SLOW growth ahead

Spending on anti-terror efforts, Katrina relief drags down IT dollars

The expansion of the federal IT budget is expected to slow over the next five years, with the growth rate dropping below 3 percent, according to the Government Electronics and IT Association's annual forecast.

Contractors can expect federal IT spending to grow from $64.7 billion in fiscal 2006 to $74.4 billion in fiscal 2011 ? an average annual growth rate of 2.9 percent. Last year's predicted annual growth rate was 3.6 percent.

Overall, the lower growth rate is the result of government's move toward greater efficiency and consolidation and its need to cut costs, according to GEIA, which represents companies that offer technology solutions to the federal government.

To cover the expense of funding the global war on terror, homeland security programs and the estimated $200 billion for relief efforts and rebuilding after Hurricane Katrina, government likely will cut programs in their discretionary and IT budgets.

Katrina "will certainly have an impact on the budget and the deficit in the near term," said Mary Freeman, director of business development for the federal unit of Verizon Communications Inc. of New York, who presented the findings of the team that researched the IT budget forecast.

GEIA based its forecast on the Office of Management and Budget Circular A-11, Section 53, the Defense Department IT-1 Report, GEIA forecast databases, interviews with government officials and procurement data from market research firm Eagle Eye Inc. of Fairfax, Va. The group uses OMB's definition of IT, which includes computers, ancillary equipment, software, firmware and similar procedures, services and related resources.

The trade group released its forecast at its yearly conference, held Oct. 26-27 in Falls Church, Va.

Slicing up the pie

Of the $2.5 trillion President Bush has requested for fiscal 2006, about 57 percent will go for mandatory spending programs, 8 percent for interest on the debt and the other 35 percent for discretionary spending, from which IT outlays are taken, Freeman said. Of that 35 percent, $870 billion of discretionary funds, about 7.5 percent will be spent for IT.

The federal civilian IT budget will grow by only 2.8 percent to $39.6 billion in fiscal 2011, up from an expected $34.6 billion in fiscal 2006, according to GEIA's forecast.

Key civilian agencies also will see modest growth in their IT spending during the five-year forecast period, GEIA said. The Health and Human Services Department's IT spending will increase by 3.3 percent; Homeland Security Department by 3.1 percent; NASA by 2.3 percent; Justice Department by 2.8 percent; Treasury Department by 2.6 percent and Veterans Affairs Department by 4.5 percent.

In general, with the civilian agencies, "the priorities continue to be the consolidation of redundant systems across agency initiatives and the elimination of legacy systems," Freeman said.
Maintaining IT systems and capabilities absorbs the bulk of IT dollars at most agencies, except for DHS "where more of the budget is actually development and modernization," Freeman said.

Some civilian agencies have big IT programs in progress or coming up for requests for proposals. The General Services Administration has several multibillion-dollar telecom and IT-related contracts on its agenda, including the $20 billion Networx telecom and networks contract, the $50 billion Alliant IT contract, the $15 billion Alliant small-business contract and the $1.8 billion Washington Interagency Telecommunications System 3 program, a follow-on contract for local telecommunications services in the Washington metropolitan area.

Billion-dollar contracts at Veterans Affairs include the Procurement of Hardware and Software, a follow-on deal worth $1.3 billion, and the Global Information Technology Support Services contract, which has a $3 billion ceiling.

Treasury will hold recompetes for its $1 billion Treasury Communications Enterprise contract and its $3 billion Total Information Processing Support Services contract.

What's hot

Technologies that will be in demand in the civilian agencies over the next few years include voice over IP, wireless, radio frequency identification technology, cybersecurity, IPv6, bioinformatics, patch management and service-oriented architecture.

Some agencies require specific technologies, such as health care IT at Health and Human Services, which must create a system for electronic health records, and records and health care system security. Future business opportunities at that agency may be found with employee smart cards, IT security products and bioinformatics and biosurveillance technologies.

Health care IT is "just the thing to talk about these days," said Todd Pantezzi of Pearson Government Solutions Inc., Arlington, Va.

Health and Human Services' IT budget will be $5.3 billion in fiscal 2006, according to GEIA, with 69 percent for ongoing projects and 31 percent for development and modernization programs.

Other civilian departments, such as DHS, will continue to focus on consolidating various agency systems to reduce IT expenditures as one of their priorities.
DHS will have about $6.3 billion in its IT budget in fiscal 2006, 55 percent of which will be designated for development, modernization and enhancements, and the remaining 45 percent for ongoing IT projects, according to GEIA.

Hurricane Katrina relief likely will result in additional IT dollars for DHS and a reorganization of how the money is spent, reflecting a greater need for emergency communications systems.

For the department's mission to strengthen border security, $1 billion of the 2006 budget request has been earmarked for the ongoing Electronic Baggage Screening Program, although it's not clear that Congress will appropriate the entire amount.

After years of growth, defense spending is slowing. The federal defense IT budget is expected to come in at $30.1 billion in fiscal 2006, and will grow by 3 percent during the five-year period to $34.8 billion. IT spending accounts for roughly 7 percent of the total Defense Department budget.

The war on terror, security and infrastructure upgrade requirements are pushing IT spending at the Defense Department.

Most appropriations bills for fiscal 2006 had not yet been passed by Congress when GEIA issued its figures.

"But I would say to you that $75 billion, or more than 7 percent of the total discretionary budget, is a very large and very vital market for us to go after," Freeman said.

Staff Writer Roseanne Gerin can be reached at rgerin@postnewsweektech.com.

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