State and local governments may cut 450,000 jobs in FY2012

NEW YORK Mon May 23, 2011 4:23pm EDT

A man marches with a ''don't tread on me'' flag outside the State Capitol building as they wait to occupy it during day fourteen of their protest against the proposed budget cuts by Wisconsin Governor Scott Walker in Madison, Wisconsin February 28, 2011. REUTERS/Darren Hauck

A man marches with a ''don't tread on me'' flag outside the State Capitol building as they wait to occupy it during day fourteen of their protest against the proposed budget cuts by Wisconsin Governor Scott Walker in Madison, Wisconsin February 28, 2011.

Credit: Reuters/Darren Hauck

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NEW YORK (Reuters) - Around 450,000 people who work for U.S. states, counties, cities, towns and villages could get pink slips in fiscal 2012, sharply up from the 300,000 positions shed this year, a report said on Monday.

The number of job cuts will rise mainly because the federal stimulus program is ending while the cost of Medicaid is "spiraling," said the report by UBS Investment Research.

States got billions of extra dollars primarily for education and Medicaid from the stimulus plan. Medicaid is the state-federal health plan for the poor and disabled.

Maury Harris, a UBS economist, on a conference call said the deficits states and municipalities will have to close will climb to $155 billion in fiscal 2012 from about $108 billion in the current fiscal year.

Most states and municipalities begin new fiscal years on July 1.

The deep cuts state and local governments will have to make to balance their books in the next fiscal year should clip about one percentage point from the U.S. gross domestic product -- about 30 basis points more than in the current fiscal year, the report said. "The public sector is holding back growth but it doesn't derail it altogether," Harris said.

But the $2.9 trillion municipal bond market -- so far at least -- has withstood much of the pressure from the recession-weakened finances of states and municipalities.

Thomas McLoughlin, UBS head of municipal research, told reporters that at present only about $9 billion of municipal bonds have defaulted, most of which were small, unrated issues that financed risky projects like developments.

Spooked by headlines about possible defaults, investors in municipal bond funds have sold shares for the past 27 weeks, according to Lipper data.

"I think we are seeing more traditional retail buying in the front end of the curve -- even as people investing in mutual funds were selling," McLoughlin said.

Strong demand for individual securities with short maturities is hitting during a period of exceptionally low supplies. Estimates for issuance this year have fallen to a range of $197 billion to $240 billion, McLoughlin said. That works out to about half of last year's supply of new bonds.

Still, McLoughlin's list of hazards facing the muni market include possible problems states and localities will have finding new letters of credit for variable-rate debt and what he called "rating volatility." Credit agencies are more likely to downgrade credits they have not analyzed for 18 months, for example, than ones they survey more frequently.

Muni prices, which fell last Thursday for the first time since April 12, were unchanged on Monday, leaving yields on top-rated 10-year bonds at 2.64 percent and 30-year yields at 4.31 percent on Municipal Market Data's benchmark triple-A scale.

(Reporting by Joan Gralla; Editing by James Dalgleish)

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Comments (5)
gspencer wrote:
US citizens such as early pioneers and settlers of the USA had to provide their own military defense against indians, police, firefighters, teachers, medicine, water, sewer, roads, bridges, welfare and other services as best as they could.

After the early pioneers and settlers could produce enough necessities of life (food, shelter, clothing) for themselves and had an excess to also support a (rudimentary) civilization, they would then combine their meager resources/or and tax themselves to hire public sector bureaucrats as teachers, soldiers, water system operators, police, firefighters, and other services but they limited the cost of these bureaucrats to the number and the bureaucrats pay that the wealth producers could afford and/or wanted to support.

The producers would also pool their resources and hire contractors to construct roads, bridges, water systems, sewer systems, and other infrastructre that allowed the producers to become more productive.

Somewhere along the line, Cities, States, and the Federal Government printed and sold bonds to raise money for immediate expenses and commit future taxes to pay for this instant money for us to spend.

These bureaucrats did allow the producers to become more productive by not having to worry about providing those services for themselves (and for the producer’s families).

Cities and States should un-incorporate or declare bankruptcy if they can not pay the retirement pensions and other pay and benefits that previous administrations committed the current taxpayers to pay for.

But in Madison, Wisconsin the Elite Government Tax Supported Union Member Bureaucrats are protesting to take more money from the taxpaying workers to be given to themselves.

And in Cairo, Egypt the taxpaying workers are protesting to reduce the amount of money that the Elite Tax Supported Politically Connected Government Bureaucrats are taking from the taxpaying workers and Egyptian oil revenue!

May 23, 2011 8:06pm EDT  --  Report as abuse
tgs10 is another child who doesn’t understand that there is no money to pay them.. I guess we should just expect them to work for free.

May 23, 2011 11:45pm EDT  --  Report as abuse
sharonsj wrote:
And there is no money to pay them for many reasons. Foremost is that the average American is going broke. Then you’ve got the burst housing bubble which kills property tax revenue. Add in the decades-long outsourcing of jobs, the tax breaks for companies that outsource, the tax credits to corporations that don’t need them (think ExxonMobil which makes billions and pays NO taxes), inflation, etc.

And by the way, don’t be so smug in Texas; they are among the worst of states when it comes to helping their own. Aren’t they near the bottom in education and assisting the poor and elderly?

May 24, 2011 10:21am EDT  --  Report as abuse
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