Steady Spending Ahead for Civilian Agencies

By Nick Wakeman Staff Writer

The purchase of information technology products and services by civilian agencies should see slow but steady growth in the coming five years, with NASA and the departments of Transportation and Treasury and among those who lead the way in spending, according to a new industry group study.

The Government Electronics and Information Technology Association, a part of the Electronics Industry Alliance, estimates that spending on information technology by all civilian agencies will grow (in constant dollars) from $17.8 billion in fiscal year 1999 to $18.1 billion in fiscal 2004.

The departments of Energy, Justice, Transportation and Treasury and NASA account for about half of the spending by civilian agencies. Their spending is expected to grow from $8.8 billion in 1999 to $9.2 billion in 2004.

But it has become more difficult to forecast where agencies will spend their money, said Mary Freeman, manager of market research for Bell Atlantic Federal in Washington, D.C. Freeman was in charge of the budget forecast committee for the GEIA study.

"The changes in the budget reporting make it much more difficult to compare budgets to past years," Freeman said.

Agencies no longer state how much they expect to spend on hardware, software and services, she said. Instead, agencies now report IT spending in the categories of mission area, infrastructure and office automation, and architecture and planning.

Most agencies place the bulk of their spending in the mission-area category. For example, the Department of Transportation reported that it expects to spend $1.9 billion of its IT budget in mission areas during fiscal year 2000, with $170 million going to infrastructure and office automation and $89 million going to architecture and planning.

One clear trend is that outsourcing and services are leading the growth, Freeman said. However, "what to outsource is going to be a difficult question for many agencies. All the easy stuff has already been outsourced," she said.

Industry officials expect the information collected under the Federal Activities Inventory Act of 1998 will give insight on what the government is looking to outsource, she said. The inventories are lists of non-governmental functions that agencies perform, and they should be available this month.

GEIA wrote its civilian market report based on budget documents and interviews with more than 200 individuals among 51 agencies and departments, as well as interviews of industry, Wall Street and legislative officials.

From those interviews, GEIA concluded that budget caps on discretionary spending are likely to collapse. While the caps may not be lifted outright, Congress is expected to find ways to circumvent them, Freeman said.

"Many are asking, 'With a surging economy, why can't the government spend more?' " she said.

Another issue the study pinpointed is that many agencies are expecting to lose substantial portions of their IT staffs in the coming years because of retirements. For example, the Treasury Department expects to lose half its IT staff in the next four to six years.

The GEIA study identified several major IT initiatives that should be coming to the forefront in the next year.

Among those are a $1.9 billion Federal Aviation Administration project to modernize its telecommunications infrastructure. The Department of Energy is working on a $540 million contract called the Accelerated Strategic Computing Initiative. The National Institutes of Health is working on the follow-on to its Chief Information Officer Services and Products contract, which could be worth $11 billion.

The GEIA study also found that the federal government has spent about $8 billion on year 2000 fixes so far. One impact of the year 2000 is that agencies have put off planning for major IT initiatives.

"We'll probably see more new programs in 2002 or 2003," Freeman said.