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Fri June 19, 2009
State employee layoffs and furloughs affect economy
By Rick Pluta, Michigan Public Radio Network
LANSING, MI – Today is a holiday for 37,400 state employees. It's the first of six unpaid furlough days they'll take this summer to help balance the budget. The day off means more than a day of lost pay for state workers. It's also a day of lost income for the businesses that serve them coffee and lunches, and sell them office supplies.
AUDIO: Downtown Lansing is home to the state capitol and a lot of government agencies, as well professional associations, lobbying offices, and non-profit organizations that deal with state government. So, downtown businesses are feeling the effect of the state employee furloughs.
Typically, the sidewalks are bustling at lunchtime and parking can be a problem. But not today. There are plenty of parking spaces, and there's no waiting for seats in restaurants and coffeeshops.
Business owners say they miss the furloughed workers.
"They're my bread and butter, no pun intended," says Drew Klovens.
Drew Klovens owns the Great Harvest bakery. He says there's been a trickle of customers today. He says serving state employees is 90 to 95 percent of his business.
"I would probably be making on a day like today a couple hundred loaves of bread, muffins, cookies, scones, a great deal of sandwiches," Klovens explains. "We'll sell some soup. Sell some ice cream. But not today. Not today."
Normally, four people work the lunch shift here, but Klovens says he gave three of his employees the day off. He doesn't expect to clear $500 when he'd normally bring in three times that much money. He's not looking forward to the next five state employee furlough days later this summer. And he's worried about losing more business after the state adopts a new budget with bigger cuts for the coming fiscal year.
"This year it's six furlough days," Klovens says. "Next year, the budget deficit is supposed to be double. Are there going to be 12 furlough days? I don't know. It's something to worry about."
Too many days like today, and Klovens says he'd have to close his doors.
And that's a reality Michael Moran says businesses in his area are facing. He's the city manager of Standish in northeast Michigan, where the state has a maximum security prison. That is, until the prison closes later this year and 300 prison jobs disappear.
"We're already sitting at about a 24 percent unemployment rate here, which I'm told is Depression-level unemployment," Moran says. "The local economy, of course, as far as our homes, and rental units, and gas stations, grocery stores, we have a pretty good hospital here. All those retailers and so on are impacted by this. These people will be leaving, for the most part."
Moran says the prison also pays the city $36,000 a month for water and sewer services, and the city counts on that money.
"So we're looking at a $420,000 shortfall now in our water and sewer budget, which is 45 percent of our budget," Moran says. "Yeah."
"Any loss of a job is going to have these ripple effects and that's a real concern especially in such a down economy that we have now," says Charles Ballard.
Charles Ballard is an economist at Michigan State University. He says state government spending is a small fraction of Michigan's economic activity. But he says reduced government spending and furloughs and layoffs have an impact.
"There's controversy over how big that multiplier is, but certainly you may lose one or two additional jobs in the support services industries," Ballard says.
Economist Patrick Anderson is a fiscal conservative who typically supports reduced government spending. But he says the state's handling of budget cuts have exacerbated their effect on the economy.
"And when you ignore the problem, let it get bigger, and then suddenly do something that causes a significant amount of immediate layoffs, that is clearly bad for the economy and something that's going to hurt Michigan," says Anderson.
But more layoffs are a near certainty as the legislature and Governor Granholm try to retire a $1.7 billion deficit in the budget for the fiscal year that begins in October.