SLED Contracting Growth Expectations for 2025-26

At a time of greater uncertainty in the public sector, here are some reasons for remaining cautiously optimistic about the state, local and education (SLED) government contracting marketplace.

Overall Picture and Summary

The SLED market year-to-date has maintained a sense of resilience in the face of significant federal funding and economic uncertainty, the transition out of ARPA stimulus availability and DOGE-like efficiency and cost cutting efforts at the state and local level. Federal cuts are being proposed or made in areas such as community block grants for some local construction and maintenance work, low-income housing, environmental research and climate related functions and there have been efforts to trim or cut the Department of Education and reduce federally funded disaster efforts. With all these risks, delays and challenges, one might assume that confidence has plummeted and SLED governments are in full-on contraction mode in step with federal funding and staffing cuts.

The truth, however, is more modest and incremental—in keeping with the vast scale, day-to-day importance and funding stability of this $2 trillion market. No, we can’t say the near future is sky high bullish, but it’s not all gloom and doom either. It’s more in a “slightly or somewhat more cautious” mode in terms of buying the goods and services needed. But while the number of competitive RFP opportunities may be scaled back slightly relative to long-term growth rates, the total dollars being spent remains solid and some niche segments and categories continue to see stronger growth.

Let’s begin with high level trends and then drill down into smaller niche areas of above average growth and stronger demand.

Evidence of Strong Cumulative Post-Pandemic Growth

For fairness, any recent signs of slowing need to be seen in the larger context of very strong recent growth in the years since the 2020 pandemic. The SLED market has gained around 45% in total purchasing dollars spent since the pandemic began, along with 24% more in staff spending.

SLED Growth 2025 -Cumulative Growth

Slight Decline in Purchasing Confidence, with Support in IT and Commodities

Starting this year, our SLED analysts behind the Deltek GovWin IQ market intelligence platform rate our perceived confidence in the SLED market over the next 12 months based on all the metrics we’re watching, articles, expert opinions and evidence reviewed. Overall, the index shows that confidence among buyers and governments has softened by around seven percent since the beginning of the year—which points to resilience in the face of several headwinds like the end of ARPA stimulus and uncertainty in federal transfers and policies. But in IT, confidence has remained at the neutral level of 100 and even exceeded it through April before returning to the normal line in June 2025. Confidence in commodities and basic purchases has remained very stable around the neutral level as well, demonstrating a willingness to keep buying these important day-today staples and supplies.

The next chart shows confidence in the IT industry specifically next to the broader SLED market over the next 12 months.

SLED Growth 2025 - IT

Confidence has also been steady for commodities and other basic purchases in this market since January.

SLED Growth 2025 – Commodities

Spending on Purchases and Government Staff Softens but Continues to Grow

While the overall SLED market has been fairly steady with some slowing related to the winding down of the $350 billion in American Rescue Act (ARPA) stimulus, it has to date resisted making major cuts and continues to grow in dollars at a healthy rate. Data from the Bureau of Economic Analysis indicates somewhat reduced but still very healthy spending growth through Q1 of this year at around 4% year-over-year. And at a time of significant federal government layoffs, spending on SLED government staff has averaged around 6% per year.

SLED Year Over Year Spending

Several Major Industries and Categories See Strong Growth

Our SLED Procurement Snapshot quarterly newsletter on SLED opportunities reveals several major industries showing much higher growth rates in RFPs issued in Q1 2025 on a year-over-year basis and a few like IT where the number of bid requests are mostly flat or stable for the quarter. The strongest categories currently include environmental services (11%), public safety (4%), financial (3%) and healthcare (2%). While there was a -1% decrease in IT opportunities in Q1, our 2025 SLED IT forecast indicates continued growth in total dollars with particular strength in services like cloud, AI and cybersecurity. Total IT spending has improved from 1% growth per year to 6% between 2021 and 2024. Given the out-performance last year and current slower but resilient outlook for SLED generally, it should still increase by at least 2% this year overall before improving in 2026 back to a more typical long-term pace of around 4% a year.

State and Local Spending Growth by Industry

2025 Should see Further Growth in 10 Identified Hotspots

Our 2025 free report 10 Hotspots in SLED Government Contracting examines each of the following niche types of products and services showing much higher recent demand in 2024 versus 2023 based on the number of competitive opportunities:

• Accelerating AI expansion (up 137%)
• Enhancing disaster preparedness (up 31%)
• Mastering outreach and engagement (up 24%)
• Providing comprehensive community support (up 20%)
• Pioneering energy efficiency (up 17%)
• Navigating financial currents (up 15%)
• Advancing fire detection and control (up 15%)
• Maintaining water utilities (up 11%)
• Maximizing fleet longevity (up 10%)

To summarize, the SLED market appears healthy right now at a time of greater uncertainty. Our overall 2025-26 forecast for RFP opportunity volumes points to a stabilization this year following a proactive slowing last year due to the phasing out of ARPA stimulus. These reductions in the number of purchases have led to the slight slowing in the growth rate of dollars seen in the chart featured earlier (ending in 3.6% year-over-year for Q1). But higher pockets of growth certainly exist in the form of our top Hotspots and noted strength in certain major industry groups for Q1 2025.

We encourage companies that are currently more federally focused to consider the potential in this market to help diversify their footprint and grow their total government revenues. Our articles, reports, webinars and resources (such as our SLED 101 guide) can help.