The U.S. government used to be the ultimate customer for some American companies—consistent, deep-pocketed and faithful to its contracts. Now its deep pockets have holes.
Among investors and executives alike, the recent debt-ceiling deal is regarded as the first step in a spending pullback that will reverberate across many industries, including health care, defense, technology and education.
The $917 billion in spending reductions over 10 years stipulated in the first phase of budget-cutting is just a fraction of what the government would have spent. Still, executives like health-care executive Michael Dowling are bracing for a period of belt-tightening that will impact their industries.
“If anyone in this business thinks there won’t be further reductions, then they’re not facing reality,” said Mr. Dowling, chief executive of North Shore-Long Island Jewish Health System in New York. He is already looking for ways to offset reduced government payments, by providing care outside costly hospital settings, at nursing homes, in ambulatory-care centers or even in patients’ homes, and by making sure patients weren’t getting services they didn’t need.
Last year, contractors received a total of $773 billion in awards from the federal government, according to Deltek Inc., which advises government suppliers. But companies shouldn’t expect the government to provide “the revenue they enjoyed over the last decade, when there was a run-up in spending,” said Ray Bjorklund, Deltek’s chief knowledge officer.
“The days of Uncle Sugar being a wonderful source of revenue” and revenue growth are “at risk,” he added.
Companies large and small, meanwhile, benefit from government spending and tax credits that subsidize everything from energy-efficient windows to developing electric vehicles.
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