State, local gov'ts eyeing layoffs as Porkulus expires

It turns out that jobs “saved or created” turned out more to be rented instead.  USA Today reports that state and local governments may cut as many as 400,000 jobs across the country this year as federal subsidies run out:

Up to 400,000 workers could lose jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding, says Mark Zandi, chief economist for Moody’s Economy.com.

The development could slow an already lackluster recovery. Friday, the Labor Department said employers cut 125,000 jobs, mostly because 225,000 temporary U.S. Census workers completed their stints. The private sector added 83,000 jobs, fewer then expected, as the jobless rate fell to 9.5% from 9.7%.

Layoffs by state and local governments moderated in June, with 10,000 jobs trimmed. That was down from 85,000 job losses the first five months of the year and about 190,000 since June 2009.

But the pain is likely to worsen. States face a cumulative $140 billion budget gap in fiscal 2011, which began July 1 for most, says the Center on Budget and Policy Priorities.

The budget gap comes from the Kick The Can game that federal subsidies allowed.  When Obama and Democrats in Congress crafted Porkulus, they made sure to include bloc grants to states that allowed them to paper over budget gaps rather than take action to address overspending.  Obama and Democrats claimed credit for “saving” those jobs, but all it did was postpone the day of reckoning. As USA Today also reports, states are expected to see more revenue from taxes this year than in the last two years, so this isn’t a new crisis at all.

Paul Davidson reports on why this comes now:

Meanwhile, federal aid is shrinking. Money for states from the economic stimulus is expected to fall by $55 billion, says the National Governors Association. And the Senate last week failed to pass a measure to provide states $16 billion for extra Medicaid funding, an initiative that would have extended benefits from last year’s stimulus. The House approved $25 billion in enhanced Medicaid funding.

Federal aid should never have been given in the first place.  States should have used the downturn to readjust either their spending, their taxes, or both.  Instead, Obama let them off the hook by sending them cash, and the same bad policies that created these budgets gaps continued into 2010.  That created zero pressure for politicians in these governments to take the necessary risks that would balance their budgets without subsidies from taxpayers in other states — most of whose states are in the same boat as well.  Why make tough decisions on cutting government spending when Obama offers a Ponzi avoidance scheme instead?

The trouble with Ponzi schemes is that they eventually collapse.  With political pressure on Congress to stop spending borrowed money reaching a zenith, it looks like the shell game is all but over, and states will have to make those decisions themselves now rather than later.  Had we allowed them to do that last year, we could have saved ourselves a great deal of uncertainty — and tens of billions of dollars in unnecessary debt.