Fed IT Spending Prospects Dimmer This Year

The twin effects of a general economic slowdown and the change in administration have clouded business prospects for government information technology companies in the upcoming fiscal year.

The Bush administration, which has proposed a 2002 federal budget that increases IT spending just 1 percent over this year's expenditures, is sending mixed signals about its support for electronic government and other technology initiatives, said industry officials.

For example, although the ad-ministration has said it wants to beef up information security, "there are some real questions whether the dollars are there to match the rhetoric," said Harris Miller, president of the Information Technology Association of America, Arlington, Va.

The president views tax cuts, not technology, as a top priority, Miller said.

Adding to the uncertainty about federal IT spending, the secretary of Defense has initiated a strategic review of the military, which could alter dramatically the budget sent in April by the administration to Congress.

But Dan Chenok of the Office of Management and Budget has noted that federal spending on information technology has exceeded budgetary levels for the past two years.

In fiscal 2000, the government planned to spend $34.2 billion but actually spent $41.2 billion; for fiscal 2001, the budget was set at $39.7 billion, but expenditures to date indicate the government will spend about $44.4 billion, said Chenok, the branch chief for information policy and technology in OMB's Office of Information and Regulatory Affairs.

While many industry and government officials are hopeful the president's proposed IT budget of $44.8 billion for 2002 will experience similar increases, they foresee greater competition among IT companies scrambling for scarce government dollars.

"This is going to be a tough year," said Jim Kane, president of Federal Sources Inc., McLean, Va. "From the standpoint of the budget [and] because of the slowdown, we see increased price competition, while differentiation is more of a challenge."

Kane, Chenok and Miller offered their views at a May 10 conference examining upcoming trends in government IT. The conference, Federal Outlook 2002, was sponsored by Federal Sources, a research and consulting firm.

The federal IT market will be driven more by administration policy than by legislative initiatives in the upcoming year, said Kane. He cited directives issued by Mitch Daniels, the new OMB director, calling for more accurate and easy-to-use inventories of federal employees under the Federal Activities Inventory Reform Act and the streamlining of the A-76 public-private competitive process. The General Accounting Office also has formed the Commercial Activities Panel to review outsourcing policies and practices.

After the conference, Kane said he wouldn't be surprised if new budget numbers for defense spending are not available until at least July, but he downplayed any significance in the lack of detailed information about the Pentagon's plans. "There's a lot of stuff already in place," he said.

The president's defense budget for 2002 proposes a lump sum of $21.5 billion for IT, just under current spending levels.