Fed IT Spending Bright Spot in Gloomy Market

By Mel Duvall

With many market research companies lowering their IT spending forecasts for 2009, it's good to know at least one sector of the market isn't expected to suffer.

According to research released this week by Compass Intelligence, the U.S. Federal Government is expected to increase its spending on IT by 5.5% in 2009. In dollar terms the government will spend about $85 billion on IT goods and services in 2009, growing to about $98.5 billion in 2012. That compares to the roughly $80.6 billion spent in 2008 on applications, outsourcing, telecom, network and computer hardware and IT personnel.

"Federal government IT spending is expected to remain rather steady, despite economic conditions," says Stephanie Atkinson, a managing partner with Scottsdale, Ariz.-based Compass Intelligence. "State and local governments are expected to feel more of the pain from this current recession."

Major trends and opportunities revolve around the replacement of legacy hardware, new applications for a mobile workforce, further development of E-government offerings, a greater emphasis on cybersecurity and a focus on green technology initiatives.

In addition, President-elect Barack Obama is soon expected to name the first Federal chief technology officer to spearhead the government's technology initiatives. During the election his campaign said a CTO was needed "to ensure that our government and all its agencies have the right infrastructure, policies and services for the 21st century."

Much speculation has surrounded what that might mean for IT spending, including a major investment in the nation's underlying technology infrastructure. During the campaign Obama said he would like to see true broadband delivered to every American community. Another key platform involved attempting to lower healthcare costs by investing in new IT systems, including a broad rollout of electronic health records. The Obama campaign said it would invest as much as $10 billion a year over the next five years on e-health information systems.

A variety of high-profile names have been floated for the CTO job including Bill Gates, Stanford law professor Lawrence Lessig, Vint Cerf, who is sometimes dubbed "Father of the Internet", and even Google CEO Eric Schmidt. Schmidt, for one, has denied being interested in the job.

No matter who is appointed, technology spending won't ramp up overnight but the effects will be significant in time, suggests Compass Intelligence's Atkinson.

"If a new CTO were appointed, then spending forecasts in the near-term will not be affected, but 3 to 5 years from now we might see specific policies or initiatives led by the (Federal) CTO," she says. That, in turn, could impact the adoption of specific telecom and IT services and "the use of the Internet to improve healthcare, citizen communications, education and national security."

Federal IT spending has been healthy over the past few years, growing at 6.5% in 2008, 5.3% in 2008, and forecasted to increase slightly to 5.5% in 2009. Compass Intelligence says application spending is expected to see the strongest growth, increasing between 8.6% and 9.8%.

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