Long-term IT spending outlook lowered

Despite increased spending on security and health IT, the mounting impact of consolidation, budget pressures and the Lines of Business initiatives by the Office of Management and Budget are dampening growth rates projected for federal IT spending over the next five years, according to a new forecast released today by Input Inc. at its annual market outlook conference.

Five-year forecasts for civilian and defense IT spending for equipment, software and outsourcing were reduced across the board from last year's forecast in light of the revised federal budget proposal in March for fiscal 2007 spending, according to James Krouse, director of market analysis for the Reston, Va.-based market research and consulting firm.

Over the next five years, Input forecast:
  • Federal IT spending overall will grow 4.4 percent, on a compound annual basis, reaching $93.4 billion in fiscal 2011, up from $75.4 billion in 2006. That rate stood in contrast to a more bullish 5.3 percent growth rate forecasted a year ago. The contracted portion of that total is expected to grow 5.0 percent, from $63.3 billion to $80.5 billion.

  • Civilian IT spending will grow at an average rate of 5.1 percent, reaching $32.4 billion in 2011, outpacing Defense IT spending, which is expected to grow an average 4.3 percent annually to $29.8 billion.

  • Estimates for unreported federal IT spending show intelligence IT budgets are expected to grow 6.0 percent annually, climbing to $11.7 billion by 2011.

The growth in spending, by market segment, is expected to average just 4.1 percent for equipment, 4.4 percent for software, 4.5 percent for professional services, 5.0 percent for communications and 5.9 percent for outsourcing. The new forecast contrasted with year-ago estimates where the growth in software spending, for example, was expected to grow an average of 5.7 percent, reflecting the increased use of COTS and a renewed vigilance to avoid customized software, Krouse said.

OMB's continued push to improve performance is one of the driving forces behind the spending outlook, acknowledged Robert Shea, counselor to the OMB deputy director of management, at the conference.

Shea noted OMB's Performance Assessment Rating Tool, among other initiatives, has helped realize more than $800 million a year in savings, with the prospect for more. 'Last year we reduced improper payments by 17 percent, from $45 billion to $35 billion,' he said.

The trends in PART ratings don't necessarily determine budget decisions, Shea said. Ineffective programs have seen dramatic budget cuts, but even a program that is performing may not get additional funding if it isn't a priority, he said.

Commenting on the news that OMB director Josh Bolten earlier in the day had been named White House chief of staff, Shea said the White House gains someone who is 'focused on results. The president's management agenda will certainly live and have a strong proponent.'

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