WASHINGTON — Last month, the Oklahoma fire marshal’s office cut staff again, dropping its headcount to 27 workers from 34 at full capacity four years ago, as another round of spending cuts was imposed.

Only about three or four of the state’s 918 fire departments are currently able to hire, said Robert Doke, Oklahoma’s fire marshal.

Add up the layoffs and hiring freezes at the local level and economists are expecting this sector to drag down future employment growth. Some private-sector job markets have sprung back to life, but the state and local government employment sector — which includes about one in seven nonfarm payroll employees — has declined for five consecutive months through March, according to data released by the Labor Department.

Hiring for the 2010 Census added 72,000 jobs in the first quarter at the federal level, the department found. But there remains at the local level a nagging attrition of firefighters, school teachers, and other local workers — job cuts that have weakened overall economic growth.

The state and local government employment sectors “are going to be a drag on overall employment,” Mark P. Vitner, senior economist at Wells Fargo Securities LLC, said in a recent interview.

Municipal employment, along with job growth in the nonresidential construction sector, will be the “two weak links in the general economy,” agreed Lynn Reaser, a professor at Point Loma Nazarene University in San Diego.

On Thursday, New York City Mayor Michael Bloomberg released the proposed executive budget, which would eliminate about 11,000 positions, including about 6,000 for teachers, through layoffs and attrition.

Education hiring is expected to remain tight as the academic year ends and public schools make adjustments for next year, according to Standard & Poor’s chief economist David Wyss. Teachers who do not receive contract renewals could show up in the unemployment numbers beginning in September, he said.

“There’s just a lot of budget pressure at the state and local level,” Wyss said. “And that is going to hurt.”

In Los Angeles County, which employs 93,233 workers and is the most populous U.S. county, spending cuts are expected to eliminate 1,400 vacant budgeted positions, according to the proposed fiscal 2011 budget. However, health and safety positions are exempt from the freezes and hiring continues. The county’s chief executive officer, William T. Fujioka, was in Washington Wednesday to meet with Congress members to discuss federal funding options for the county.

In Pennsylvania, a hiring freeze was imposed in September 2008, leaving the state with 1,100 fewer filled salaried positions in 2010 than it had a year ago, said Heather Tyler, chief of staff in the governor’s office of administration. The state filled 334 positions with funds from the American Recovery and Reinvestment Act, she said. But stimulus funds generally will not be available to state and local governments next year when they are preparing their fiscal 2012 budgets. Many sources said 2011 will be equally challenging on budgets once the federal stimulus funds have dried up.

State and local government spending cuts also have hurt gross domestic product growth. In the first quarter, year-over-year real GDP spending in the state and local government sector fell 3.8%, the largest decline since the second quarter of 1981, the Bureau of Economic Analysis reported last Friday. State and local spending fell 2.2% in the fourth quarter of 2009.

The sector was “very much a drag on first quarter real GDP activity,” said John Lonski, chief economist for Moody’s Capital Markets Group.

Staff reductions in the Oklahoma fire marshal’s office mean new businesses face a three-month wait for sprinkler and fire alarm inspections, Doke said. The department used to have inspections completed within two weeks, he said.

The delays “prevent business owners from providing goods and services to their customers,” Doke said. “It’s going to be a major impact on commerce.”

Some municipalities have furloughed workers to save money. New York Gov. David Paterson this week called for furloughing 100,000 workers one day a week until the state’s fiscal 2011 budget is passed.

Furloughed workers are still considered employed, and the effects show up in the hours worked section of the employment report, Vitner said.

The length of the average workweek, which was 34 hours in March, “can be a critical determinant of the growth of labor income of the household sector,” JPMorgan economists said in a report published April 30.

An increase of 0.1 hour in the average workweek equals six minutes and provides the same lift to income as a 380,000 increase in the number of jobs, the economists said.

The average workweek “is crucial in assessing the sustainability of any rebound in consumer spending,” they said.

One bright spot for the state and local sector could be stronger tax receipts as consumer and business spending revives, sources said. In the first quarter of 2010, the federal government’s corporate tax collections increased 48% from the same period a year ago, said Moody’s Lonski.

But state governments rely on corporate taxes for about 5% to 7% of their total revenue, according to Donald Boyd, senior fellow at the Rockefeller Institute.

“There is nothing like the stability of a government job,” he said. But the depth of this recession has forced state and local governments to cut staffs more than in previous downturns. “The trend over the next year or two is likely to be more cutting,” Boy said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.