President Trump’s directives to reduce the size of the federal workforce, require agencies to operate with fewer employees and impose future hiring restrictions will have downstream impacts on state budgets and regulations. Streamlining government operations will likely have significant effects on states and localities that rely on federal agencies for funding, approvals, and a variety of technical assistance. Some agencies have already implemented layoffs, and further reductions are expected in the coming months. These reductions could cause delays in federal contracting and funding approvals, with fewer federal employees handling contracts, grants, and project approvals. As a result, state agencies may experience longer wait times for essential funding and agreements.

Several states have made moves to hire laid off federal workers to try and ease the impact. Maryland and Virginia both held job fairs for unemployed former federal employees as they try to limit the potential downstream economic effects. Additionally, Pennsylvania Gov. Josh Shapiro (D-PA) signed an executive order to streamline the process for state government agencies to hire federal workers to fill 5,600 vacant state government positions. The downsizing of federal government will have impacts on several core functions of government at all levels, including procurement and permitting, and businesses that deal with state and local governments need to be aware of potential slowdowns and bottlenecks as the bureaucracy adjusts to a new normal.