Funding from local governments’ two biggest sources — state aid and property taxes — fell for the first time since 1980, according to a report released last week by the Pew American Cities Project. The decrease in funding from these two sources has forced many local areas to cut expenses significantly. Relying on the Pew report, 24/7 Wall St. identified eight states slashing local funding to cities, towns, counties and school districts.

24/7 Wall St.’s independent analysis of data from the Center on Budget and Policy Priorities and the U.S. Census Bureau indicates states that cut funding the most had budgets that were particularly hard hit during this period. Some suffered budget shortfalls that forced them to cut spending. Others experienced drops in tax revenue that prompted the same response.

Of the eight states with the highest cuts in local funding, four experienced among the steepest declines in tax revenue. Wyoming, which had the worst decline in tax revenue, fell a whopping 21.9% during the period.

Budget shortfalls were among the worst in many of these states. Arizona, California and Nevada, among the eight states cutting local budgets, had the first, second and third highest budget shortfalls as a percentage of their general fund. Arizona faced a 65% shortfall in 2010.

These budget shortfalls, according to Robert Zahradnik, research director for the Pew American Cities Project, forced states to make deep budget cuts, hitting local governments — and their employees — particularly hard. According to the report, the number of employees on local government payrolls fell in 45 states between 2008 and 2011.

In several of the states with the largest cuts to local governments, these declines were the most pronounced. California, Arizona and Nevada were among the 10 states with the largest drops in government employees per person. In Nevada, the number of government employees fell by 15.4%, the most in the country.

While police and fire departments and other areas of local budgets were hit hard as well, no area suffered more than school districts. Zahradnik explained, “about half of the reduction of the local government jobs were in the education sector, and that’s not entirely surprising because that’s where the staff and the money are for the local government.” This is a notable departure from standard practice during a downturn in the economy. Usually, Zahradnik noted, local governments will leave education off the table because it is something the public wants to protect. In the great recession, however, there simply were no other options.

24/7 Wall St. identified the eight states with a 5% or greater decrease in state aid to cities, towns, counties, and school districts between 2009 and 2010 based on state funding to regional governments and government employee data from the Pew American Cities Project report, “The Local Squeeze: Falling Revenues and Growing Demand for Services Challenge Cities, Counties, and School Districts.” The report relies on the latest available Census Bureau information on state budgets. It also calculated the change in government workers between December 2008 and December 2011 using Bureau of Labor Statistics data on government employee figures, as well as population estimates, also from the Census Bureau. Separately, 24/7 Wall St. obtained state budget shortfall data from the Center for Budget Policies and Priorities, as well as changes in tax revenue between 2009 and 2010 from the Census Bureau.

These are the eight states slashing local funding the most.

8) Nevada
> Pct. decline in local funding: 5.5%
> Actual decline local funding: $215 million (16th largest)
> State budget shortfall (2010): 46.8% (3rd largest)
> Pct. change in gov’t workers per capita: -15.4% (the largest decline)

According to Pew, between December 2008 and December 2011, Nevada municipalities shed 15.4% of their combined workforce. This was the largest per-resident decline in local government employees in the entire country. In 2010, state budget plans included provisions for about $200 million in cuts to the state’s K-12 education system. The state’s fiscal policies affected municipalities severely. Teachers in Las Vegas had to agree to a one-year salary freeze in 2010 while the city of Reno planned to eliminate 94 teaching positions. North Las Vegas planned to cut 33 firefighting jobs and 93 positions at the police department in order to present the state with a balanced budget in 2010.

7) Arizona
> Pct. decline in local funding: 5.9%
> Actual decline local funding: $574 million (8th largest)
> State budget shortfall (2010): 65% (the largest)
> Pct. change in gov’t workers per capita: -7.7% (4th largest decline)

Between 2009 and 2010, the state of Arizona cut funding to localities by 5.9% while total tax revenue fell by 8.5%, according to the latest Census state government finance data. With the largest budget shortfall in the country, austerity measures have had far-reaching, negative consequences on the lives of Arizona citizens, from cuts in education to cuts in health care for the impoverished. Arizona schools, such as the Mesa Unified School District, have faced serious fiscal budget cuts since 2010, which have led to half-days for kindergarteners, decreased school maintenance and reduced computer purchasing funds.

6) California
> Pct. decline in local funding: 5.9%
> Actual decline local funding: $5.7 billion (the largest)
> State budget shortfall (2010): 52.8% (2nd largest)
> Pct. change in gov’t workers per capita: -7.4% (8th largest decline)

California’s extreme budget shortfall, which equaled 36.7% of the general fund in 2009 and 52.8% in 2010, led the state to cut local funding by $5.7 billion. For the city of Stockton, for example, this meant a 30% decrease, from 2006 to 2010, in sales tax revenue allocated from the state. This puts the city at risk of defaulting on its debt. If it does, it will join just 54 other debt-issuing municipalities in the United States — of the more than 15,000 municipalities rated by Moody’s Investor Service — that defaulted from 1970 to 2007. Also impacted by state cuts is the city of Los Angeles, which had more than 2,000 teachers working in the city’s schools lose their jobs prior to the 2009 – 2010 school year.

5) Texas
> Pct. decline in local funding: 7.4%
> Actual decline local funding: $2.2 billion (2nd largest)
> State budget shortfall (2010): 10.7% (6th smallest)
> Pct. change in gov’t workers per capita: -4.7% (tied at 22nd largest decline)

Texas had the second-largest decrease in state funding to municipalities in the U.S. between 2009 and 2010, nearly $2.2 billion. Those who bore the greatest brunt of these cuts were the students enrolled in the Texas Public School system — districts cut bus services, supplies and the number of teachers in Texas, a state where a fifth of those under 18 are from impoverished households. The Pasadena Independent School District, whose budget was cut by $350 million in 2011, is one of 300 school districts to pursue litigation against Texas for the $4.3 billion cut in funding.

4) Minnesota
> Pct. decline in local funding: 8.2%
> Actual decline local funding: $928 million (5th largest)
> State budget shortfall (2010): 22.7% (21st smallest)
> Pct. change in gov’t workers per capita: -3.8% (24th smallest decline)

According to the Minnesota Budget Project, the inability of the state to pay down its deficit in the 2010 – 2011 biennium was caused by a heavy reliance on one-time measures that failed to correct or reduce long-run deficits. In 2011, the League of Minnesota Cities sued the state’s legislature and governor in order to continue receiving aid after a government shutdown that July. The cities eventually agreed to accept a $138 million dollar cut in the funds to be received — a reduction of about 19%.

3) Virginia
> Pct. decline in local funding: 8.5%
> Actual decline local funding: $1 billion (4th largest)
> State budget shortfall (2010): 24.1% (20th largest)
> Pct. change in gov’t workers per capita: -4.7% (tied at 22nd largest decline)

In February 2010, Virginia Governor Bob McDonnell proposed a total of $2.3 billion in cuts in order to balance the state budget without any increase in taxes. As a result of these cuts, the state of Virginia reduced transfers to its localities by more than $1 billion. The city of Roanoke, which was forced to raise taxes after the state’s budget was passed, responded to these cuts with particular frustration. Local officials in Roanoke denounced the state initiatives as indirect taxation, because they required municipalities to raise taxes to cover those funding cuts.

2) Wyoming
> Pct. decline in local funding: 9.5%
> Actual decline local funding: $185 million (19th largest)
> State budget shortfall (2010): 1.8% (the smallest)
> Pct. change in gov’t workers per capita: +2.5% (2nd largest increase)

Between 2009 and 2010, Wyoming’s local governments’ revenue suffered from what Pew calls a “one-two punch”: shrinking in both state aid and property taxes. According to Census State Government Finance data, state aid fell by $185 million, while tax revenues declined by 21.9% — the highest proportional decline in the country. Belt-tightening measures were necessary for the state to avoid layoffs of government officials. According to the Billings Gazette, officials at the Natrona County Detention Center were told that if they did not comply with budget cuts as high as 27%, they would be forced to lay off almost a third of their staff.

1) New Mexico
> Pct. decline in local funding: 10.4%
> Actual decline local funding: $498 million (9th largest)
> State budget shortfall (2010): 18.2% (11th smallest)
> Pct. change in gov’t workers per capita: -5.4% (16th largest decline)

Out of all states, New Mexico cut funding to its localities the most, reducing spending by more that 10% between 2009 and 2010. According to the Center on Budget and Policy Priorities, additional state cuts also resulted in fewer funds for higher education, the state workforce and services for the elderly and the disabled. The Santa Fe New Mexican writes that the Santa Fe School District endured the worst of its fiscal cuts in the 2009 – 2010 school year, when they were underfunded by about $11 million. After three consecutive years of deep budget cuts, New Mexico is now projecting a budget surplus of $250 million in 2012. NPR reports that the New Mexican government is now debating whether to restore some services.

-By Michael B. Sauter, Ashley C. Allen, Alexander E.M. Hess and Lisa A. Nelson

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