Input: Quest for efficiency drives state, local spending

A tight fiscal environment at the state and local government levels means contractors looking for work in those sectors need to focus on projects that will produce savings customers can redirect toward priority areas, according to a new study from Input Inc.

The Reston, Va., market research firm found that demographic pressures are forcing states and localities to seek new administrative efficiencies to redirect money toward priority areas.

"Tight budgets will mean less tolerance for speculative [information technology] investments with savings that cannot be captured and reallocated toward bread-and-butter services in education, public safety, infrastructure and health care," said Chris Dixon, Input's manager of state and local industry analysis.

The state and local government IT market is expected to grow at a compound annual rate of 6.8 percent from $48.4 billion in 2008 to $64.9 billion in 2013, according to Input.

The research firm estimated that professional services and outsourcing will fuel 48 percent of the market's $16.5 billion in growth during the next five years as state and local governments move to automate manual processes, augment staffing and take advantage of private-sector competencies.

Moreover, Input said it expects tight budgets to put further pressure on hardware investments as state and local customers consolidate IT infrastructure in an effort to eliminate duplicative spending. This will translate into tighter relationships among hardware manufacturers, value-added resellers and the major systems integrators helping governments identify savings and map out technology solutions. In cases where major implementations are not required, customers will increasingly look toward hosted software options.

"In the past, many agencies have been leery of purchasing software that does not reside on their servers," Dixon said. "Elected officials will have less tolerance for that now. Savvy vendors in all verticals will have hosted, turnkey options that will help them get in the door at a low price. Then, when budgets loosen up down the road, they will be well-positioned to implement more robust or customized interfaces when necessary."