Local and state government investment in the US - Data and Analysis (1999-2032)

In 2026, local and state government investment is anticipated to reach $465.3 billion, marking a 4.1% increase over the previous year. This growth follows volatile budget conditions, reflecting a normalization in spending as the surge in federal aid from the pandemic period subsides. Tax revenues have stabilized, while heightened inflation and labor costs continue to pressure expenditures. States and localities prioritize maintaining essential public services, with increased allocations towards technology and cybersecurity modernization.Government investment over the last five years remains intertwined with the aftermath of the COVID-19 pandemic. Investment fell in 2021 and 2022, with declines of 5.9% and 3.5% due to economic disruption and uncertainty. Robust federal aid packages, like the American Rescue Plan Act, facilitated a rebound in 2023 and 2024 as public health, education and recovery programs expanded, with growth rates of 8.5% and 7.5%, respectively.Despite record spending enabled by surging revenues, growth slowed by 2025 as federal assistance waned and normalized tax receipts reasserted budget limitations. Many states enacted tax cuts, reducing future revenue capacity. Inflation and public sector wage growth required higher operational spending to maintain services. Demographic shifts, like urbanization and aging populations, increased demand for infrastructure upgrades and healthcare spending. Investments in technology and cybersecurity gained prominence as governments adapted to new service models and cyber threats.From 2021 to 2026, investment trends aligned with macroeconomic cycles and policy priorities. The rapid early-period recovery, supported by federal stimulus, contrasts with budget tightening as extraordinary aid phases out. Core macro trends, including inflation, changing demographics, technology modernization and rising public sector compensation, shaped state and local government investment.