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7/20/2004
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Study: State And Local E-Government Spending Set For Rebound

Market-intelligence firm Input predicts spending will begin to rise next year and will reach $575 million by 2008.

The rapid spending on local and state government E-government initiatives that plateaued this year will begin to rise again next year, according to an analysis released Tuesday by market-intelligence firm Input. By 2008, Input predicts, local and state governments will double 2004 spending levels on E-government programs to $575 million. That's still below the record $650 million spent two years ago by nonfederal government agencies on E-government.

Growth in E-government spending over the next two years will moderate as governments exhaust opportunities to further broaden Web-site operations and engage consulting and research efforts to develop comprehensive plans for the next phase of E-government, according to the report, "State & Local E-Government MarketView."

"Phase One of state and local E-government has essentially topped out as governments have largely exhausted cost efficiency and revenue-generating Web solutions," says James Krouse, Input's manager of state and local market analysis. By 2006, Krouse sees systems operations dovetailing with wider IT market trends to outsource noncore government competencies. That, he says, will begin a succession of pronounced growth to achieve an estimated compound annual growth rate of 30% through 2007.

State and local government spending on E-government topped out at $650 million in 2002, but plummeted nearly 81% to $125 million this year as governments struggled to pay for all types of services as tax receipts and other revenue plunged. But with the economic recovery, spending on E-government projects will slowly bounce back over the next two years, to $150 million in 2005 and $175 million in 2006. Then, spending will quickly accelerate to $300 million in 2007 and $575 million in 2008.

Governments in the next phase of E-government-development will involve agency-to-agency process reviews, and the development of comprehensive plans to consolidate systems. "As governments complete plans and begin widespread integration and process improvement across agencies," Krouse says, "services will increasingly be tied to new, more fully interactive portals that will be automated for citizens."

Still, the report notes, nothing is guaranteed. Obstacles facing local and state governments are significant, including budget constraints, difficulty in producing measurable return-on-investment metrics, and jurisdictional turf wars where agencies must integrate operations. Yet, Input says, the combined factors will force slow and calculated expansion in the E-government market over the next two years that should provide a strong platform for rapid growth once government leaders overcome these challenges.

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