Automakers are churning out billions of dollars in profits, and jobs are returning to Michigan after a decade of severe economic pain.

So why are schools, and state and local governments struggling with so many budget problems?

A new University of Michigan study says it’s because the damage from the auto industry’s meltdown over the past 10 years was even deeper than we knew and continues to be felt today.

The study lead by Roland Zullo, an assistant research scientist at U-M’s Institute for Research on Labor, Employment and the Economy, found that every lost auto job resulted in eight additional jobs losses between 2001 and 2008.

Previous studies have found that about three other jobs are eliminated in the economy for every lost auto job.

And related job losses resulting from layoffs or plant closings in the auto industry continue to occur for at least four years after the initial auto job cuts, the study found.

Zullo said it takes about two years before state and local governments feel the fiscal impact of private-sector job losses. It was two years ago that General Motors and Chrysler filed for bankruptcy.

“The nadir of the auto industry was in 2009,” Zullo said. “Because the industry is just so huge here, we’re feeling the aftershock in the public sector.”

Michigan was the only state in the country to experience a decline in state government general fund revenues over the past decade, according to the Treasury Department. General fund revenues fell 25 percent between 2000 and 2009.

Nearly 6,000 jobs have been lost in state and local government just in the past three months.

“What really hit us as a surprise was the loss of teaching jobs,” Zullo said.

While elementary and secondary school employment rose statewide in the period Zullo studied, it plunged in counties hit by auto job losses.

That’s a troubling sign because Michigan’s future will depend heavily on how well its work force is educated.

Budgets must be balanced, of course. But Zullo warns against a knee-jerk dismantling of the public sector through overzealous budget cutting, particularly in education and transportation.

Small-government advocates say the best way to create jobs and improve the economy is for government to simply get out of the way of private enterprise.

But Zullo says the private and public sectors are inextricably linked in wealth creation.

“You want a strong public sector,” he said. “A strong public sector gives you an infrastructure that allows the private sector to thrive.”

For example, the interstate highway system, started during the administration of President Dwight Eisenhower in the 1950s, led to an explosion of auto industry growth.

And the Internet, arguably the most economically important (and disruptive) invention of the past 30 years, was developed by the military.

State and local government revenues likely will rise again as Michigan’s economy improves. But the rebound won’t be as strong as it was in past recoveries because auto industry employment is only a third as large as it was a decade ago.

Zullo’s advice for Gov. Rick Snyder? Invest state resources in developing an export-driven economy that brings more wealth to Michigan.

“If I had the governor’s ear, what I would do is tell him to take a careful inventory of what’s already here,” said. “Look at who is exporting and figure out how the state can help.

“The easiest approach to improving the economy is to expand what we already have.”

Email Rick Haglund at haglund.rick@gmail.com.