The Link Between Public Sector Finances and Recession
We know Bill Glasgall well, having worked with him for many years in our role as special project consultants at the Volcker Alliance, where he is senior director of public finance.
Recently, we found the following comments by Glasgall in an article by Nathi Magubane in a PennToday piece called, “Recession or soft landing? The impact of interest rate hikes on states and cities” That piece was partially drawn from a joint Penn/Volcker webinar, which aired on September 21 and which we also recommend.
The part of the PennToday article which particularly drew our attention fell under the subhead: “Why State and Local Governments Matter in the Big Picture.”
In it, Glasgall pointed out that in 2022, state and local government employees represented about 13% of non-farm workers, and a small number of other categories like private household workers and active military. State and local spending of about $4 trillion per year equaled about 20% of the GDP. “So it’s a very important sector of the economy to pay attention to,” he says.
As he points out in the article, the difficulty that states and local governments had in recovering from the impact of the Great Recession contributed to that recession’s lingering quality. At the time, he says, “states and localities were in bad shape, so it took years for their revenues to come back from that big hit in 2007.”
Given those financial difficulties, state and local employment also took a long time to recover, particularly after the federal Recovery Act funds began to dwindle. The PennToday article points out that governments are in much better shape now than in the years following the Great Recession, given the size of both informal and formal rainy-day funds and a penchant in many places for cautious budgeting. Currently, pandemic-era declines in state and local employment have more to do with low applications and high turnover rather than revenue issues, although the short-term future is regarded with caution, especially as additional pandemic era federal funds and program adjustments fade away.