Today’s Wall Street Journal discusses the pressures facing local governments nationwide, and translates that into potential for deeper job losses among government employees:
The economic slump may be just beginning for thousands of teachers, police, office clerks and other local-government workers still on the job.
While private employers gradually add jobs, local governments across the U.S. are facing a deeper crunch amid declining aid from cash-strapped states and an uncertain outlook for property-tax revenue. Over the next few years, the resulting budget cuts could eliminate hundreds of thousands of jobs, creating a drag on the fragile recovery in the labor market.
In comments that track the grave concerns facing county budgets in Maryland, the article connects property taxes to this outcome:
Perhaps the biggest issue for local governments, though, is what will happen with property taxes, which account for most of their revenue. Income from property taxes has grown steadily throughout the recession and recovery. But with home prices down about 30% from their peak in mid-2006, that income could wane as tax assessments catch up with the reality of the housing bust—a process that can take several years.
It is hard to predict exactly what will happen with property-tax revenue, because the severity of the housing bust defies historical parallel. Research by Byron Lutz, an economist at the Federal Reserve, suggests that any decrease in revenue would be much smaller than the drop in house prices, in part because local governments can compensate by raising tax rates. Still, a 2% drop in property-tax revenue in each of the next few years is possible. In a worst-case scenario, if job cuts were commensurate with the revenue shortfall, that would mean shedding more than 270,000 jobs a year.
Any job cuts at municipalities are likely to be more severe than they have been at the state level, because labor costs tend to make up a bigger share of local budgets, said Bill Fox, a professor of economics at the University of Tennessee, Knoxville, who focuses on state and local finance. “For every dollar in lost revenue, you’ll get a lot larger employment reduction,” he said.
