Over the last two years, the record amount of federal spending related to covid relief and stimulating the economy has been a primary news topic. Historical context in the amount of that spending, both implemented and proposed, can provide additional context of the workload ahead for federal, state, and local governments.
Data from the Congressional Budget Office, along with direct legislative language, can provide a deeper understanding of the needs ahead for government entities and the scale of the impact relative to historical workloads.
In 2020, as noted in the graph below, federal spending far exceeded historical levels.
*Data Source: https://www.cbo.gov/data/budget-economic-data (Historical Budget Data Feb 2021)
The FY22 federal budget continues to be unfinalized and is working its way through the legislative process to establish a clearer understanding of upcoming program work levels. A potential view of the changing budget environment from historical levels was offered by the Congressional Budget Office in July of 2021 and showed a pullback in outlays from the stimulus levels of 2020 & 2021 but still showed increased federal budgets relative to pre-pandemic levels.
**Data Source: https://www.cbo.gov/data/budget-economic-data (10-Year Budget Projections)
The long-term increase in spending is not surprising when looking at new programs established through the recent stimulus environment. Many of these will likely require ongoing funding in the future if its established program goals are to continue. The expansion of existing infrastructure programs, such as transportation and utilities, provide insight on how additional investments can be spread across multiple program areas.
The expansion of federal spending often carries through to state and local government missions that receive federal funding. Infrastructure projects are one of the most prominent examples where states’ transportation projects are substantially funded with federal highway spending. The Pew Trusts recent article, Massive Cash Flow Sparks State Spending Sprees, highlights the billions of dollars in additional government funding that state legislatures are currently adding to their budgets from the last two years. The article points out that these increases are expected to continue with future proposed federal funding. Regardless of the specific programs each state implements, the common theme remains that states are in uncharted territory with additional funds in hand.
Although the political environment and cyclical nature of budgets never provide complete clarity for what the future of government budgets holds, the post-2020 funding environment has provided a distinct shift from pre-2019. This shift in government funding has already created an additional workload for years to come on the government workforce from pre-pandemic levels. Additional clarity on the extent and location of these additional workloads is likely to become more evident in future months as both congress and state legislatures debate and finalize record-level budgets.
The views expressed herein are presented for informational purposes only and are not intended as a recommendation to invest in any particular asset class or security or as a promise of future performance. The information, opinions, and views contained herein are current only as of the date hereof and are subject to change at any time without prior notice.
Vice President, Asset Management
Boyd Watterson Asset Management, LLC