State and local governments scale back IT spending

State and local governments might slash as much as $30 billion from their cumulative spending on information technology services over the next five years, according to market research firm Input Inc.

The cost-cutting moves come as state and local governments struggle to raise $250 billion in new revenue and spending cuts to stabilize budgets to levels that preceded the economic crisis.

As a result, Input estimates the compound annual growth rate for state and local IT market will drop to 4.3 percent, which is down from the 6.4 percent the firm projected last June.

State and local governments at this time are holding back many IT projects, said Chris Dixon, Input’s manager of state and local industry analysis.

“Right now, this market needs federal fiscal relief for state Medicaid and unemployment funds to break the cycle of reactive policymaking. Then, it needs the credit markets to loosen up so states and localities can sell bonds to fund capital projects, including major IT systems,” he said.

Thirty-seven states and the District of Columbia are facing collective mid-fiscal-year shortfalls of $32.1 billion, Input reported. Ten states with individual deficits of about $1 billion or more likely will account for $22.5 billion of that total.

The silver lining is that state and local governments often rely on new or proven IT solutions to help them increase revenues and cut spending, Dixon said. He expects the state and local IT sector to regain traction in 2010-2011.

“Elected officials will start to look for radical operational consolidation, which will lead them back to IT,” he said.