In Ohio, Governor Mike DeWine froze hiring. New York’s Andrew Cuomo halted raises for 85,000 union workers, including police and corrections officers. In Pennsylvania, 9,000 state employees stopped getting paychecks.
And it’s just the beginning. While over 40 million jobs have vanished during the pandemic, states have held off on firing workers en masse. Yet as they reopen, huge deficits caused by Covid-19 mean layoffs are all but certain. Deciding who — and how many — will lose jobs will require tough choices and have devastating consequences for those affected. On Thursday, New Jersey Governor Phil Murphy said the state may have to fire 200,000 public workers.
But using job cuts to make the budget math work won’t be so simple.
That’s because what might seem like a straightforward cost-savings strategy is anything but, according to former state budget officers. Not only is there severance pay for accrued vacation and sick days, but also provisions that let some former employees, like those in Virginia, keep their health-care plans for up to a year. Crucially, every laid off worker adds to the burgeoning rolls of the unemployed, putting states’ nearly depleted unemployment trust funds under even more strain. People who lose their jobs also spend less, depressing tax revenue. And fewer public workers means fewer public services.
In all, for every dollar in salary, the savings can be as little as 33 cents in the first year, according to Bloomberg calculations based on data from the Labor Department and figures provided by Robert Pavosevich, the lead actuary at its Office of Unemployment Insurance before retiring in 2019.
“Unlike other cuts, layoffs aren’t a 100% cost reduction,” said Scott Pattison, former executive director of the National Governors Association and a former state budget officer for Virginia. “It’s not as if you make a clean break where you make the layoffs and then don’t have any additional costs.”
States’ multibillion-dollar payrolls make them a crucial economic driver, and aid to cash-strapped local governments is a centerpiece of House Democrats’ $3 trillion stimulus bill to prevent further job losses. Senate Majority Leader Mitch McConnell and other senior Republicans say there's no immediate urgency to act.
With 46 out of 50 states starting their new fiscal years in July, layoffs are only a matter of time, according to Pattison. A recent estimate by the National League of Cities suggests between 300,000 and nearly a million workers in cities across America could lose their jobs or be furloughed.
For states that are already borrowing to plug holes in their budgets, the cuts will have to run deep. Consider the state of Texas, where its Workforce Commission has already asked to borrow $6.4 billion to cover jobless benefits through July after nearly depleting its unemployment trust fund, according to the Tax Foundation and a local news report.
A full-time state employee, on average, had a weekly wage of $1,153 per week, according to the Bureau of Labor Statistics. If that person was laid off, the state’s weekly unemployment benefit would pay roughly $507, based on a calculation provided by Pavosevich. As a result, Texas would only save 56 cents for every dollar of salary that is eliminated. And that doesn't include any costs associated with severance. (If you include the Trump administration’s pledge to subsidize half of the states’ unemployment insurance costs, the savings rises to 78 cents.)