The recent election, coupled with our current economic situation and ongoing debate over the future of government stimulus, has laid the groundwork for 2011 to be a year of rigorous debate on the future role of government in our economic engine. Yet businesses should not assume the government pipeline is drying up anytime soon. With federal, state and local government spending approaching 50 percent of GDP, the public sector will be a source of private sector revenue for years to come.
The reason? Political decisions in Washington take time to have an impact on Main Street. Take, for example, the American Recovery and Reinvestment Act of 2009 (ARRA), known as the stimulus. It established a pool of approximately $196 billion for private-sector projects. This money is the heart of the sales pitch for stimulus funding; it was meant to bring economic development to Main Street, sustaining local businesses and creating jobs. We are soon approaching the two-year anniversary of its passage, yet just 40 percent of these funds have reached the contractors and subcontractors that perform the work.
Politicians and media have largely already passed judgment on the success of the stimulus, arguing that it has done nothing to boost the economy or reduce the unemployment rate. And there is broad agreement the president set expectations too high when he claimed the funds would be spent immediately on “shovel-ready” projects.
But the truth is that so much of it remains unspent that it is premature to close the book on it. ARRA has funded approximately 27,293 stimulus projects so far to the tune of $76 billion. These projects have supported 800,000 private-sector jobs. However, many of the jobs were temporary in nature.
The numbers are impressive, and what they really show is that billions of dollars in stimulus project funding is still on its way - $120 billion remain unspent. Much of this will go to economically valuable, longer-term infrastructure and clean-energy projects.
We expect to see state and local government agencies award the majority of these remaining projects to private sector contractors within the next year. However, the emphasis will shift from “shovel ready,” which was a myth, to “job ready,” meaning long-term private-sector jobs rather than temporary or public sector.
Of course, all of this depends on whether or not Congress recalls the unspent funds. Republican control of the House and more GOP seats in the Senate will force a reevaluation of the administration's approach to stimulating the economy, and may call into question the future of these unspent funds. Concern is growing over the federal deficit and talk is brewing about using these unspent funds to pay it down. In addition, some of the funds have been allocated to projects that require additional spending that state and local governments cannot afford.
Regardless of the political outcome on the remaining stimulus, it is a drop in the bucket; federal, state and local governments spend $5.5 trillion a year. The share of GDP is at a level not seen since WWII and shows no sign of receding as quickly as it did in that era.
It will take much more than Congressional gridlock to return that figure to a normal level. Businesses should take this macro trend seriously. If they are ignoring the public sector, they may very well be turning their backs on a substantial growth opportunity.
Businesses should follow the stimulus as it works its way through the system and arrives on Main Street in the form of RFPs. In addition, products and services should be priced aggressively because competition for these contracts is fierce.
We are in a period where the new normal is being defined. Sitting out this market will be costly.
Michael Balsam is the chief strategy officer at Onvia, the leader in gBusiness solutions and the creator of Recovery.org. He knows where every dollar of every federal, state and local government contract ends up. Onvia tracks it all the way from the U.S. Treasury to Main Street, where the jobs are created. Balsam also helped to author transparency components of the 2009 American Recovery and Reinvestment Act (ARRA) and has shared his insights with dozens of media outlets since passage of the stimulus bill, including ABC News, CNN, Federal News Radio, the New York Times, and numerous financial and business trade publications.
