Bush gives smallest IT funding boost in years

President Bush's lower-than-expected request for technology spending in 2005 has put contractors on notice that the government market will become even more competitive in the months ahead.

The president's $59.8 billion budget request for information technology is up just $671 million from his request of $59.1 billion for 2004, a 1 percent increase. The White House released the fiscal 2005 request Feb. 2.

Analysts anticipated a moderate increase this year, but "this is much more moderation than we were expecting," said Payton Smith, manager of federal market analysis services at Input Inc. of Reston, Va., an IT market research firm. Input had predicted a $62 billion IT budget for 2005.

For the past eight years, actual IT spending has exceeded the president's request by about 13 percent per year because Congress has appropriated more money than requested, Smith said.

However, that changed in 2004. Estimated 2004 spending is less than the president's budget request, and now the White House is asking for a small jump in 2005.

Many commercial IT contractors have jumped into the federal market to take advantage of the robust budget increases in recent years, so more companies now will be fighting over fewer new IT projects, analysts said.

"The market will be much more competitive, much more challenging," said Jim Kane, president and chief executive officer of the Software Productivity Consortium, a Herndon, Va., nonprofit organization that develops processes and tools to help companies build high-quality software.

To be more competitive, Kane said federal IT contractors might acquire capabilities and customers through mergers and acquisitions at a rate on pace with recent years.

While companies with strong technical expertise still will be attractive no matter what their size, many midtier companies -- those under $1 billion in annual revenue -- will have to bulk up in order to continue winning contracts, Kane said.

Bush's total budget request of $2.4 trillion significantly increases funding for security-related efforts but dramatically cuts discretionary spending unrelated to security.

The budget holds total discretionary spending to a 3.9 percent increase, while Defense Department spending jumps 7 percent, and homeland security spending rises 10 percent.

Non-defense and non-homeland security spending will increase 0.5 percent, less than the rate of inflation, said Joshua Bolten, director of the Office of Management and Budget.

The president's priorities are reflected in technology-heavy projects at the Homeland Security Department, among other agencies.

For example, the department got more than $890 million, a 20 percent increase, to support aviation security and other transportation security initiatives, including funds to improve integration of explosive detection system equipment into baggage processing.

The department also received $864 million for national infrastructure protection activities, including cybersecurity, an amount that has increased sevenfold since Sept. 11, 2001, according to budget documents.

Analysts said they were surprised, but not alarmed, at the small overall increase in IT spending. The government is getting beyond "crisis-mode spending" that occurred preparing for the conversion to the year 2000 and after the terrorist attacks of Sept. 11, so a reduction in the growth rate was warranted, Smith said.

The decrease also reflects the IT management policies put in place by Mark Forman, former administrator of e-government and IT. His successor, Karen Evans, is "carrying the torch," said Ray Bjorklund, senior vice president at Federal Sources Inc., a McLean, Va., IT market research firm.

Those policies require agencies to devise business cases that justify spending on each IT project. Agencies also must participate in cross-agency e-government initiatives to eliminate redundant systems; and agencies must build IT security into systems, not add it afterward. These policies result in less spending by agencies on unnecessary technology, analysts said.

In addition, the Program Assessment Rating Tool, first used in preparation of the 2004 budget request, was implemented more extensively this year, government IT experts said.

The PART assesses projects' purpose and design, strategic planning, management and results and accountability. Programs that don't get adequate results may get more funding to spur improvement, or they may lose funding.

"This is probably the first year where [OMB had] decent integration between IT spending and the results of the PART analysis," said Forman, now an executive vice president at Cassatt Corp. in San Jose, Calif. "It was a much more disciplined and results-focused budget cycle than we have ever seen." *

Senior Editor Nick Wakeman and Government Computer News Staff Writer Jason Miller contributed to this story. Staff Writer Gail Repsher Emery can be reached at gemery@postnewsweektech.com.

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