2015 spending is trending up translating to the potential of more government contracting opportunities than seen in the last several quarters. With sustained improvement in the United States economy over the last several years, most states and municipalities have significantly more funds in their coffers but only a few are ready to spend budget surpluses to tackle pressing issues. For example, North Dakota experienced a spike in state revenues as a result of oil and gas production and dramatically increased public education funding. The state’s school districts and public universities have initiated many new construction and renovation projects and many more are expected in the near future. Even so, some elected officials have been reluctant to spend money. Reasons for the reluctance of agencies are varied as illustrated in the following examples:
State Governments Remain Cautious
Texas legislators are adamant about holding $11 billion in the state’s rainy day fund. Legislators will likely leave an additional $7.5 billion on the table at the end of the current session or reduce a majority of that surplus through tax cuts, despite having the best opportunity in a decade to tackle big issues such as public education, water and infrastructure.
With a budget surplus and $1.6 billion in a new rainy day fund, California’s situation is better than it has been in years. Under Proposition 98, the bulk of additional revenue will be funneled to public schools and community colleges, but legislators will have approximately $1 billion to spend. Still, the governor is urging caution. The state has pulled itself out of deep debt and will be understandably cautious in the near future, but California has many critical needs, especially in the areas of water, high-speed rail and higher education.
States in the Midwest are also taking a cautious approach to spending their budget surpluses. Ohio chose to rebuild its rainy day fund from an $800 million surplus in 2014. Minnesota has a $1.9 billion surplus, and while the governor is a strong advocate for education spending, many legislators in the state prefer tax cuts.
Local Government Revenues Show Positive Growth
Cities and counties were hit hard by the Great Recession and are only recently recovering. Revenues are now showing positive growth for the first time in five years. Increased spending is likely to come first for infrastructure projects and healthcare obligations. But there are other highly visible critical needs that need attention. Local leaders will not be able to ignore these initiatives and this may fast-track the acceptance of public-private partnership (P3) engagements.
P3 Legislation Boosts Government Initiatives
P3s have been used for decades as a financing mechanism throughout the world. Currently, 33 states have enabling P3 legislation for infrastructure projects. Initially, most P3s in the United States focused on highway construction, but now P3s are being used to build water plants, upgrade ports and launch all kinds of social infrastructure.
There are numerous successful P3 examples in the U.S.:
- San Diego County Water Authority’s large-scale seawater desalination plant will be online by late 2015 and will have the capacity to deliver 7 percent of San Diego’s water needs.
- Port of Miami used a P3 to successfully develop a tunnel, providing direct access between the Port and surrounding major highways. As a result of the successful collaborative project, the Miami-Dade Water Department began planning other P3s to address water and other infrastructure needs.
- In Denver, Regional Transportation District’s Eagle P3 project will create 30 miles of rail line to ease congestion. This $2.2 billion dollar project will be operational by 2016.
- The University of California, Merced will use a P3 for a campus expansion that includes athletic, academic and housing facilities.
Seasonal Boost Just Around the Corner
In the near term, contractors can expect an uptick in opportunities. Public officials almost always create funding cushions early in every fiscal year to cover emergency or unexpected needs. At the same time, they plan to spend all their funding rather than risk having it reduced the following year. That results in a disproportionate amount of spending late in the fiscal year, which ends on June 30 for a majority of state governments. Our colleagues at Onvia have shown that IT spending in the final weeks of a fiscal year is more than seven times the normal weekly average. Construction, furnishings and office equipment also see high spending increases at the end of a fiscal year.
Future Expectations and Best Practices for Contractors
While the recent economic rebound has helped the country as a whole, state and local government officials have not gone on spending sprees. Most public officials struggled with inadequate budgets for such a long period of time that they will be cautious and judicious in future spending decisions. Certainly, they will likely not be impulsive.
Contractors should identify the agencies who are ready to spend, build relationships with agency buyers and find out which products and services will be purchased. Solutions that have been tested and proven will likely gain traction quickly. Experience and references will be valuable credentials, but innovative and collaborative solutions will also be attractive. Many governmental entities have installed Chief Innovation Officers and some contractors are finding these officials more willing to consider new and unique concepts. 2015 should be a better year for government contracting.
This is a re-post from Onvia’s Q3 State, Local and Education (SLED) Procurement Snapshot - See more at: http://www.onvia.com/business-resources/articles/5-High-Impact-Marketing...