Federal approach to IT spurs growth, researcher says

The government's push toward homeland security and e-government, combined with a businesslike approach to project spending, is driving the federal IT market, according to the chief of a federal market research firm.

Jim Kane, president and chief executive officer of Federal Sources Inc., said an increase in IT spending also bodes well for the market. "We continue to see this as a very strong market," Kane said at Federal Source's 18th annual Federal Outlook Conference in McLean, Va.

In fiscal 2003, total government IT spending from its discretionary budget increased by 6.7 percent, from $49.8 billion to $58.1 billion. In the fiscal 2004 budget, it jumps 7.2 percent to $59.3 billion. Kane said that a half-percentage-point increase in annual spending growth represents "a shift of national priority toward IT."

"This will continue to drive spending over the next 12 to 24 months," he said.

A lot of the emphasis on IT is spurred by the creation of the Homeland Security Department, which showed above-average increases in its IT budget and on IT spending from its discretionary budget, Kane said.

But he also cautioned that while that department offers IT growth, only about $500 million is newly allotted money. "A lot of that ? is a transfer of funds from other departments as opposed to real new money," he said.

Another factor in the IT market is the new emphasis on results-oriented business cases?a trend spearheaded by the Office of Management and Budget, which Kane called "the most dominant market driver" for prioritizing government IT investments.

By leaning more heavily on principles such as modernization, consolidation and performance, OMB is taking the federal government into territory previously conquered by the private sector, Kane said.

Speaking about a recent government briefing he attended, he said, "We never heard the word spending or budget. We heard the word investment, investment, investment."

"The corporate mind-set has been increasingly institutionalized in this marketplace," he said.

Last year's Homeland Security Act and E-Government Act could push the government more in that direction in the near future. "They will really drive an awful lot of how we look at the market three to five years from now," Kane said.