Investment Firm Predicts State and Local Governments will Continue Cutting Jobs

As detailed by Reuters, a report by UBS Investement  Research finds that approximately 450,000 state and local government employees could lose their jobs, up from the 300,000 who lost their jobs in the current year.

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.

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.

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