How DOGE Is Pushing the State and Local Gov Tech Market

In my most recent quarterly M&A roundup, I alluded to how the Department of Government Efficiency (DOGE) has become the topic of conversation among buyers and investors in 2025 as they evaluate gov tech businesses. The topic has been inescapable — regardless of whether a gov tech business is serving the federal, state or local markets, or public admin, public safety or education. While only time will tell what the actual impact will be, we have developed a few perspectives on its potential effect on the state and local market.

Our view is that, over the long term, DOGE will likely be a good thing specifically for the state and local market, as it will require technology to play a larger role (although it is a very different story in certain pockets of the federal market, at least in the near term).
To oversimplify, our view comes down to basic supply and demand. The demand for constituent services continues to correlate with population, GDP, CPI and other metrics that consistently grow year over year. The trend on the supply side — the government employees tasked with providing services — is a much different story. In the last 20 years, there have been consistent headlines about the “aging out” of the government workforce, as many employees are retiring at a rate faster than they can be replaced. Virtually every gov tech operator will point to that as a trend underlying growth in their market, and you see the impact in everyday life and across government — waiting in line at the DMV, waiting weeks to get a permit issued, being on hold trying to get a question answered by city staff — the list goes on.

Technology has filled that gap, enabling governments to do “more with less” through process automation and operational efficiency. Given the human capital reductions associated with DOGE, we believe it will only exacerbate that trend and continue to accelerate the digital transformation of government that we saw post-COVID.

We also believe the value proposition of technology will compound as gov tech businesses continue to embrace AI, which is acting as a force multiplier for efficiency gains (example: AI-focused chatbots that deflect significant call volume for constituents seeking information). Finally, and perhaps most importantly, we are yet to hear a gov tech operator at the state and local level point to a slowdown in their business because of DOGE — in contrast, many believe it will be yet another long-term tailwind.

While we are optimistic about the long-term impact on the state and local market, it is not to say it is completely insulated. The primary impact we see in the near term is the “inspiration” DOGE has sparked in certain states, where more than half have formed their own state-level DOGE task forces. While we do not see it impacting technology spending per se, the corresponding uncertainty for massive state-level contracts could see some slowdown.

That same inspiration may also have government procurement officers place incrementally more scrutiny on contracts. Some segments have been in DOGE’s crosshairs more than others, particularly education and health and human services, where some operators have seen an impact given the massive changes that are trickling down all the way to the local level.

Our net posture on DOGE is that it will be a good thing for the state and local market, and we remain optimistic it will fuel many of the long-term trends that have driven modernization across every corner of the gov tech landscape.