Keating Report on government budgets and spending, 2nd half 2010

The U.S. economy is showing increased strength heading into the second half of 2010. A few signs of the recovery include:

Michael Keating, senior editor for Government Product News

• Local and state governments nationwide took in more money than they spent in the first three months of 2010 — their first surplus since 2007.

• State tax collections surpassed estimates in several states this spring following two years of declining revenues, which signals that state governments are slowly bouncing back.

• Payrolls increased in 38 states in April, led by Ohio, Pennsylvania and New York, indicating the recovery in the labor market is becoming more broad-based.

• Construction spending rebounded strongly in April, with an increase of 2.7 percent from March to a seasonally adjusted annual rate of $869 billion, according to an analysis of federal data by the Arlington, Va.-based Associated General Contractors of America (AGC).

• Housing starts rose in April to the highest level in a year and a half, according to the U.S. Commerce Department. Starts rose 5.8 percent to an annual rate of 672,000 units from March totals.

• U.S. consumer sentiment edged up in May from April. The preliminary May reading on the overall index on consumer sentiment was 73.3, up from April's 72.2.

Government purchases of goods and services will grow an average of more than 1.5 percent in the remaining quarters of 2010 and into the first quarter of 2011, according to the latest analysis from St. Louis, Mo.-based consultants Macroeconomic Advisers (MA).

Total government purchases of goods and services in the U.S. (also called government consumption and gross investment) will reach $3.03 trillion in the fourth quarter of 2010 vs. $2.9 trillion in 2009, according to MA. State and local governments will account for $1.8 trillion, while federal purchases will exceed $1.2 trillion.

Michael Balsam

Government stimulus spending has been a factor in revitalizing the economy, but it is just getting up to speed, says Michael Balsam, chief strategy officer at Seattle-based Onvia, a consulting firm that helps businesses with government contracts. "News reports last year talked about all of the stimulus dollars that were purportedly flowing into the economy, when in fact, only 25 percent had been spent. Through the second half of 2010 and into 2011, we'll be seeing those dollars start to hit the ground and local economies in a way that's tangible for businesses," he says. "The money is starting to get closer to the lowest levels of government, where it actually stands to impact the economy.

We will not see massive, trillion-dollar economic stimulus spending bills in the future, Balsam adds. "I think it's likely we'll see additional jobs-centric, job creation bills tied to the infrastructure and energy investment, but you won't see them called stimulus legislation ever again."

The Local Jobs for America Act (LJAA) is an example of a jobs-related stimulus bill we may see more of in the future. The federal legislation (H.R. 4812) would provide $75 billion over several years to local governments to delay planned cuts or to rehire workers for local services who have been laid off because of tight budgets. More than 70 percent of the funds would be paid directly to cities with populations of more than 50,000, while the rest would be distributed to smaller communities through the states.

Rep. George Miller

The legislation is gathering support in the House and may soon be introduced in the Senate. By early June, the bill had 161 co-sponsors in the House, plus its original sponsor, Rep. George Miller, D-Calif. If supporters can gain 200 co-sponsors, Miller will ask for a vote on the floor. After that, House members will urge the Senate to create a similar bill there. Some senators have indicated that they would introduce legislation soon, according to GPN's sister publication, American City & County.

Next: State government spending >