Local and state governments cut payroll to boost bottom line

States, cities and schools across the country are cutting payroll, a strategy that has helped improve the financial condition of both local and state governments. Data from the Bureau of Labor Statistics shows "In the past year, state and local employment has been reduced, mostly through not filling vacancies, by 258,000, or 1.3%, to 19.2 million workers," Dennis Cauchon reports for USA Today. "The cuts are the most since the recession of 1980-81. The federal workforce, meanwhile, grew 3.4% to 2.2 million in the past year."

Three-fourths of the cuts have come in New Jersey, New York, California, Ohio and Michigan. "Nationwide, 35 states reduced government payrolls in the past year while 15 states increased employment," Cauchon writes. The Bureau of Economic Analysis reports the smaller workforce, combined with federal stimulus package money and increased tax collections, has helped state and local governments operate with budget surpluses since October. The surpluses won't curb the trend as more cuts are projected, Donald Boyd, finance expert at the Rockefeller Institute of Government in Albany, N.Y., told Cauchon.

"Compensation accounts for half of the $2 trillion spent annually by governments," Cauchon writes. Overall,  cities, counties and schools have cut payroll three times as fast as states, USA Today reports. The workers who kept their jobs saw a 2.5 percent increase in compensation for the fiscal year ending June 30, compared to a .8 percent increase for private sector employees. (Read more)