Survey: Expect anemic spending growth through 2017
- By David Hubler
- Oct 18, 2011
The federal IT market will remain flat or decline slightly during the next five years, constricted by government austerity legislation and curtailed agency budgets, according to a new survey from the TechAmerica Foundation.
The survey’s total IT market forecast predicts IT spending will increase from $81.2 billion in fiscal 2012 to $85.7 billion in 2017, for a compound annual growth rate of just 1.1 percent.
Civilian agencies’ IT spending will largely remain flat at $42.7 billion in fiscal 2012, increasing during the next five years to $46.8 billion, effectively a 1.9 percent growth rate.
Defense Department IT spending will reach $38 billion in fiscal 2012 and then decline to $35 billion by fiscal 2017. In terms of constant dollars, that’s a 0.9 percent decline.
The release of the TechAmerica Foundation annual forecast coincided with the two-day TechAmerica 2011 Vision Conference Oct. 19-20.
The survey involved more than 200 senior industry experts from 90 companies and more than 300 meetings with key government executives, think tank experts and congressional staff.
“Although IT will be leveraged to streamline government operations, increase productivity and achieve cost-savings, upward pressure on IT spending will be counteracted by cost containment strategies and strategic sourcing,” the survey said.
TechAmerica Foundation spokesman Dan Heinemeier said debt reduction politics is dominating the federal spending debate.
Heinemeier said four budget scenarios were developed for the forecast; the most likely one being congressional agreement on a $2.1 trillion in deficit reduction.
“This means we would avoid full sequestration,” he said. “It means that discretionary spending would fall about a third of the way between the initial [Budget Control Act of 2011] caps, which is $900 billion, and sequestration.”
Robert Haas, another TechAmerica Foundation spokesman, said the two main areas affecting federal IT spending are, one, the budget deficit and entitlement programs, and, two, budgetary pressures from aging systems, the demand for increased efficiency, workforce challenges, and regulations and Executive Orders.
“The upward pressure on IT spending is counteracted by cost containment strategies and strategic sourcing," Haas said. "That really leads us to a flat IT budget over the next number of years with a growth rate of a lackluster 1.1 percent overall."
As a result of their budget cuts, agencies must pick and choose their IT funding winners even as cybersecurity remains a challenge for many of them, he continued.
The bottom line is that the civilian agencies are looking for technologies that are both going to cut costs and improve operations, Haas said.
The survey added that less DOD investment will mean fewer program starts and smaller programs with cybersecurity, one of the few areas that should remain well-funded.
“The real challenge with the defense market growing at such a slow pace over the forecast term is that [DOD agencies] are really going to lose purchasing power over that time to inflation,” Haas said. “There’s a real chance that they start losing the ability to purchase as much as they did in the current year," he added.
“There are still clearly challenges,” Haas said, but noted that there are also some emerging opportunities, including the need for consolidation, helping agencies and departments to migrate to shared services, such as cloud computing and data centers.
Also, there are new technology capabilities around wireless and mobile.
In addition, legislative requirements of the Affordable Care Act and the Financial Reform Act are mandating that new IT systems be in place by 2013.