State and local government IT budgets to exceed $61B in 2015

Despite the scheduled end to many federally funded Recovery Act programs and projected budget gaps into the next two or three fiscal years, a report released Wednesday says state and local information technology budgets over the next five years are expected to increase from $52.8 billion to $61.5 billion. Analysts at INPUT suggest that law enforcement and health verticals will lead the way, meanwhile, vendors who adopt their licensing models to a small-growth economy are more likely to benefit in the long run.

In the report, State and Local Information Technology Market, 2010-2015, INPUT research indicates that IT spending will grow at a compound annual growth rate (CAGR) of 3.1 percent – adding $8.7 billion in new opportunities across the state and local landscape.

“While these estimates are not as high as the ones from three years ago, there is definitely growth in the market,” Chris Dixon, manager of State and Local Industry Analysis at INPUT, said in a statement. “Governments will continue to look to technology to help address their goals and overcome challenges, especially IT solutions that help cushion costs and increase productivity.”

A number of factors are expected to drive this growth, including perennial verticals like, justice and public safety, transportation, health, and education. But other segments like outsourcing and software are also expected to help boost opportunities, because governments are holding on to their hardware investments longer in the depressed economy, Dixon said.

Federal initiatives like health care reform and the Recovery Act will also have resonating effects on the marketplace due to an “increased reliance on federal funding for IT systems providing operational support to federally-funded/state-operated programs,” and “federal demands for compliance in the areas of contract performance, transparency, reporting and accountability,” the report indicated.

Mr. Dixon said that while many vendors seem tentative about the state and local market, they should be bold with innovative licensing and business models because, “State and local officials always remember which vendors helped them out when times were tough.”

“If contractors want to get the lion’s share of contracts when the economy improves, they should work with these agencies today,” he concluded.