State, City Governments Following Private Sector Employment Cues

Jan. 30, 2009— -- Taking a cue from the private sector, state and city governments have started announcing job losses and furloughs as they struggle to close budget gaps without resorting to crippling tax hikes.

New York City Mayor Michael Bloomberg warned today that the only way the city would be able to avoid large-scale layoffs -- more than 20,000 employees -- would be if there were concessions from the state, the unions and city leaders.

"You can't spend what you don't have," Bloomberg said. "If they [the unions] are cooperative, we'll do it one way. If they are not, then we'll do it another."

The mayor's preliminary 2010 budget included requests for the state to restore $700 million in cut education funds, for the unions to accept between $500 million and $700 million in pension benefit savings and for a $900 million sales-tax hike.

Failing those agreements, he said, the city would be forced to lay off as many as 23,000 city workers, 15,000 of them teachers. The city is facing a $4 billion budget gap.

The mayor's dire news and California Governor Arnold Schwarzenegger's announcement Thursday that up to 238,000 state employees will be furloughed to help cut the state's growing deficit came as no surprise to economists who have been expecting such moves for the better part of a year.

"It's very predictable," Mark Zandi, chief economist for Moody's Economy.com, told ABCNews.com. "Most states and many municipalities are running large deficits." The private sector has been hemorrhaging jobs for months, having announced the layoffs of tens of thousands of employees in the last two months alone. Now municipal governments are recognizing that such initiatives are a logical next step.

Forty states now have announced projected budget shortfalls, Zandi said, and even states like North Dakota and Alaska, which are rich in energy and agriculture, are feeling the pinch.

Though layoffs perpetuate the vicious cycle of a continuing faltering economy and strain on government services, Zandi said such initiatives are, unfortunately, a reasonable next step for governments that have already blown through their rainy day funds and reached borrowing capacity.

"This is a very tough time for our city and our nation," Bloomberg said at the outset of his one-hour budget presentation. And at its close he said, "[But] I would rather play New York City's hand than anybody else's."

The city projects $5 billion less in tax revenues in fiscal 2010 -- which begins in July --- than in fiscal 2008. Bloomberg said the preliminary budget proposal aimed to close the gap without harming public safety, welfare or education.