WASHINGTON DC, United States — DEEP spending cuts by state and local governments pose a growing threat to America’s fragile economic recovery that is already grappling with high unemployment, depressed home prices and the surging cost of oil.

Lawmakers at state capitols and city halls are slashing jobs and programmes, arguing that some pain now is better than a lot more later. But the cuts are coming at a price — weaker growth at the national level.

The clearest sign to date was a report last Friday on US gross domestic product for the final three months of 2010. The government lowered its growth estimate, pointing to larger-than-expected cuts by state and local governments. The report suggested that worsening state budget problems could hold back the recovery by putting more people out of work and reducing consumer spending.

Across America, governors and lawmakers are proposing broad cutbacks — lowering fees paid to nursing homes in Florida, reducing health insurance subsidies for lower-income Pennsylvanians, closing prisons in New York state and scaling back programmes for elderly and disabled Californians.

“The massive financial problems at the state and local levels have and will continue to restrain growth,” said economist Joel Naroff of Naroff Economic Advisors.

State and local governments account for 91 per cent of all government spending on primary education, according to the Brookings Institution. And they provide 71 per cent of higher education spending. States also account for more than 70 per cent of

spending on roads, bridges and other infrastructure.

But those same governments cut spending at a 2.4 per cent rate at the end of last year. And economists predict they will slash their budgets by up to 2.5 per cent this year — potentially the sharpest reduction since 1943. The deepest cuts are expected to occur in the first six months of this year.

The worst cuts so far — 3.8 per cent — came in the January – March period of 2010. That was the sharpest quarterly drop since late 1983, when the US economy was recovering from a severe recession. Most economists think the cutbacks this year will exert an even bigger economic drag than last year.

Newly elected Republican governors are leading the charge. They’re acting on campaign pledges to shrink government to meet budget gaps. They favour smaller governments with lower taxes and less regulation, which they say will boost private sector growth and job creation.

Some Democrats — including Govs Andrew Cuomo of New York and Jerry Brown of California — have followed suit. They’re pushing for cuts to social programmes and concessions from unions.

No state has attracted more attention than Wisconsin. Pointing to the state’s projected US$3.6-billion gap, Republican Gov Scott Walker wants to strip state workers of collective bargaining rights. He also wants them to contribute more to their pensions and health insurance costs.

The budget fight has taken centre stage in Congress. Democrats are bending to Republican demands for spending cuts to avoid a shutdown of the federal government this week.

The reduction in federal spending has a direct effect on states and municipalities. They depend on money from Washington to keep schools operating, put police officers on the street and subsidise public services like job training. The end of federal stimulus programmes is also widening state deficits.

Many governors, including those in Florida, New York and Colorado, are pursuing tighter budgets. Their proposals include laying off public workers and teachers, reducing spending for education and health care and ending some social services. They’re also targeting public pension funds and health insurance plans and seeking larger contributions from public employees.

State and local budget experts fear the cutbacks will intensify this year. States are struggling to close budget gaps of about US$125 billion for the upcoming budget year, according to the Centre on Budget and Policy Priorities.

That’s a smaller gap than states faced in the past two years. But this time, governors won’t have federal stimulus funds to help close the deficits. And state governments, in turn, are reducing the aid they send to local governments.

“We suspect that these cutbacks are going to duro, a senior fellow at the Brookings Institution. “It’s likely we’re only beginning to see the state and local drag.”

In Florida, newly elected Republican Gov Rick Scott wants to reduce the state’s budget five per cent. To get there, he wants to slash 8,600 state jobs and reduce Medicaid costs through a five per cent cut in fees paid to hospitals and nursing homes, but not doctors. (Medicaid is a federal programme that pays for medical assistance for low- income people).

Health insurance cuts are popular with many Republican governors. Pennsylvania Gov Tom Corbett, facing a projected US$4-billion-plus deficit, said he can’t find the cash to extend a programme that subsidises health care for 41,000 lower-income adults and is nearly out of money.

Arizona Gov Jan Brewer is suggesting that the state drop Medicaid coverage for 250,000 low-income people to make up about half of the state’s projected shortfall of about US$1 billion.

It’s not just Republicans demanding tough fiscal medicine. In New York, Gov Cuomo has said up to 9,800 state employees could be laid off if public-employee unions don’t agree to millions of dollars in concessions.

The newly elected Democrat has also proposed US$1 billion in cuts to New York’s Medicaid programme, with its 4.7 million recipients. He also wants to close some prisons, freeze wages for nearly 200,000 state workers, cut US$1.5 billion in aid to public schools and chop 10 per cent from the state’s operating budget.

In California, Brown has imposed a state hiring freeze and is proposing cuts to a host of social programs that serve the poor, elderly and disabled. He is also seeking more than US$12 billion in t fraction of the nation’s economic activity. Consumers typically spend roughly six times more than state and local governments do. So a big increase in consumer spending can offset public sector cuts.

US consumers boosted spending at a 4.1 per cent annual rate in the final quarter of 2010; state and local governments cut spending at a 2.4 per cent pace. If consumers had spent just 0.4 percentage point more, they would have offset the state and local government cutbacks.

That said, layoffs hurt consumer spending. And states and local governments are cutting their payrolls. State and local governments have cut more than 400,000 jobs in the past two years. Budget pressures will force an average of 20,000 more job cuts each month for the rest of this year, estimates Jon Shure of the Centre on Budget and Policy Priorities, a left-leaning think tank.

State tax revenue has begun to grow again after falling sharply in recent years. But many governors are now proposing tax cuts as a way to encourage business activity, Shure said. That’s likely to escalate pressure for spending cuts because most states must balance their budgets each year.