Scattered budget forecast

Overall growth flattens, but security, health IT and defense sparkle

The Army's IT budget is expected to be $7.5 billion in fiscal 2007, about 6 percent of its overall budget, said Gary Winkler, the Army's director of governance acquisition.

Rick Steele

Federal IT spending over the next year will not increase much, but a slight bump-up will bring opportunities in some key areas.

The Office of Management and Budget's revised IT budget request of $63.8 billion for fiscal 2007, issued in March, is only 0.5 percent, or $316 million, more than the $63.5 billion enacted federal IT budget for fiscal 2006, according to Input Inc.'s annual government IT forecast.

The federal budget has "very flat growth" this year, said James Krouse, Input's acting director of public sector market analysis. Krouse delivered the firm's annual five-year IT forecast March 27 at a conference in Falls Church, Va.

"In relative terms, taking inflation into account, you could almost say this is a downturn," he said.

Downturn or not, opportunities can still be found over the next year in OMB's lines of business, IT security, homeland security, health IT and defense transformation, he said.

Wind beneath the wings

OMB's influence on agencies' spending and its continued emphasis on improving performance constitute a major force driving the federal IT market. OMB in recent years has stepped up its scrutiny of agencies' business cases and will continue to do so in the years ahead, Krouse said.

"We need to look at the investments we make in IT. ? We spend as much as anybody in the world on IT," said Robert Shea, counselor to the deputy director for management at OMB, speaking at the conference. "We ought to be as good at buying IT as anyone, and we're not."

For every investment, agencies should explain to OMB how that innovation, system or project will help the program it is to serve, Shea said. OMB has set up the ExpectMore.gov Web site to pinpoint what it sees as the weaknesses in agencies' business cases, he said.

Input builds its forecast mainly on OMB Circular A-11, Exhibit 53 reports, which are based on the business cases for IT spending that each federal agency submits. Although not much work has come from the lines of business, OMB has added three new ones: geospatial data, infrastructure and budget formulation, which may add to the mix of opportunities.

Despite heavier scrutiny, agencies that develop a business case and support it will get funding, Krouse said. The Housing and Urban Development Department, for instance, gained by 15.5 percent in its budget request.
"The interesting thing about the HUD case is that every one of its business cases were approved, and in the words of OMB, there were virtually no cost overruns and virtually no project management overruns," he said. "It drives home the reality that results will steer the future for the agency-by-agency budget request."

Additionally, Krouse said, "in OMB's review of the business cases, IT security will be given more weight."

The Homeland Security Department will have the biggest budget increase, a whopping 21 percent, Krouse said.

"Any time you're talking about a federal budget, and you're seeing double-digit growth [in a department], it is noteworthy," he said.

IT spending activity for homeland security at federal, state and local levels will pick up this fiscal year, because sufficient funding means projects will have to get under way, Input said.

Follow the leader

The big jump in DHS' IT budget is the main reason the overall federal civilian IT budget will leap to $26.6 billion in 2007 from $25.3 billion, Krouse said. With a 5.1 percent compound annual growth rate over the next five years, the civilian IT budget will reach $32.4 billion in 2011.

DHS has made progress with big IT projects such as the U.S. Visitor and Immigrant Status Indicator System and creating an architecture for nuclear detection.

But government appropriators must ensure that smaller IT projects that are not as visible and political, including Eagle, Homeland Secure Data Network, Homeland Security Information Network and Integrated Wireless Network, don't get lost among the competing priorities, said Michelle Mrdeza, majority clerk for the House Appropriations Committee's subcommittee on homeland security, and a speaker at the conference.

"When you put these projects and activities together, they are the backbone of DHS, and ultimately, they're going to make or break DHS," she said.

The department's IT projects will consume about $6 billion in resources for fiscal 2006; an additional $4.1 billion has been proposed for fiscal 2007, she said.

"For good or bad, these programs do not get much attention from appropriators or from Congress," Mrdeza said. "What gets our attention are those efforts associated with major policy issues," such as Registered Traveler, U.S. Visit and the Secure Border Initiative, she said. "In some ways, it's unfortunate. I sincerely do believe that IT is the backbone of DHS."

As advocated by President Bush in his January State of the Union speech, health IT is another area of opportunity. Agencies will look for ways to share medical information, increase operating efficiencies and reduce fraud and abuse.

"We're not quite sure what health IT is at this point, but it is definitely surrounding the dissemination of information and the need to drive efficiencies in programs ? not just Medicare, but Medicaid and the integration with the states," Input's Krouse said.

With only a few initiatives on the table, industry can expect to see task orders added to contracts in this area, he said.

Defense transformation will continue to offer opportunities and to get the necessary dollars it needs for IT spending, Krouse said.

The defense portion of the IT budget is down slightly to $23.4 billion in 2007 from $24.1 billion in fiscal 2006, according to Input. During the next five years, it will grow to $29.8 billion with a compound annual growth rate of 4.3 percent.

The Army's IT budget is expected to be $7.5 billion in fiscal 2007, about 6 percent of its overall budget of $111.1 billion, said Gary Winkler, director of the Army's governance acquisition and chief knowledge officer, speaking at the conference. This is an increase of more than 22 percent over the IT budget for fiscal 2006, he said.

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

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