(Bloomberg) – U.S. local governments may cut almost 500,000 jobs through next year to cope with sliding property taxes, a decline in state and federal aid and added need for social services, according to a report released today.

The report, a result of a survey by the National League of Cities, the U.S. Conference of Mayors and the National Association of Counties, showed local governments are moving to cut the equivalent of 8.6 percent of their workforces from 2009 to 2011. That suggests 481,000 employees will lose their jobs, according to the report, which said the tally may yet rise.

“Local governments across the country are now facing the combined impact of decreased tax revenues, a falloff in state and federal aid and increased demand for social services,” said the study, which was released in Washington today.

While a separate report by the National Conference of State Legislatures today said U.S. state revenue is recovering from the drop in tax collections caused by the 2007 recession and the slow pace of job growth since, the greatest blow to local governments will be felt from now through 2012, the local groups said.

They called on Congress to pass a bill that would provide $75 billion in the next two years to local governments and community-based groups to stoke job growth and forestall deeper cuts.

Such a move may face political obstacles. Governors have appealed to Congress to extend additional aid to cover the cost of providing health care under Medicaid, the state-run program for the poor. The proposal stalled in the Senate, where the Republican minority has raised concern about the size of the federal deficit.

Property Taxes

The local groups said their budgets are likely to be hit by a drop in property taxes, which trail changes in home values because of the way assessments are calculated. Although prices peaked in 2006, property taxes paid to state and local governments kept rising until the first three months of this year, according to annual totals compiled by the U.S. Census Bureau.

“Over the next two years, local tax bases will likely suffer from depressed property values, hard-hit household incomes and declining consumer spending,” the report said.

The need for state and local governments to balance their budgets has weighed on the economy, damping the recovery. Spending fell at an annual pace of 3.8 percent during the first three months of this year, the steepest drop since the onset of the recession, according to U.S. Commerce Department. By June, local governments had cut their payrolls to 14.4 million from 14.6 million, according to the U.S. Labor Department data adjusted to take account of seasonal variations.

Distressed Cities

The fiscal strains have pushed some local governments into distress. In 2008, Vallejo, California, filed for bankruptcy protection. Reading, Pennsylvania, last year sought refuge under the state’s program for distressed municipalities. This month, a state appointed receiver took over in Central Falls, Rhode Island, a cash-strapped town of 19,000.

Ron Loveridge, the mayor of Riverside, California, one of the areas worst affected by home foreclosures, said cities are struggling to meet the basic needs of their communities, such as running parks, libraries and fire departments.

“For local governments, unemployment and foreclosures resulting from the Great Recession translate into too few revenues making it increasingly difficult to fund or satisfactorily maintain many basic services,” Loveridge, who is also the president of the National League of Cities, said in a statement.

–Editors: Walid el-Gabry, Pete Young, Jerry Hart