ECONOMIC REPORT OF THE PRESIDENT

public, largely highway construction and maintenance—remains 17.3
percent below its peak in 2009:Q2.
As of November 2016, the roughly 90,000 State and local governments
have added 371 thousand jobs since January 2013. Even so,
employment in this sector remains 367 thousand below its previous high
in July 2008, with almost half of this net job loss in educational services.
The 1.7-percent decline in education employment exceeded the 1.0-percent
decline in the school-age population (ages 5 to 19) over the 2008-15
period. This disparity implies a rising student-teacher ratio.
Despite some recovery in 2016, there are still factors likely to
restrain State and local spending growth. State and local governments
continue to spend more than they collect in revenues, and their aggregate
deficit during the first three quarters of 2016 amounted to about 1
percent of GDP. This deficit has shrunk, however, during the recovery
(Figure 2-iii). During 2016, State and local expenditures (including
transfers and interest payments, as well as purchases) were roughly flat
at about 14 percent of GDP, and revenues held at about 13 percent of
GDP. Until 1990, State and local governments only ran deficits during
recessions. Since then, State and local governments have frequently run
deficits.
Unfunded pension obligations—the shortfall between benefits
promised to government workers and the savings available to meet those
Figure 2-ii
Real State and Local Consumption, Investment, and
Employment, 1955–2016
Billions of Dollars (SAAR, 2009 Dollars)
Millions of Employees
1,500
25
1,250
Consumption
Expenditures
2016:Q3
20
Thousands
1,000
750
500
State and Local
Government Employees
(right axis)
15
10
250
Gross Investment:
Structures
Gross Investment: Equipment
and Software
0
1955 1965 1975 1985 1995 2005 2015
Note: Shading denotes recession.
Source: Bureau of Economic Analysis; Bureau of Labor Statistics.
5
0
The Year in Review and the Years Ahead | 73