Agency IT Spending Has Ups and Downs
By Robert Deller
The Office of Management and Budget recently reported that information technology spending levels in the federal government will not increase between fiscal years 1997 and 1998.
Growth rates for the federal government have actually remained fairly flat for the past three years. Indeed, the federal government reported only marginal growth - from $25.3 billion to $26 billion from the 1995 to 1997 budgets. When agencies submit their expected IT spending levels for fiscal 1998, they also report actual IT spending for fiscal 1996. For those who follow these numbers from year to year, government as a whole is fairly consistent in its estimates of IT costs.
As an example, in its fiscal 1997 budget, government estimated total IT expenditures for fiscal 1996 of $25.8 billion. In its fiscal 1998 budget, the government reported less than a 1 percent variation from this amount as actual spending for fiscal 1996. This lack of variation does nothing to cause excitement. From a trend perspective, the government has been spending slightly less than estimated each year since fiscal 1994. This reduction reflects the reduced spending called for in the budget reduction act of 1993.
But the picture of total government spending is misleading. By examining individual agency plans, business development managers of IT companies can find contract and sales opportunities at deeper levels of estimated spending. Sufficient variation exists at the agency level to suggest that this market is constantly changing. New business opportunities occur as dollars move from one agency budget to another and from one budget category to another.
Consider the accompanying illustration of IT budget levels estimated for fiscal '96 and the actual levels reported for fiscal '96 in the fiscal '98 budget. Two significant issues arise. First, of the 15 civilian agencies represented, only two show no variation (less than 1 percent) between estimated and actual IT spending. Second, spending advances and declines are not consistent with the program priorities established by President Bill Clinton in his "Budget of the U.S. Government, Fiscal Year 1997."
Science and Technology, represented primarily by NASA among the civilian agencies, and Health Care, represented by Health and Human Services and Veterans Affairs among the civilian agencies, show growth consistent with the president's campaign promises.
Declines in IT spending for agencies primarily responsible for law enforcement (Justice 7%), education (Education 8%) and environment (EPA 29%) are inconsistent with the president's campaign promises. One interpretation is that IT support will not be procured to support these programs.
More specific guidance is available at the IT budget component level. For the agencies shown above, a 7 percent reduction from estimated spending levels was reported by the agencies for capital items. This includes equipment and commercial software.
An 11 percent increase over estimated spending was reported for commercial services. Product suppliers probably noticed this negative variation. But, variation also existed between hardware and software products. Hardware products spending increased 11 percent over estimates, while software product spending declined 4 percent.
With functional improvements in price performance for commercial products, this does not necessarily mean that agencies are buying fewer products. Furthermore, with increased labor costs, increases in commercial services may not indicate more services were obtained. Each of these issues requires analysis at the program level.
Examination of the federal IT budget at the aggregate level will miss where the spending action occurs. Not only does wide variation take place at the agency level, variation also occurs at the budget component level.
Robert Deller is an industry analyst with Global Systems & Strategies Inc., Vienna, Va. He can be reached at email@example.com.
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