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Government IT Spending To Slow

IT spending by civilian agencies will grow 3.4% annually over the next five years, a significant slowdown compared to the previous five years, according to a new report from TechAmerica.

Federal IT budgets will grow more slowly over the next several years, according to a new report by TechAmerica. The tech industry association expects civilian agency IT budgets to grow 3.4% over the next five years, significantly less than the 8.3% rate from 2005 to 2010.

The reason for the slowdown? The federal deficit is expected to stay at 4% or more of gross domestic product through 2020, causing Congress to look for ways to control spending. "The primary driver of the federal marketplace and discretionary budgets for the next decade is going to be the magnitude of the federal deficits," said Cecil Black, chair of TechAmerica's defense forecast.

TechAmerica's annual "Vision" report was compiled through analysis of government budget forecasts and documents and nterviews with agency leaders and with Wall Street and other industry experts.

The report finds that the Departments of Health and Human Services, Justice, and Treasury will see the greatest increases in IT budgets among large federal agencies. The Department of Commerce is expected to see the biggest decline, largely because it will no longer be spending half its budget on broadband grants.

Civilian agencies will be under pressure to continue investing in IT despite working with lower budgets. The Office of Management and Budget has directed agencies to make procurement and contracting more efficient, and to look for ways to reduce costs and increase efficiencies through data center consolidation and technologies such as virtualization and cloud computing. The White House is pushing for improved services, data transparency, and cybersecurity, and touting the benefits of virtualization and cloud computing.

Nevertheless, TechAmerica expects there to be modest IT spending growth in 2010 through 2015, with investments driven primarily by demand for government services, says Madeline Andre, co-chair of TechAmerica's IT forecast committee. Cybersecurity, infrastructure consolidation and modernization, cloud computing, Web 2.0, and mobility are expected to be among leading areas of spending.

The Obama Administration has said it wants to increase the amount of IT work done by federal employees, rather than outsourcing that work, but Andre said TechAmerica expects the overall effect of insourcing on IT budgets to be minimal over the short term. "It's unclear if they can hire the workers they need as quickly as they need," she said.

TechAmerica predicts that total military spending on modernization--including procurement, research, development and technology--to drop from $184 billion in 2009 to $110 billion in 2020, a 5% annual decline. "That's a substantial drop in the buying power to equip the military," Black said.

That suggests the Department of Defense will be looking for cost-effective products and services, contractors will need to perform better, and agencies will focus more on incremental improvements using technologies that are already available. TechAmerica expects growth in IT spending by DoD, particularly in the areas of mobility and cybersecurity.

TechAmerica also analyzes current IT spending. Civilian agencies will spend about a third of their fiscal 2010 budgets on IT management, while the military will spend about 46% on IT management.

Read InformationWeek's first-ever analysis of top CIOs in federal, state, and local government, and how they're embracing new expectations. Download the report here (registration required).

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