs to Hit Cash Strapped States, Cities

By Dan Weil   |   Tuesday, 16 Mar 2010 01:37 PM

The budget woes of state and local governments will force them to slash workers and hike taxes, experts say.

State and local government payrolls react more slowly to recessions than the private sector, because government budgets are set a year in advance.

So public sector layoffs are just starting to arise.

"This is a completely unprecedented crisis," said Ethan Pollack of the Economic Policy Institute.

"The budget cuts are going to get more and more severe," Pollack told CNBC.

The fiscal stimulus plan saved some jobs, but that’s ending.

"A lot of states didn’t go through with the layoffs that were expected because of the stimulus," University of Massachusetts economist Christian Weller told CNBC.

State and local governments also will need to raise taxes to make up for lost revenue.

"It's just becoming evident now," Chris Hoene, director of research for the League of Cities, told CNBC. "It's very sobering."

State and local governments have seen a 13 percent drop in revenue over the last three quarters, according to the Rockefeller Institute of Government.

"We haven't bottomed yet," Ray Scheppach, executive director of the National Governors Association, told CNBC.

Another problem for state and local governments is the need to generate money for their employees’ pensions. They’re trying to do that by taking more risk in financial markets.

“In effect, they’re going to Las Vegas,” Frederick Rowe, former chairman of the Texas Pension Review Board, told The New York Times.

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The budget woes of state and local governments will force them to slash workers and hike taxes, experts say. State and local government payrolls react more slowly to recessions than the private sector, because government budgets are set a year in advance. So public sector...
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