Borrell Associates Inc. just published a report looking at the increase in online local advertising over the last two years. In 2005, local paid search amounted to $420 million and 5.6% of all sponsored links on the major search engines. This year, the amount is predicted to be over $1 billion with 33% of sponsored links being paid by local advertisers.

Are companies just spending more money online through local paid search or are they reapportioning their budgets? Ask the newspapers, magazines, and other traditional medias and they’ll tell you about their shrinking budgets firsthand. Why do they spend money on local advertising? One reason: It works.

Another report by Borrell polled 2,466 local media websites to benchmark their revenue models, expenses, and overall sales activities as they strive to get their piece of the $1 billion pie. While the major portals like Google and Yahoo have done a good job of incorporating local content to get closer to the consumer, they are still relying on databases, paid feeds, and geo-spacial coordinates to ‘look local’.

This should be a shot in the arm to all local portal owner/operators. In the short-term, go ahead and sign up for Google’s AdSense program to capture some revenues from your traffic. You’ll be a little disappointed with the revenues and lack of reporting, but it is a good supplement to your revenue model until you can get all your slots sold on your own.