Time for Another State Bailout?

Local governments are cutting jobs faster than any time in 30 years, as you can see in the graph below. I like Ezra's take on this. The government can't demand that private companies -- Starbucks, construction firms, etc -- hire workers. But it can keep public sector workers employed. We could have saved many of these local and state government jobs. Congress decided it wouldn't.

I basically agree with this take, with one caveat. There have been quite a lot of stories about state and local governments spending the stimulus money slower than expected. They know the stimulus isn't going to last forever. They're taking the easy money and saving it, because they anticipate more budget problems in 2011 when stimulus winds down.

The government can run staggering short-term deficits to help bail out the states' woes this year. But the states' woes aren't short-term; they're medium and long-term. Tax revenue won't come roaring back until the unemployment rate comes down, and that's not supposed to happen for another year.

So if I'm the governor of the state of Virginia, and the government gives me money to save teachers' jobs this year, I might get savvy, spare only couple teacher jobs this quarter, and spread the money so I'll have more to weather the economy over the next few quarters. If the government mandates that I spend all the money this quarter, that will only leave me with more teachers I can't afford when the stimulus spigot shuts off and unemployment is still stealing my tax revenue.

In short: it's very hard to save thousands of jobs permanently with a single $26 billion check. The federal government made a play to help the states, but it didn't go all in. As a result, it's starting to look as if the state bailouts barely helped at all.