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The public sector began to address imbalances

main cutting stacks of money with a knife

The trend in the ratio of public sector debt, most notably federal debt, to gross domestic product (GDP) remained a serious economic concern. The overall debt position of the economy, despite the deleveraging in other sectors, had barely declined since it peaked in 2009. The reason was that federal government debt continued to grow.

The amount of federal government debt has increased sharply in recent years—from about 50 percent of GDP before the recession to around 80 percent early in 2011. Some of that additional debt resulted from spending on programs designed to boost a faltering economy, including the $787 billion American Recovery and Reinvestment Act of 2009.

Also, finances generally remained stressed across all levels of government throughout the year. During and immediately after the recession, high unemployment reduced personal income tax revenues and slow consumption growth affected sales tax collections. Meanwhile, falling home values reduced property tax receipts, the primary source of revenue for many local governments. And many states and cities did not begin to address serious longer-term challenges related to pension obligations.

Sidebar: Governments, especially local, cut jobs

Southeastern state and local government payrolls demonstrated how progress was achieved by a combination of cost cutting followed by gradual revenue increases. After tax revenues declined in most jurisdictions from 2008 through 2010, state and local governments across the Southeast made painful cuts in services and payrolls. And teachers, firefighters, police officers, and other public employees in many southeastern states continued to experience furloughs and layoffs.

Overall government employment in the Southeast declined by 55,400 jobs in 2011, according to the U.S. Bureau of Labor Statistics (BLS). Over the past three years, government employment in the region declined by 70,400 jobs. Local governments accounted for 84 percent of those cuts.

On the revenue front, after three consecutive years of declines, southeastern states' aggregate tax collections increased.

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On a positive note, the revenue situation for states improved across the nation. The inflation-adjusted state tax collections increased an average of 5.4 percent during 2011, compared to a 2.9 percent average increase during 2010 and a 12.2 percent average decline in 2009, according to the Rockefeller Institute.