Local budget woes are tied to state cuts

June 2, 2008 7:40:15 PM PDT
Budget cutbacks by cities, counties and states could prolong the economic slump. Economists warn budget cutbacks by cities and states could prolong the economic slump. Local and state governments spend $1.8 trillion a year.

The mantra in Sacramento as well as the Bay Area is "Cut, cut, cut." Local, regional and state governments are struggling to cut jobs and spending. Economists are warning this could spread economic woes well into next year. Here's an example of how.

For example, the peninsula's largest city, Daly City, has 563 employees. Over half of its $75 million budget goes towards salaries and benefits. However, Daly City is proposing the elimination of 50 vacant positions in next year's budget. That will have a spillover effect on local businesses that count on city employee spending. The city will also be watching its spending.

"It is difficult right now for small businesses especially that rely on big employers like the city and others in the community, to use them as vendors and to purchase materials and supplies from them," said Daly City's City Manager, Pat Martel.

The investment bank Goldman Sachs is expecting state and local government spending will drop $50 billion next year. Analysts believe that could grind down the economy to zero growth. The economic power of government is substantial.

The State of California pays out $18 billion a year in salaries. Alameda County spent $712 million on local vendors, such as law firms, computer and alarm companies, and blueprint services. Daly City is home to regional shopping centers, Westlake and Serramonte, which generate sales tax revenue to support city services.

"Those particular retail centers are dependent upon the spending that goes on among our employees, our residents, but also they are a regional draw and so they're relying on regular consumers coming to those places to shop," said Martel.

Consumers say higher prices hurt enough. Cutbacks in government spending will lead to additional pain.

"It's just a ripple in the pond right now, and I think it's going to get a lot worse, unfortunately," said Caitlin Traylor, a Daly City shopper.

Daly City's Pat Martel warns that even if the economy shows early signs of a comeback, there is a lag in the budget process that will keep government spending moderate and many of the jobs cut may not be restored immediately.


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