06/03/2011 01:00 pm ET Updated Aug 03, 2011

Jobs Report: Local Governments Continue Cutbacks, Hampering Recovery

WASHINGTON -- Most American industries managed add jobs last month, albeit far fewer than expected. But in local governments, the losses continue to mount.

According to the jobs report released Friday, the number of local government jobs fell by 28,000 last month. Overall, local governments have shed 446,000 jobs since an employment peak in September 2008. The unemployment rate among government workers has risen from 3.4 percent last May to 3.9 percent this May.

And that number probably won't be turning around any time soon. Even if private-sector employment numbers improve, local governments across the country will continue struggling to balance their budgets as tax revenues have plunged with a foundering housing market and weak economy. Unlike the federal government, local municipalities generally cannot run deficits and must balance their books.

"There's not much that they can do," said Dean Baker, co-director of the Center for Economic and Policy Research. "They've done all the tricks they can. They've gone through their rainy-day funds to delay making cutbacks, and now they're cutting into the meat."

Early on in the recession and recovery, local governments were able to stave off cuts on an emergency basis, and Obama's stimulus package included a $53 billion state fiscal stabilization fund to help avoid layoffs, particularly in education. But much of that money has already been burned through. Now, some municipalities have resorted to laying off public workers whose jobs had always seemed safe, like teachers and firefighters.

To make matters worse, states like Ohio, Wisconsin and Michigan have indicated they may start cutting back aid to city and local governments amidst budget-cutting fever, increasing the possibility of more job cuts.

According to Jacqueline Byers, director of research at the National Association of Counties (NACo), the first cuts in local government occurred in coastal areas where the housing crash was particularly gruesome. But the belt-tightening has since spread to the Midwest, where revenues have also dropped due to falling property and sales taxes.

"They do the easy stuff first, cutting five percent across the board," said Byers. "Then they cut into library hours and donations to the arts. As they progress along, they start outsourcing and then getting rid of employees and freezing positions. There's a continuum."

More than 50 percent of counties recently surveyed by NACo said they had fewer workers on the payrolls than in fiscal year 2010. Nearly half of the counties surveyed said they were delaying purchases, repairs and capital investments -- a decision that could further dampen the jobs recovery.

Byers said county and city governments typically lag behind the federal government by about 18 months when it comes to a revenue rebound. For this recovery, that would be a best-case scenario.

"In reality, this time we're thinking it might be even longer," she said. "Maybe 24 months."