Local Governments NAICS 921110, 921130

Jul 3, 2025 - Federal Expenditure Reductions Will Prompt Change For Local Governments

• State and local governments are preparing for significant change due to attempts to reduce federal spending, according to experts contacted by Governing.com. “For state and local governments, everything is on the table,” says Matt Chase, the CEO and executive director of the National Association of Counties. “We don’t see any of our programs, any of our tax policies, any federal policy, as untouchable. There are no sacred programs or policies; whatever you care about, you better be advocating for in a smart way.” Chase notes, however, that this will also create new opportunities. A more hands-off federal approach will result in an era when states and localities can step in with ideas while also being freed from many traditional regulatory burdens.
• Localities and states are launching efforts to connect fired federal workers with jobs and other assistance, according to Governing.com. "Even people who don’t work directly for the federal government or its contractors are bracing for the downstream effects of federal cuts," said Howard County, MD, County Executive Calvin Ball. The cuts that the federal Department of Government Efficiency has imposed so far, often targeting probationary employees who are in the early months of a new position, have stripped some people of their livelihoods and others of their colleagues and sense of security, Ball says. Other workers say that they’ve been suddenly promoted because their supervisors were fired.

• Property taxes remain by far the most important source of local revenue in the US, generating about 72% of local tax collections, according to The Tax Foundation, but state and local policymakers regularly search for other revenue sources that could potentially reduce the property tax burden. Local income taxes are authorized in 16 states and the District of Columbia. They account for more than 20% of local tax collections in Kentucky, Maryland, and Ohio. Local sales taxes are imposed by 36 states and the District of Columbia. They constitute more than 40% of local tax collections in Alabama, Arkansas, Louisiana, and New Mexico. Localities in only seven states, mostly in New England, do not impose either local income taxes or local sales taxes.
• Local government employment has rebounded from pandemic-era lows and remained above pre-pandemic levels in mid-2025, according to the US Bureau of Labor Statistics. Local government revenue is forecast to grow at a 3.68% compounded annual rate from 2025 to 2029, slower than the growth of the overall economy, according to Inforum and the Interindustry Economic Research Fund, Inc. The primary revenue sources for local governments are taxes, federal and state funding, and fees charged for services.