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States and counties look to federal stimulus cash to save public jobs

As the coronavirus pandemic brought travel to a grinding halt last year, Hawaii's economy, based heavily on tourism, stood still. The state's 9.2% February unemployment rate is the nation's highest. State health department employee Lorena Kashiwamura feared for her job as the governor warned of cuts.

"We were watching and praying for the American Rescue Plan to go through because the governor kept mentioning that he needed the aid to help balance the budget," said Kashiwamura. The governor announced layoffs and furloughs were no longer necessary.

Elsewhere, others were not so lucky. More than 1.2 million public sector workers are still out of a job thanks to the pandemic, down only slightly from 1.5 million at the height of the crisis. But teachers, firefighters and other public workers could soon be back to work, thanks to the $350 billion in state and local government aid included as part of the $1.9 trillion legislation passed last month. 

Critics have called the relief funding a bailout for blue states, but every state has seen government employment drop from February 2020. Administration and state officials say cities and towns slammed by the pandemic need money, and the support could help keep or bring back hard-hit public sector employees and create new opportunities, preventing prolonged economic damage. As the Treasury Department finalizes rules and readies to distribute funds in the coming months, local plans are already in the works. 

"This will not only be hiring back those that were furloughed or laid off. We will see a transition in some areas, where jobs will transition to different sectors that will require skills training, but also new jobs," said Teryn Zmuda, chief economist from the National Association of Counties. Counties will see more than $65 billion in federal funding from the plan over several years.

In promoting the stimulus plan, Treasury Secretary Janet Yellen said the government should not repeat past mistakes. Looking back at the Great Recession, policy experts attribute cutbacks at the state and local level to a more prolonged recovery.

"That loss of more than half a million public sector jobs in the early days of the recovery coming out of the Great Recession, actually delayed the recovery by about four years," said David Cooper of the Economic Policy Institute. "When you cut public sector staff, you're not just losing that job, you're also losing jobs in the private sector that are supported by those jobs."

When COVID-19 first struck, officials warned of dramatic revenue losses. But recent analysis shows some of the impact was not as severe as originally projected, and The Tax Foundation found state aid is 116 times revenue losses. The National Association of State Budget Officers notes states sharply reduced revenue forecasts when the pandemic hit, and while some states are seeing more money coming in than expected, tax revenues are not back to pre-pandemic levels. States also face increased pandemic-related spending.

In Las Vegas, the sheriff said funds will fill budget gaps and prevent layoffs in the police department. In North Carolina, New Hanover County commissioners approved funding for mental health counselors in every public school and for seniors. 

"I don't think it's a red state-blue state issue," said Annalies Goger, from the Brookings Metropolitan Policy Program. "In fact, the way I see it, when the private sector doesn't have a lot of demand, that's when you should be investing in public sector jobs, or at least preventing more layoffs, so that things continue to function in the middle of a crisis, and that you don't have even more job losses." 

Goldman Sachs estimates with the state and local aid and education funds, at least two-thirds of the state and local jobs lost over the last year would return by September, boosting payrolls by 900,000 by the end of the third quarter. They expect schools will need to rehire most workers by the time they reopen this fall.

At the same time, the funding could stave off an additional impact on women and people of color already disproportionately slammed by the pandemic. Women make up 59.6% of the state and local government workforce, and Black women account for 8.7% of state and local government workers according to the Economic Policy Institute. While unemployment went down overall in March, the unemployment rate among workers of color remains higher.

"This has historically been a sector that has provided good middle-class jobs to women and Black workers in particular more than the private sector has, so anytime you make cuts to the public sector those cuts all else being equal, are going to fall more heavily on women and people of color," said Cooper.

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