A Government gold mine?

For those who aren't familiar with the research and consulting firm INPUT, you should make a point of going to input.com. It's arguably the premiere authority on business with the government sector and has just released a study analyzing IT spending trends in the state and local sectors (see our "industry snapshot" on page 1), which shows tremendous potential for vendors in the next five years).

According to James Krouse, manager of state and local market analysis at INPUT, "FY03 through FY05 was a period of conservative spending where state and local budgets were stabilizing and building." In fact, INPUT elaborates, revenues exceeded expectations in 45 states in 2005, a combined 4.2 percent higher than forecasts--corporate income taxes were 11.6 percent higher, personal incomes up 5.7 percent and sales taxes a tad improved with a boost of 1.2 percent.

We've known for a long time that the government work force is fast approaching retirement age and that state and local governments are notorious for being burdened with relatively ancient technology. That's going to change. In the next five years, as the work force is depleted, there will be pent-up demand for delayed IT initiatives and aggressive renewal of stalled projects. This effect will be especially true through FY 2008, which will see the biggest growth in spending, according to the study. It will slow in FY 2009 to 2011, when governments will re-evaluate their IT strategies. But, depending upon your point of view, there will be positive ramifications. Inevitable staff shortages will result in forced outsourcing. So it will be a good time for providers of those necessary services.

The study also identifies the following budget priority areas (in order and as reported by the survey participants):
1. Education
2. Economic development
3. Public safety/justice
4. Healthcare
5. Public finance
6. Natural resources
7. Social services
8. Transportation
9. General government services
10. Homeland security T

he survey results also identified a shifting government IT focus toward active cost-containment and efficiency measures, as well as increased scrutiny of IT applications to improve effectiveness. Private sector contractors will also assume more "policy" functions, says INPUT. Further, online customer service will be increasingly emphasized. Among the major trends expected  in the state and local government are:

• centralization and consolidation of IT operations,
• outsourcing of non-core government competencies,
• increasing operation with private sector sensibilities (with emphasis on strategic planning and cost/benefit decision models),
• establishment of IT investment boards, and
• increased emphasis on measurement and performance.