A growing crisis in state and local government finance is undermining the economic recovery in Silicon Valley, according to the 2011 Silicon Valley Index released by Joint Venture: Silicon Valley Network and Silicon Valley Community Foundation.

The comprehensive yearly study on the economic strength and overall health of Silicon Valley shows signs of a slow comeback from the deep recession, but it also reveals a precarious road ahead for cities, towns and counties in the region as public revenue drops while the demand for services climbs.

“Silicon Valley’s economy is making slow but noticeable progress recovering from the major blow delivered by the recession,” said Russell Hancock, CEO of Joint Venture, “but unless we address the fundamental structural issues in our local governments we cannot sustain continued growth.”

“The trend in our cities and counties is clear: expenses are rising, revenue is declining and the building blocks that help create strong communities are crumbling,” said Emmett D. Carson, Ph.D., CEO and president of Silicon Valley Community Foundation. “Without new solutions to the public sector financial crisis that is spreading across the country, our region’s quality of life and economic health will continue to erode. We need to begin asking ourselves what kind of government we want, what we can afford and what we must leave behind in favor of a more sustainable future for ourselves and our children.”