The Keating Report: Government Spending Should Remain Steady

“2007 has definitely been a strong year for government purchasing,” asserted Dan Ansell, vice president of Albany, N.Y.-based BidNet, which provides businesses with targeted government bids from thousands of federal, state and local agencies. “In our 24 years, this may be the strongest year ever in terms of bid volume and opportunities."

For state and local governments in particular, Ansell added, “we're seeing 2007 and beyond as very active in terms of projects and growth, in almost every area.”

“This growth is in both services and products, and in most parts of the country as well,” Ansell said.

On the vendor side, there's increased interest in signing up the public sector as a customer.

“We're seeing more small- and medium-sized businesses deciding to aggressively seek government opportunities,” Ansell said.

State and local agencies continue to hold the greatest share of the government market. For 2007, Macroeconomic Advisers predicts that states, cities, counties and townships will spend more than $1.7 trillion on goods and services.

Meanwhile, Macroeconomic Advisers projects that federal agencies in 2007 will pony up about $960 billion for goods and services.

Some Agencies Pulling Back

While government spending overall has been strong, Barry Bosworth, senior fellow in the Economic Studies Program at the Brookings Institution in Washington, D.C., noted that some public entities have had to pull back a bit.

“A lot of state and local governments got used to this tremendous surge of property and building-fee income during the real estate boom, and now that there's been a downturn, they are basically trying to fill that gap,” Bosworth said. “This follows a fairly rapid growth in state and local spending in the last few years.”

Bosworth noted that other sources of revenue for governments – including sales taxes and income taxes – have held up pretty well.

“There's a very modest slowing of the economy in the first half of this year, and all the signs are that it's going to pick back up again in the second half,” explained Bosworth, who formerly served as director of the President's Council on Wage and Price Stability. “I don't think [we'll see] spectacular growth rates, but we are talking something around 2 to 3 percent annual rates of growth, and that's what state and local governments have to get used to.

“If you add on a 2 percent annual inflation rate, we are talking about a growth in government incomes of about 4 percent a year. So state and local governments have to match their future spending to that growth rate.”

Dr. Kim Reuben, a public finance economist at the Urban Institute in Washington, D.C., believes that the slowdown in the residential real estate market has had an impact on state government spending.

“State governments are in reasonably good fiscal shape, but some of their forecasts, especially for things like sales taxes, are a little low,” Reuben said. “They are getting in fewer dollars than I think they originally forecast back in January 2007. But I don't think there will be any fallout until future fiscal years, like 2008-2009.”

This is the first in a three-part series on government spending trends. In Part 2, Keating examines green purchasing trends.

About the Author

Michael Keating is research manager for Government Product News and Government Procurement magazines as well as a project manager for Penton Research. Keating has written articles on the government market for nearly 100 publications, including USA Today, Sanitary Maintenance, Industry Week and the Costco Connection. He can be reached at mkeating@penton.com. His Web site is at http://www.mikekeat.net.