State and local government spending - IBISWorld

WWW.IBISWORLD.COM Special Report Month 2010 4
Municipal debt
FIGURE 3
National health expenditure
2500
2000
$ billions
1500
1000
500
0
Year 1960 1980 1993 1998 2000 2002 2004 2006 2008
Private Federal State and local
SOURCE: CENTERS FOR MEDICARE AND MEDICAID SERVICES
defined benefit plans. The private sector
has moved toward defined contribution
plans (i.e. 401[k] plans), but sponsors of
defined benefit plans remain saddled
with higher cost plans that are exposed to
the financial risks associated with
investment returns and the cost of future
benefits.
While municipal government pension
benefits will likely be curtailed in the
future, any significant progress in
increased pension funding (reducing
underfunded obligations) will benefit a
handful of financial industries.
Retirement and pension assets will grow
along with the services provided to
manage these assets (i.e. portfolio
management or custody, asset and
securities services).
Other
The cloudy outlook for municipal financial
conditions threatens a longer list of
smaller municipal contractors, from
surveying and mapping services to
landscaping, gun and ammo
manufacturing, and even computer repair.
One sub-sector that has a relatively
high concentration of government
spending sensitivity is the Independent
Performers and Creative Artists industry.
While small in scale, the sensitivity to
government spending for performing arts
and independent performers stands at a
relatively high 25.0%.
Summary
State and local governments continue to
lag behind private enterprises in terms of
“right-sizing” their operational footprint
to the financial realities of the credit crisis
downturn. More importantly, increasing
and underfunded pension obligations
require long-term austerity commitments
that play a significant role in stabilizing
the health of municipal finance.
While this report has identified
industries that have measurable
sensitivities to state and local
governments, the magnitude of potential
austerity measures will likely expose any
state and local government supplier to
reduced revenue and profitability.
The financial fallout will hit smaller
businesses particularly hard as local
governments increasingly band together
when collectively negotiating contracts.
To remain competitive in these
constrained markets, smaller operators
will need to scale up or merge with others.