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Research Facts & Figures
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Q4 2009 Quarterly Forecast
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Public Sector Employment
THE PUBLIC SECTOR: HINTS OF THINGS TO COME
The drama of Sacramento coming to terms with falling tax revenues and an irate electorate is over, at least for this year. Between the February and July budget agreements the state has been able to close the gap between planned expenditures and tax revenues. To do so required a series of tax increases, asset sales, one time transfers, creative accounting and serious spending cuts . The spending cuts will take general fund supported expenditures from $103 Billion in the 2007 fiscal year to an inflation adjusted $83.3 Billion for the current fiscal year. This is a 19% cut in state general fund spending and this will engender program closures and concomitant job loss. Typically the public sector does not shed jobs proportional to expenditure cuts, and the design of the current cutbacks seeks to preserve as many jobs as possible. Furloughs and pay cuts, a kind of unemployment sharing, will take up some of the slack in revenues. But this time the shortfall yields far too large a reduction in state expenditures to avoid a significant impact on public sector employment. That is not good news for the East Bay. Outside of Sacramento, the East Bay has a larger proportion of state government sector jobs than any other major population center in California.
Even though expenditure cuts were clearly going to occur, the state sector has yet to experience any net reduction in force. What that means is that the reductions, whether direct or indirect are still on the way. As the new budget plays out with cuts in programs, hiring freezes and reduced consumer demand from furloughed employees, we can expect a reduction in state, local and derivative sector employment. At present we don’t know the geography of these cuts. To gain some insight into the impact on the East Bay, we will assume that they are imposed in the same proportion as fiscal year 2007 employment in the state government sector. This translates to a reduction in East Bay payroll employment in the current fiscal year of 0.36%. If the same proportion of jobs are lost in the local government sector the reduction is 1.47% of payroll employment. In fact, the number will be something between the two and probably closer to the state-only reduction. Nevertheless these are big numbers. The dot com/Internet implosion - which has had a decade long impact on aggregate employment in the Bay Area - totaled 2.3% of Bay Area payroll employment . So while the number in this instance is smaller, the impact on the East Bay as it grows out of the recession is significant; and importantly, until this is behind us, the East Bay can expect little-to-negative net employment growth.
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