Input: State and local IT spending on the rebound

An explosive demand for outsourced technical services will drive profound increases in state and local IT spending over the next five years, according to a forecast released today by the market research firm Input Inc., Reston, Va.

State and local spending is expected to grow by 45 percent over the next five years from $48 billion in fiscal 2005 to $70 billion by fiscal 2010, Input said at its "MarketView 2005 Conference" in Falls Church, Va.

The state and local market will experience moderate growth in IT investments this year and through fiscal 2006, the forecast report said. Beginning in 2007, the need for outsourced IT services, primarily caused by increased employee retirements, will drive increased spending through 2010.

The state and local market under went a turnaround last year following its largest gap in 30 years between tax revenues and the gross domestic product, said James Krouse, Input's manager of state and local market analysis.

"Although revenue continues to exceed expectations, state and local government agencies will remain cautious in their spending through fiscal 2006 as they work to strengthen their financial reserves and improve their economic position," he said.

The leading market segment in state and local IT spending will continue to be professional services, followed by telecommunications and networks. Input expects in 2008 that the market will grow by as much as 15 percent, mostly due to the depletion of experienced government technical workers.

Growth in the telecommunications and network segment will continue to be driven by initiatives for advanced interoperable communications systems for coordinating law enforcement, border security and homeland security.

Krouse suggested that vendors need to be patient for the next couple of years as the market grows at a respectable, but still moderate rate while agencies work in a risk-averse mode. Then, they can reap substantial new business.

"In about three years, we will see that trend end as state and local agencies are forced to find outside expertise to replace a retiring workforce. The only choice many of these agencies will have will be to outsource non-competencies, such as IT services, which will open vast opportunities to IT contractors," he said.