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Economist Says Budget Cuts Will "Hurt" But Not "Be Fatal" to Austin

Daniel Hamermesh
Image courtesy Daniel Hamermesh
University of Texas labor economist Daniel Hamermesh doesn't expect budget cuts will cause major harm to Austin's economy.

Take a look at our reporting partners the Texas Tribune's story on what lawmakers are telling constituents about the carnage coming to state government. In a post entitled, "There Will Be Blood,"  Ross Ramsey writes about State Rep. Jim Pitts (R-Waxahachie) speaking to a Tea Party group last week.

The initial budget he and his fellow budget writers will present a few weeks from now will eliminate some state agencies, make large cuts to others — “75 or 80 percent,” he said — and might include furloughs of state employees. Lawmakers, at least in that first version, will balance the budget without tapping the state’s Rainy Day Fund.

Of course, this is all part of an effort to rein in a budget gap that could be as large as $28 billion. While Gov. Perry and other state leaders downplay that figure, we won't know how big or small the number is until the State Comptroller releases her estimate in January.

But the main question on the minds of Austinites who work in state government or care about the local economy is this: If massive state budget cuts are coming, what does that mean for jobs in the city where Texas' government is headquartered?

As part of our ongoing look at this issue, we rang University of Texas labor economic Daniel Hamermesh today and asked him what he thought about the possibility of public sector layoffs in Austin.

"My guess is that [spending cuts] will be about ten percent, and that there will be every effort made not to do it by layoffs," Hamermesh said. "There will be pay freezes and more importantly, there will be no hiring of those who quit."

Update at 3:51 pm: But reductions may need to be higher than that. The Texas Observer reported this summer that even a relatively modest estimate of an $18 billion shortfall would require a 20 percent reduction in state funding.

Texas—as you probably know—budgets in two-year cycles. If the budget gap does turn out to be $18 billion (and we won’t have an official number until early next year), that would represent about 20 percent of the $87 billion in state funds that Texas allocated for 2010-2011.

Earlier: Hamermesh points out, however, that submitting public sector jobs to the same kind of cyclical hire-and-fire patterns as the private sector could wind up hurting the state in the long run.

"Public sector layoffs have always been quite, quite rare. Indeed, that has made public sector jobs attractive," Hamermesh said. "Unless you think public sector employees are grossly overpaid, which I do not, if you start making jobs cyclical, you're going to have to pay more in the future to entice people to take these jobs they had previously viewed as secure."

"This will hurt. No question about it. Fatal? No. Hurt? Yes."

Meanwhile, President Obama announced a two-year salary freeze today for federal employees. Several federal agencies have offices in Austin, including the IRS, the Social Security administration, the FDA, the US Agriculture Department, the US Veterans Affairs Department, and the US Labor Department, just to name a few.

Update 3:05 pm: The Statesman's higher education reporter Ralph Horowitz blogged this afternoon about how some UT students, faculty and staff are planning to register their dissatisfaction with budget cuts on Wednesday:

[S]ome students, faculty members and staff members plan to employ another approach to registering concern about budget cuts: a walkout and protest rally, scheduled for 10:30 a.m. Wednesday at the West Mall. That event is focused on proposed cuts to some units of UT’s College of Liberal Arts, including the Center for African and African American Studies, the Center for Mexican American Studies, the Institute of Latin American Studies, the Center for Women’s and Gender Studies, and the Center for Middle Eastern Studies.

Nathan Bernier is the transportation reporter at KUT. He covers the big projects that are reshaping how we get around Austin, like the I-35 overhaul, the airport's rapid growth and the multibillion-dollar transit expansion Project Connect. He also focuses on the daily changes that affect how we walk, bike and drive around the city. Got a tip? Email him at Follow him on X @KUTnathan.
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