Federal, state and local government chief information officers must balance a need to invest in analytics, the internet of things and cloud resources while being pressured to reduce spending, according to a tech spending trends report by research and advisory firm Forrester. 

Forrester projects federal technology budgets, bucking a three-year trend of growth and lagging well behind private-sector spending, will shrink by 0.1 percent in 2017 and 0.6 percent in 2018. Conversely, state and local spending could increase by 3 to 4 percent for each of those years.

The result will be an increased reliance on contractors and struggle to retain tech workers amid a particularly aggressive push to transition resources from public to private clouds in an effort to support data-intensive agencies and enhance customer experience. Currently, the National Archives and Records Administration and the U.S. Agency for International Development are leading agencies in cloud progress with initiatives receiving 12 percent and 10 percent of total IT spending in 2017, respectively.

Despite this, public cloud initiatives will take only 3 percent of federal tech spending, and reducing costs will push agencies toward lower-cost, commercial-off-the-shelf cloud services.

In all, 33 percent of total federal tech spending will be on business technology purchases in the form of software, services and hardware for engaging with customers through online and mobile channels, leveraging big data and analytics for improving decision-making and service delivery, and pursuing initiatives regardin the internet of things.

A majority of budgets go to core transactional operations, internal IT and governance and compliance processes, and support of employee business activities and staff group operations.

Forrester’s advice to federal CIOs is to reduce project portfolios to focus on customer-related projects, renegotiate wherever possible and replace existing technology systems with lower-cost alternatives, including open-source and cloud resources. Proven improvements in customer experience can build the case for tech budget increases.