Business Environment Profiles - United States
Published: 11 March 2025
Local and state government investment
458 $ billion
1.7 %
Local and state government investment represents the total value of funds allocated by local and state governments for fixed assets such as structures, equipment and software. Data is sourced from the Federal Reserve Bank of St. Louis and is measured in chained 2017 dollars.
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Historically, state and local government spending has been driven by economic cycles, demographic shifts and federal policies. Economic growth typically led to increased revenue and spending, while recessions caused budget constraints. Demographic changes, such as population growth and urbanization, necessitated greater investment in infrastructure and public services. Federal policies, including the New Deal and Great Society programs, significantly expanded state and local responsibilities and spending. Technological advancements also played a role, requiring investments in new systems and infrastructure. Additionally, rising healthcare costs, particularly Medicaid expenses, have been a major driver of spending growth since the 1960s.
Over the past five years, state and local government spending has been influenced by the COVID-19 pandemic and its aftermath. Federal aid packages provided substantial resources, allowing for increased spending on public health, education, and economic relief programs. The post-pandemic economic recovery led to surging revenues and record spending levels in many states. However, by 2024, spending growth began to slow as federal aid diminished and tax revenues normalized. Many states implemented tax cuts during this period, affecting their revenue streams. Inflation and rising labor costs also put pressure on budgets, requiring increased spending to maintain service levels. Additionally, investments in technology and cybersecurity became more prominent as governments modernized their operations345.
Looking ahead to the next five years, state and local government spending will likely be shaped b...
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