As predicted and expected local governments are beginning to trim the fat and that means laying off employees. In markets where housing has taken its biggest bite out of the economy, there is an air of uncertainty. Country controllers, city auditors and local government leadership is trying to find ways to keep things moving and services strong, even with the dwindling of tax receipts from lackluster retail and auto sales, plus slow pays and property tax value re-adjustments.

The City of Phoenix, Arizona is cutting 500 employees now, with more to follow. In state governments we already read about California's hiring freeze and now Arizona is following suit, they have no choice. Most cities in both California and Arizona anticipate on cutting 5-10% out of their budgets in physical year 2008. That means no new buildings, equipment, hiring and trimming budgets, which will mean laying-off employees.

The States of Nevada and Florida are in similar positions. In Nevada they are watching their receipts hurt due to less travel from California to their casinos in the Northwest part of the state and then huge foreclosure numbers in both Northwestern Nevada and Clark County (Las Vegas), affecting property tax receipts. Las Vegas has enjoyed foreign tourism increases (due to weak US dollar) for hotels, entertainment and gambling. Although car sales are down statewide, the general retail receipts are actually up in Las Vegas, the most populated region of Nevada.

South Florida is in tough shape and small businesses are failing, due to the cascading problems of the housing crisis. Economists speculate that this scenario will be repeated in other high foreclosure housing markets first as we get through the recession. The recession will most likely be announced after it is over, as that is what the Fed and Treasury did last time.

Local Governments are also watching their costs increase as fuel costs have been taking a larger and larger chunk out of their budgets. This is also effecting education due to the costs to run school buses. It appears what has happened is no real surprise, as government generally spends whatever it takes in plus some, growing the bureaucracy incrementally, now with tax receipt income down, they are going to have raise taxes, fines and fees while reducing costs too. Maybe it is time for government to go on a diet? Of course, with increased foreclosures comes more crime too.

Meanwhile, the local governments are providing services to illegal alien and those costs are mounting as well. The challenges are intense and growing, municipalities and county governments are getting hit from all sides, as their income is reduced, their costs have increased and more folks are demanding more services, while crime is increasing too. Things are not looking too pretty right now.