Top of the News: Washington state's budget deficit has grown to $2.6 billion, showcasing yet another factor that will keep the national economy in at best a slow recovery, if not an ongoing slump.

State and local government cuts don't just take away many needed government services, they also throw potentially millions more into the ranks of the unemployed and hurt private companies as contracts are eliminated. Ethan Pollack of the Economic Policy Institute looks at the consequences, explaining that while the stimulus has helped, it hasn't gone far enough to ease this drag on the economy.

All totaled, states face a $357 billion budget gap for the two years beginning in 2010. Local governments must contend with another $80 billion. Those in the worst shape, according to the Pew Center for the States, are California, Arizona, Rhode Island, Michigan, Oregon, Nevada and Florida. California, Michigan and Nevada also have unemployment above 12 percent (the other big jobless victim is South Carolina).

Pollack estimates that each dollar of spending cuts by state and local governments causes $1.41 in lost economic activity. Meanwhile, hard times raise the demand for government services. And America continues to fall behind on investment in infrastructure, education and research, a poisonous gift that will keep on giving in the big reset.

Batting clean-up: The Economist has an interesting round-up of the top R&D spenders among corporations. Microsoft comes in second. But most of the biggies are automakers. All that money and we're still using internal combustion engines.

Too late to make Wednesday's jobs Q&A was this question: "Although Seattle is a nice place to live, businesses and jobs have been fleeing from Seattle to the 'suburbs', such as Bellevue. What advice would you give to the newly elected mayor and city council on how to establish a business friendly environment for job growth?"

I haven't seen data to support the assertion of jobs and businesses "fleeing." We have a much more vibrant center city than most American metros. Even so, the incoming administration had better make job and company retention a priority. It's hard to compete against the suburbs if a company most wants a cheap "greenfield" site. So Seattle needs to compete on quality of life, transit accessibility, convenience, the critical mass of a vibrant core -- and, yes, take a hard look at regulations, fees, etc. It also must keep a diversity of businesses, meaning being responsive to the small, gritty companies that aren't sexy but provide productive heft to the local economy.

It's in the interests of the metro area to have both city and suburbs prosper. So we need to grow the regional pie rather than fighting over slices. And we'd better move fast to retrofit the 'burbs for more transit and trains. The higher-energy future will arrive before we know it.

Today's Econ Haiku:

Goldman shareholders
Join in the bonus pile-on
"Hey, more gold for us"