The sputtering local engines

WASHINGTON - In a healthy economic recovery, state and local governments start hiring, expand services, and help fuel the nation's growth. Then there's the 2011 recovery.

The U.S. economy is moving ahead, however fitfully. Yet state and local governments are still stuck in recession. Short of cash, they cut 28,000 jobs in May, the seventh straight month they shed workers.

The effect is being felt nationwide in reduced services because there are, for example, fewer teachers, police officers, and firefighters.

The Great Recession officially ended two years ago this month. By the same point in the recoveries from the two previous recessions, state and local governments were engines of growth: In the two years after the 1990-91 downturn, for example, they added 430,000 jobs. At the same point after the 2001 recession ended, they had added 249,000.

This time is different. More than 467,000 state and local government jobs have vanished since the recession officially ended in June 2009, including 188,000 in schools. This year, local governments across the country have cut 94,000 jobs.

Mark Vitner, senior economist at Wells Fargo Securities, expects state and local governments to continue slashing 20,000 to 30,000 jobs a month through the middle of 2012.

Joel Naroff of Naroff Economic Advisors in Holland, Pa., notes that when states cut spending to balance their annual budgets, as required by law, a ripple effect multiplies the damage: Companies that do business with states and localities suffer. These companies, in turn, scale back their own hiring.

"There's a whole slew of private companies that have to cut back when they don't get the [government] contracts they had been getting," Naroff said.

Moody's Analytics, of West Chester, estimates that each job in state and local government supports an additional 1.3 jobs elsewhere in the economy.

The cutbacks stretch across the country. Some examples:

Camden in January cut 163 police officers, about half the force, as well as some firefighters and other city workers to help close a $26.5 million budget deficit. A grant and payment from a local port business enabled the city to rehire 55 police officers in April.

Monticello, Ga., has cut its police force in half - to five.

Zanesville, Ohio, just cut nearly 50 jobs from its schools, mostly through layoffs. "People have to realize: There's just so much money," said School Superintendent Terry Martin, who had to close a $7.2 million budget gap through 2016.

In Alameda, Calif., police and firefighters last week could not save a drowning man in San Francisco Bay because the fire department had cut funding for water rescue training and wet suits.

The Great Recession of 2007-09, the longest and deepest downturn since the 1930s, dried up state and local tax revenue. At the same time, it escalated demands for social programs such as Medicaid and unemployment benefits and "ate through their rainy-day funds," notes Michael Gapen, senior U.S. economist at Barclays Capital.

For a while, federal stimulus spending cushioned the recession's blow to state and local finances. But that money is running out and probably won't be replenished.

States such as New Jersey, Wisconsin, and Ohio have first-term governors who "are trying to make their names by cutting spending," Naroff said.

"It wasn't the 'in thing' before to become a governor and immediately slash and burn," he said. "Now, you've got economic and political realities that are different from any time before."