Feds pull back on technology spending

Like Jack's beanstalk, the federal technology budget has kept growing and growing, but that growth is showing signs of slowing down.

Instead of enjoying spending growth in the 8 percent to 10 percent range as over the past few years, contractors will see growth drop to the 4 percent to 5 percent range, said Payton Smith, director of federal market analysis at Input Inc., Reston, Va.

The total federal IT budget will increase by 29 percent from $70.7 billion in fiscal 2005 to $91.4 billion in fiscal 2010, according to Input's market forecast released last month. This increases amounts to a compound annual growth rate of 5.3 percent during the forecast period.

The contracted portion of the federal IT budget will hit $78.6 billion in fiscal 2010, up 33 percent from $59 billion in fiscal 2005, which translates into a compound annual growth rate of 5.9 percent during the forecast period.

Input based its forecast on Office of Management and Budget Exhibit 53 reports, the defense appropriations report, the president's budget and its own opportunities database.

The mounting budget deficit is just one factor that has moderated Input's growth expectations, Smith said. In the 1990s, he said, the deficit was reduced by cutting government workers to drive down personnel expenses. At the same time, the IT budget rose as agencies compensated for the lost people by investing heavily in technology to automate functions.

"I don't think the same thing will happen this year," Smith said, noting that agencies already have scaled back staff while investing heavily in IT. OMB is concerned with targeting spending redundancies and freeing resources or achieving savings by having agencies work on collaborative IT solutions, Smith said.

"That said, I don't think that agencies are necessarily going to solve the deficit issue by cutting IT spending," Smith said. "But I do think they're going to have fewer resources to work with going forward. ... So the [IT] spending is going to flatten out, because the agencies are looking for ways to reduce their overall spending."

Homeland security, which has fueled federal technology spending in past years, will taper off and remain a primary driver for only one more year, according to Input.

Defense transformation, another factor that has driven spending in recent years, will be around for the next five years, if not longer, Smith said. The Defense Department has a much longer-term strategy for its transformation, whereas homeland security never really was a strategy, he said.

"It was a reaction and more of a response to an immediate urgency," Smith said.

OMB, which helps the president develop and implement the federal budget, will remain another catalyst of government IT spending, with an emphasis on security, enterprise architecture and e-government, according to Input. OMB wants to make sure that agencies consider the business lines they support and ensure that they mesh with the federal enterprise architecture.

"That not only changes the way that agencies think about how they budget for technology and how they're pursuing projects, but it also gives OMB the flexibility to start looking for redundancies across lines of business, and driving for cross-departmental collaboration within specific lines of business," Smith said.

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