State and local budgets are not immune to the impacts of Covid-19, and DuckerFrontier has been closely monitoring each end market to determine what the affect has been, albeit differently, based on importance to public health, degree of tax revenue lost, and impact from stay-at-home/social distancing orders. Specific to the government transportation industry, deferred capital spending (e.g., transportation equipment) and project investments, coupled with shifts in equipment use and extended life-cycles, may result in higher aftermarket parts spend and equipment demand.

State and Local Budgets are Not Immune to Covid-19

Each end market has been affected by Covid-19, albeit differently, based on importance to public health, degree of tax revenue lost, and impact from stay-at-home/social distancing orders. It is because of this that deferred capital spending and project investments may result in higher aftermarket parts spend and pent-up equipment demand.

Impact on Industry Segments Vary Based on Essential Needs

Public safety spending is anticipated to be limitedly impacted as compared to other industry segments. This is largely due to equipment spending and/or funding which is considered essential for the combatting of Covid-19 as well as the improvement of public safety.

In the transportation segment, tax and fare revenue for state and local transportation departments have declined as a result of Covid-19 and the stay-at-home/social distancing orders in place. These declines are anticipated to continue through 2021 due to continued uncertainty around reopening of and consumer sentiment regarding public transportation.

Construction capital spending for residential, non-residential and infrastructure projects will be delayed in the short-term, however new and evolving opportunities will come based on shifts in demand in demographic, geographic and building types.

Overall, state and budgetary spending has remained relatively resilient, and baseline estimates suggest a similar trendline and recovery curve as the economy moves out of the Covid-19 years and into 2023 and beyond.

The decline in state and local spending and speed of subsequent recovery will depend on how each state manages the Covid-19 impact, utilization of rainy-day funding, consumer sentiment, and federal stimulus packages. State and local tax revenue will be significantly impacted by Covid-19 stay-at-home orders, record levels of unemployment, limited use of public facilities, and lowered personal consumption expenditures. Additionally, since two prior recessions (in 2001 and 2008), state and local governments have made efforts to increase their rainy-day funds to mitigate the impact of a recession. This effort could potentially soften the impact of Covid-19 and other future pandemics depending on the length, severity and municipal savings size.

As the world moves through Covid-19, and its short- and long-term effects, the need to capitalize on new and evolving opportunities within the construction, municipal and transportation markets is critical for success. DuckerFrontier continues to follow and analyze the key trends and impacting the all key industries, both during and post Covid-19 disruptions. Visit our Covid-19 Resource Hub for the latest insights and implications for global business, or contact us to connect with a team member.