Stimulus can't ease job pain for U.S. states and cities

By Lisa Lambert

WASHINGTON (Reuters) - The fiscal crisis hitting most U.S. states and cities is now adding to the country's workforce woes, with more than 20 percent of the jobs the country lost last month coming from the government sector, according to Labor Department data released on Friday.

Government lost 53,000 jobs out of the 263,000 shed in September.

Even after receiving billions of dollars of stimulus funds, state governments lost 10,000 jobs -- all in education -- and the trend may get worse in coming months.

"I don't believe that states have bottomed out yet," said Raymond Scheppach, executive director of the National Governors Association. "This fiscal year 2010 will be the worst year."

Since May, states have shed 49,000 jobs. In September, they lost 15,600 education positions while gaining 5,500 jobs in other areas, in an indicator of how stretched states' finances are, Scheppach said. States usually work to shield their schools from harm caused by economic recessions, and will use reserves or cut spending to preserve education jobs.

"States won't come back to the 2007 revenues until 2014 or 2015. This is long and deep and it's going to be a slow recovery in terms of jobs," he said.

State revenues dropped 12 percent in the first quarter of the calendar year from the same period in 2008 and fell another 18 percent in the second quarter, Scheppach said.

HEMORRHAGE FOR LOCAL GOVERNMENTS

The picture was even worse for local government jobs in September. Cities and counties shed 37,000 positions -- with education losing 13,400 of those jobs.

Generally, cities have cut workers in parks and recreation departments and libraries, said National League of Cities Research Director Christopher Hoene, although some have also reduced their public safety staffs. That's usually a last resort, as cities must abide by collective bargaining contracts signed with police officers' and firefighters' unions, and as citizens pressure local government to maintain safety.

Given that local governments' economies lag the national one in recovery, Hoene said, cities probably will cut jobs through 2010.

The $787 billion American Recovery and Reinvestment Act included more than $50 billion in a State Fiscal Stabilization Fund and more than $80 billion in reimbursements for health care. It included neighborhood grants, help for areas especially hard hit with joblessness through a special bonding program, school bonds and economic development grants.

Some expected the demands of administering the stimulus plan would lead the federal government to increase its payrolls. Instead, in September, the U.S. government lost 6,000 jobs -- its labor force has been shrinking since May.

Unlike the U.S. government, most states must balance their budgets. At the start of fiscal 2010 in July, many resorted to laying off workers or mandating furloughs in order to stay out of the red.

Rhode Island employees are currently battling their governor, who has proposed to cut pay and defer raises in the hope of closing a $68 million budget deficit. The state's New England neighbor, Massachusetts, is considering layoffs to help shrink its $7 billion budget gap. And more than 3,000 employees of Connecticut recently took early retirement as the state scrambled to save more than $700 million.