Mike Keating on 2011 Government Spending

January 18, 2011

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As the economy gradually recovers, government contractors can look for better selling opportunities, according to Mike Keating, senior editor for Government Product News.

Government purchases of goods and services in the United States will reach $3.03 trillion in 2011, up from $2.99 trillion in 2010, according to economic and financial analyst IHS Global Insight. State and local government purchases of goods and services will total $1.82 trillion this year, representing a slight increase over 2010 total purchases ($1.79 trillion).

Federal purchases of goods and services will rise to $1.21 trillion in 2011, up slightly from $1.20 trillion in 2010, according to IHS. Federal revenues will rise to $2.6 trillion in 2011, up from $2.1 trillion in 2010, the Congressional Budget Office (CBO) says.

Already, green shoots of growth can be seen in increased manufacturing activity, fewer jobless claims, growing consumer confidence, higher sales at domestic truck- and carmakers, record-breaking corporate profits and higher tax revenues.

"The economy's coming around at this point, and as incomes rise and as profits rise at companies, which is happening now, obviously the taxes they pay will rise as well," Steven Latin-Kasper, research director at the National Truck Equipment Association says. "So state and local governments aren't going to get back to their 2007 budget levels anytime soon, but they will have more to spend in 2011 than they did 2010."

Latin-Kasper adds that government offices will be loosening their purse strings.

"Many local and even state governments are now starting to see the end of this current downturn in tax revenues, and I suspect they will be able to start spending some money on trucks and equipment again by the third quarter 2011," Latin-Kasper says. "I don't think it'll happen significantly, but I think we are finally past the bottom in terms of local and state government budgets for equipment."

Mark Amtower, a government marketing expert at Amtower & Co. and author of the recently released book Selling to the Government: What It Takes to Compete and Win in the World's Largest Market, speaks cautiously about current spending trends: "The 2011 government market will be among the leanest in my three decades of working in B2G [business-to-government]."

Amtower gave IMT his views on what will work in 2011: "My advice to those already in the government market: Work as closely with your customers as possible. My advice for those new to the government market: Define your niche carefully and target your audience with precision."

Partnering is key, Amtower says: "Manufacturers new to the market really need to find the best channel partners for the government market. These are not always the same as the commercial market."

Government business is important, as members of the Association of Equipment Manufacturers make clear. About a quarter of respondents to the association's 2011 Construction Equipment Outlook said highway construction funding will have a positive or strongly positive effect on their firms' sales in 2011. Seventeen percent of member companies surveyed expect military spending to have a positive or strongly positive effect on 2011 sales.

As 2011 gets underway, city finance directors are deeply concerned about budgets, according to the National League of Cities' (NLC) 2010 City Fiscal Conditions Survey, which is a national mail survey of finance officers in U.S. cities.

Finance directors are concerned about unemployment, under-performing real estate markets and diminished consumer spending. They are also worried that states will respond to falling revenues by further cutting their aid to local governments. "Confronted with these issues, 80 percent of city finance officers forecast that their cities will be less able to meet needs in 2011 than they were in 2010," the survey said.

In addition to delaying or canceling capital infrastructure projects (69 percent of responses), more than half (54 percent) of cities in the NLC survey reported salary or wage reductions or freezes, and one in three (35 percent) cities reported employee layoffs.

Increasing the levels of fees for services has been the most common action taken to boost city revenues, according to the NLC findings. About 40 percent of city finance officers surveyed said their community has taken this step.

Based on research by Government Product News, local governments are turning to private collection agencies, staging tax amnesty programs, placing wheel locks on cars owned by tax scofflaws and selling surplus buildings and land to generate more revenue.

On the IT front, tight-budgeted governments will be squeezing out inefficiencies in 2011, according to Jim Pruden, director of federal sales at data integration software and services provider Informatica Corp.

"Data center and application consolidations will increase and the adoption of cloud computing will continue its rapid acceleration. Data delivery and consumption will proliferate with many new forms emerging as mobile devices are leveraged," Pruden says. "Snapping together solutions through existing applications, cloud applications, leveraging social networking and a variety of widgets will become the norm as long development cycles will not be feasible under the current fiscal climate."

In 2011, governments are working to make it easier for businesses to land contracts. For example, with the help of Capgemini Government Solutions, the state of Nevada is building the Nevada Business Portal to improve and enable businesses to conduct transactions with state and local governments. The one-stop shop aims to reduce complexity, eliminate redundancy and improve accountability.

Michael Keating is senior editor for Government Product News and a contributing editor for American City and County, both published by Penton Media Inc. His complete 2011 government budget forecast is available at GovPro.com. Keating has written articles on the government market for more than 100 publications, including USA Today, Sanitary Maintenance, IndustryWeek and the Costco Connection. Mike can be reached through his website, MikeKeat.net.

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