How to Approach the New 2025-26 State, Local and Education Government Fiscal Year

With the new SLED (State, Local and Education) fiscal year starting in July for nearly every state government and many larger local entities, Deltek’s State, Local and Education research team crunched the numbers to provide an update on the current purchasing outlook.

This article includes insights from state governors, data on purchasing confidence drawing from Deltek’s GovWin IQ market intelligence platform, and advice for vendors on how to approach the coming fiscal year.

Understand the Overall SLED Market Direction

As the SLED market approached the commonly observed June fiscal year-end, it demonstrated signs of stability and resilience, accompanied by a sense of cautious optimism amid broader uncertainty.

Key indicators included the following:

1. RFP volume has stabilized in recent quarters after a mid-2024 dip tied to the wind-down of ARPA stimulus.
2. Preliminary state budgets suggest rising expenditures, paired with calls for efficiency, cost savings, and—in some cases—spending cuts or use of reserves.
3. Our SLED Analyst Purchasing Confidence Index has leveled off at 93.0, indicating a slightly cautious outlook (7% below neutral). However, this is an improvement from the March low of 90.1. Among major sectors, IT (102.3) and commodities/basic goods (105.0) show neutral to slightly positive purchasing sentiment.

According to our SLED analysts, these two key segments appear healthier and more optimistic than the broader market. In short, government leaders are generally hesitant to reduce tech spending unless necessary. They’re also compelled to purchase standard commodity items—even amid supply chain pressures and rising prices.

Indexes for professional services and AEC were more cautious and scored lower than the overall level for SLED as a whole. Given the economic and federal funding uncertainty right now, as well as questions around tariffs, inflation and the economy, these results support our broader view of a market marked by stability and resilience.

Themes From State Governors’ Speeches

We analyzed all the “state of the state” governor’s speeches this year to look for specific agenda items and themes. Four key messages stood out: making government more competitive, safe, affordable and accountable. This can allow it to better meet needs and address certain basic “kitchen table” issues facing working families.

Focus on Competitive Government

SLED is a vast and fragmented market of over 100,000 governments of various types, missions and locations. While individual companies compete in their ability to serve this market, each government is also competing for favorable rankings and reputation as a desirable location or place to live, work and run a business.

They aim to drive business and economic growth by attracting jobs and investment, supporting higher wages, and fostering a more business-friendly environment. Increasingly, they’re also boosting spending on workforce training and power grid infrastructure—both to meet essential needs and to enable future growth. Maryland’s governor explained that “This year, we have put forward a commonsense package for tax reform that will make taxes simpler, fairer, and pro-growth... We are closing corporate tax loopholes to lower the corporate tax rate to make Maryland more business-friendly.”

While traditional higher education is seeing a decline, vocational training is on the rise—geared toward preparing students for well-paying technical careers that don’t require four-year degrees. As Texas’ governor noted, “Many of the most in-demand jobs are careers like welders, plumbers, and electricians. To prepare students for these careers, high schools must provide more career training programs so students can go from graduation directly into a good-paying job.”

At the same time, several states are exploring nuclear energy expansion through small modular reactors (SMRs) to boost power capacity. This reflects a growing urgency to meet the demands of a digital economy increasingly driven by energy intensive technologies like AI and data centers.

Focus on Safe Government

One clear takeaway from the 2024 elections was a heightened emphasis on public safety and security, reflecting growing concerns across the country. This focus extended across political lines, including traditionally Democratic-leaning states. For example, Washington state’s governor Bob Ferguson mentioned a proposal for $100 million in new grant funding to “help local law enforcement agencies hire more well-trained officers to improve public safety. That idea was a cornerstone of my campaign for Governor.”

Broader safety concerns also include border security and efforts to protect schools from drugs and violence. For vendors and suppliers in the public safety space, these priorities may signal emerging opportunities for investment and growth.

Focus on Affordable Government

While tax reform can support business growth, affordability remains a pressing concern for many families—particularly around housing costs and the overall size and cost of government. These “kitchen table issues” are top of mind across the country. Vermont’s governor acknowledged this sentiment, noting that residents expect leaders to “spend within their means” and focus on making the state more affordable.

Washington’s governor acknowledged fiscal challenges, stating, “Another challenge we face is the multi-billion-dollar budget shortfall… Let us work together to ensure that we correct some of the actions that brought us here. But let me start by stating that the era of assuming unrealistic growth in revenue is over.”

In contrast, Idaho is emphasizing tax relief. The governor proposed “yet another round of tax relief for hardworking Idaho families – $100 million – on top of the $4.6 billion we have already given back to Idahoans over the past five years.”

Hawaii’s governor promised to “…remain committed to creating more affordable housing for Hawaii’s nurses, teachers, firefighters, and all the working families across our state.” Affordability efforts also extend to initiatives such as universal free school meals, which, while easing costs for families, may increase financial pressure on state budgets.

Focus on Accountable Government

Amid growing voter dissatisfaction with the status quo, many governors are emphasizing responsiveness, fairness, and reform in state and local government. The message is clear: citizens want more effective, affordable governance—and leaders are signaling they’re listening.

Vermont’s governor captured this sentiment, saying, “Just throwing more money at problems hasn’t equaled success… I’m asking you to join me; to listen to those who sent us here; think about what they can afford and what they need; and give everyone the chance to not just survive, but to thrive.”

In Washington, Governor Ferguson echoed a similar call for change: “Let me be clear: I’m not here to defend government. I’m here to reform it…Our mission must be to speed up government, improve customer service and center the people in every decision we make.”

This shift reflects a broader mandate for government to reinvent itself—prioritizing cost-effectiveness, accountability, and practical solutions. The urgency is real, and complacency is no longer an option.

For vendors, especially those offering consulting, technology, or public engagement solutions, this environment presents new opportunities. Businesses that align with these evolving priorities—helping governments do more with less—are well-positioned to support and benefit from this transformation.

Closing Thoughts for Government Contractors – Conduct the Outreach

The current environment presents a strong opportunity for meaningful engagement with prospective buyers and public officials. One of the core principles of business success is understanding your customer. In our Q1 Snapshot report special feature and article titled “Engaging with Empathy,” we offer practical guidance on outreach strategies— but the most important step is simply to start the conversation.

Vendors should actively engage to build a pipeline of upcoming opportunities and establish partnerships that can lead to long-term growth in market share and profitability. With the new 2025–26 fiscal year underway, now is the time to get aligned with state and local priorities by reviewing preliminary budgets and other planning documents. Speaking the language of public sector buyers—and understanding the pressures they face—can go a long way in building trust.

While response times may vary, public officials still need private sector insight to shape strategies and specifications for future procurements. As former City of San Diego purchasing agent Tammy Rimes noted, “There is a growing sense that the government and vendor community need one another for the entire marketplace and procurement system to operate effectively.”

By staying attuned to these trends, vendors can better align their messaging and solutions to meet real needs—whether they’re established players or new entrants looking to build a foothold in the SLED market.

Want to stay informed and up to date on the needs of SLED governments? Don’t miss this free report, the State and Local Procurement Snapshot for Q2 2025, which reveals the SLED sectors that are holding steady and the ones that are gaining momentum.