As the U.S. recovery limps along, some economists and political leaders are warning that states' poor fiscal conditions could threaten any progress.
State governments had a net loss of 2,000 jobs in June, and local governments had a net loss of 8,000, according to the U.S. government jobs report released on Friday. Over the last three months, states have shed 10,000 jobs and local governments 18,000 jobs.
The numbers could grow worse as state revenues continue to sag, the prospects for continued financial assistance from the federal government fades ,and states turn to layoffs to save money.
Going forward it is very important that this support is provided so that contraction in state employment is not a drag on overall growth, the U.S. Treasury's chief economist, Alan Krueger, said after the jobs data was released.
If you look at our forecast, we're anticipating some headwinds. One of those issues is the difficult fiscal issue in the states and that's reflected in our forecast, he added.
The $863 billion stimulus plan passed last year included the largest transfer of federal funds to state governments, but states and local government have quickly gone through the money trying to avoid slashing funding to schools, healthcare, police departments and other vital services.
President Barack Obama's administration has pressed to send states more money for Medicaid, the healthcare system for the poor administered by the states with reimbursements from the federal government, and for education jobs.
Fiscal conservatives in Congress are reluctant to send the money to states, saying the country's large budget deficit and debt demands careful spending.
States will likely have budget gaps totaling $140 billion in fiscal 2011, which for most started on Thursday, according to the Center on Budget and Policy Priorities.
The longest recession in the United States since World War Two likely ended last summer, but states continue to suffer from the downturn. People who lost their jobs and homes were unable to pay taxes, while at the same time they have turned to public services.
Many governors say that without federal help they will have to cut jobs, which will add more people to the unemployment rolls. In June, the U.S. unemployment rate was 9.5 percent.
At the signing of Illinois' fiscal 2011 budget on Thursday, Governor Pat Quinn said he was steering away from measures to balance the spending plan that could hinder a fragile economic recovery. That included layoffs of state workers. Instead, the Democratic governor is seeking concessions from employee unions.