Sometimes I feel like a broken record, but it really can't be emphasized too often: state and local subsidies to business have noticeable negative effects on government finances,which are magnified in times of fiscal crisis like the present.
As Kash Mansori points out (h/t Mark Thoma), of the 532,000 government jobs lost from September 2009 to September 2011, fully 470,000 are at the local level.
Source: Kash Mansori, The Street Light
My research suggests that state and local governments give almost $50 billion per year in location incentives to business, and about $70 in total business subsidies. My best guess is that about half of it is at the local level, meaning $25-35 billion per year comes from local governments. It's easy to see that that much money could pay to rehire all those teachers, police, and other local government workers, and maybe have money left over. At the top end of the estimate, $35 billion could hire half a million workers earning $70,000 a year in salary and benefits, or 700,000 making $50,000 per year.
Make no mistake: we can't just wish state and local subsidies away. Companies leverage their mobility to extract tax breaks (and, increasingly, grants) from governments that need tax revenue and economic activity. But it's impossible to build a politics to oppose these giveaways unless we can document their extent and show what it really is we're giving up when governments award subsidies. Mansori says local budgets are being balanced on the backs of schoolchildren; it would be equally correct to say that local subsidies are paid for out of school budgets, on the backs of teachers and students alike.