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Billions less in IT spending, experts predict

Oct. 17, 2012 - 05:33PM   |  
By NICOLE BLAKE JOHNSON   |   Comments

An annual industry forecast projects agencies will spend billions of dollars less on information technology over the next five years than it projected a year ago.

While the new estimates show slight increases in annual IT spending, they are roughly $10 billion less each year compared with last year’s forecast, in part because of anticipated deficit reduction measures.

TechAmerica Foundation, in developing the forecast, assumes Congress and the White House will agree on a modified sequestration plan, requiring $1.4 trillion cuts through 2021 but not the automatic, across-the-board cuts sequestration would require beginning Jan. 2. Last year’s estimate did not consider sequestration.

As overall discretionary spending is squeezed, IT spending is not immune to those cuts, said Robert Haas, a spokesman for the TechAmerica Foundation, which developed the forecast.

Annual IT spending, for both civilian and defense agencies, is projected to increase slightly from $73.5 billion this fiscal year to $77.2 billion in 2018, according to the new forecast.

But a year ago, the group forecast an annual spending increase from $81.2 billion in fiscal 2012 to $85.7 billion in 2017.

Contractors should expect “anemic” growth in IT spending, as agencies plan for smaller and shorter IT contracts and set their sights on projects that will produce cost savings within 18 months, Tech America says.

“Companies need to pay a lot of attention to what this is going to look like in the out years and plan for the worst, understand where their contracts are going — or not going as the case may be,” Trey Hodgkins, a TechAmerica Foundation spokesman, said of the overall discretionary cuts.

“If the dollars are not obligated, the contract is in trouble,” he said. “If the dollars are obligated, they’re supposed to be protected [from sequestration],” but that isn’t clear.

The marginal increase in IT spending amounts to a compound annual growth rate of less than 1 percent, or a 5 percent increase, according to the new forecast.

“It’s hard to even call that an increase,” Haas said during a news briefing.

Civilian IT spending is anticipated to rise less than 7 percent over the next five years from $40.8 billion to $43.5 billion. Defense Department IT spending is expected to increase 3 percent over the same period, from $32.7 billion to $33.7 billion.

The forecast also gives a 10-year outlook for the Defense Department’s base budget, which is projected drop from an estimated $525 billion in the president’s fiscal 2013 budget to $512 billion in fiscal 2018, followed by a modest decline to $506 billion in 2023. TechAmerica’s forecast shows a 26 percent decline in DoD’s base budget investments in procurement and research, development, testing and evaluation from peak spending of $194 billion in 2009 to $144 billion in 2023.

The forecast is based on data analyses and interviews with federal executives, Congress, think tanks and industry experts. It assumes that Congress and the White House will agree on a bipartisan solution to modify sequestration and avoid the steep across-the-board cuts that would reduce federal budget deficits by $1.4 trillion through 2021, Hodgkins said.

The bipartisan solution may not happen by Jan. 2, when the sequestration cuts are scheduled to take effect, but the forecast anticipates there will be a modification of those cuts that would reduce the $1.4 trillion in cuts by about $529 billion. The solution could include tax reform and other scenarios that would generate revenue and reduce the need for immediate steep cuts. Ultimately, however, the forecast expects this alternative solution will equate to a $1.4 trillion reduction in the budget deficit over a 10-year period.

“It’s not changing the outcome, it’s changing the mechanism to achieve the outcome” of lower government spending Hodgkins said.

Hodgkins said should sequestration take effect, agencies likely will not see the cuts until the March timeframe, when the six-month continuing resolution to avert a government shutdown expires.

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