State, local budget cuts a "time bomb" for U.S. jobs

NEW YORK (Reuters) - Budget shortfalls pose a direct threat to millions of U.S. jobs, many in the private sector, as state and local governments lay off workers and cut spending on contracts and other business services, a think tank said on Thursday.

State and local governments will have to raise taxes and cut spending in the current and next two fiscal years to cover shortfalls totaling $469 billion, according to an Economic Policy Institute report.

The think tank -- where White House adviser Jared Bernstein spent years developing ideas found in the $787 billion economic stimulus plan he oversees -- said the U.S. government must give states and cities $150 billion in direct budget relief to save between 1.1 million and 1.4 million jobs.

"Given the fragility of the economy, already high unemployment and the magnitude of the budget shortfalls, it is clear that we cannot afford inaction," the report said, calling the gaps "a ticking time bomb for the economy."

While many economists believe the worst recession in decades ended recently, cities' budget deficits are expected to continue at least through 2012.

"The low point for cities typically comes 18 months to 24 months after the low point for the recession," said Christopher Hoene, research director for the National League of Cities, at the Brookings Institution in Washington, D.C. on Thursday.

States, too, face future hardship, with the National Governors Association recently saying they are at the beginning of a "lost decade" of budget struggles.

Those struggles will trickle out to the private sector, EPI said. According to its estimates, for every dollar of budget cuts, more than half the jobs and economic activity lost will be in the private sector.

When asked at the Brookings meeting about the aid their cities need most, four mayors representing both political parties and cities large and small said the federal government must make credit more available to small businesses.