Federal CIOs pessimistic about the impact of IT as budgets flatten

Agencies will spend less on information technology over the next decade. And that downward slope will slow down the government’s ability to meet the ever-growing needs of citizens and businesses.

The TechAmerica Foundation’s latest survey and analysis of federal IT spending shows many agency chief information officers expect a grim decade.

“We are looking at about $70 billion for the current fiscal year with only moderate growth over the next couple of years. Really, it’s tied almost to inflation because of the pressure on the discretionary budget,” said Robert Haas, a spokesperson for the TechAmerica Foundation, during a press briefing earlier this week ahead of the 49th Vision Conference happening Wednesday and Thursday in Springfield, Va. “In this scenario we are in right now, the IT budget growth is really tied to the growth of the discretionary budget. With IT duking it out, if you will, with IT salaries, other personnel salaries, field operations and other items such as, maybe, real estate, agencies are having a hard time just even maintaining their current levels of spending. And the impact over time, when you take inflation into account, there’s very little growth over the forecast term baring any significant, major economic changes.”

TechAmerica Foundation estimated that because of inflation even slight increases actually are decreases in real dollars.

Haas said on the civilian side, the IT budget will remain steady at about $38.3 billion, and is expected to inch up to $42.1 billion by 2019, less than a $4 billion increase over the next five years.

Defense procurement, R&D slows

On the Defense Department side, TechAmerica Foundation predicted DoD will see a $31.7 billion IT budget in 2014 and it will grow by just under $5 billion to $36.3 billion by 2019.

The flat or no growth means fewer opportunities for contractors as well.

Trey Hodgkins, another spokesperson for the TechAmerica Foundation, said DoD’s procurement, and research and development spending will see the biggest downturns.

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“We end up with a significant difference between the procurement dollars and research and development dollars, and that’s going to come in that 2013-2017 window, primarily a significant reduction in those areas,” he said. “It will climb back up again based primary just on inflation. The 2012 to 2014 is actually almost a 10 percent reduction in investment with very modest inflationary like growth out to 2024.”

Hodgkins added agencies and contractors are facing a series of negative forces, including cuts from sequestration, the decline of total spending within DoD because of the ending of the wars in Afghanistan and Iraq, and the fact DoD is spending less on operation and maintenance needs, that are causing the across-the- board funding decreases.

The group estimated DoD’s procurement spending will drop to $81 billion in 2014 from $90 billion last year, and slowly rise to $101 billion by 2024. Meanwhile, research and development spending will drop to $60 billion this year from $63 billion in 2013, and rise to $69 billion by 2024.

Hodgkins said the decrease in IT, procurement, and research and development spending follows a historical pattern where the government spends less after withdrawing troops from a specific theater.

Doom and budget gloom

The TechAmerica Foundation puts together groups of vendors to interview federal IT managers about their spending plans, priorities and concerns and then analyzes the data to predict the IT trends over the next decade.

In addition to the projection that IT spending is expected to be flat or slightly decrease, TechAmerica Foundation also found a pessimistic view from CIOs and IT managers about the future impact of technology will have on mission needs.

Haas said in previous surveys federal CIOs and IT managers felt like they could deal with budget cuts and other challenges.

But Haas said this year, CIOs offered a different viewpoint.

“Doing more with less was something they were told they needed to do. I think many valiantly tried. There was a resignation that they will be doing less with less in several interviews this year. That was a tone change from last year,” he said. “There weren’t any specifics they gave us in particular, but they recognized that the signs were there from a budget perspective that they weren’t going to get what they needed to make the changes that they wanted for their particular environment. So, it was more of a general comment.”

Haas said CIOs were more optimistic last year that sequestration and other budgetary challenges would be addressed. But now that sequestration kicked in, the mood has changed to gloom.

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The other reason for the pessimism is many of their innovative or exciting projects are facing the budget crunch.

Haas said CIOs are forced to choose between those new and exciting projects and keeping legacy systems running.

The survey found there is a broad recognition that agencies will experience tight budgets and small or no increases will be the standard for the coming years.

“We looked in the investments and short of any other major drivers, a terrorist incident or a major cybersecurity incident or something like that, there is not a lot of money to drive IT. IT is now fighting for dollars the same way personnel, real estate, fleet vehicles, salary increases and training, it’s all in the same bucket, and that’s why we framed the discussion around the discretionary budget. That’s really the limiting factor.”

He said if an agency wants to increase IT by, say, 5 percent, it would have to come out of some other account, whether it’s a pay raise, staffing or field office.

“There are not a lot of places to find that money from a discretionary side,” Haas said.

OMB estimates slow growth

Another sign that budgets will remain tight for the coming years is the Office of Management and Budget’s forecast for the out years. OMB estimates growth rates in the low single digits for an extended period of time, which is something that is unusual when compared to the previous decade.

Haas said the current state of federal spending could be compared to a recession the private sector faces every so often. For example, in 2008 and 2009, the private sector saw revenue drop and the commercial market dry up. These companies had to cut costs to find money to reinvest or to help push up revenues.

The debt ceiling is the agency’s recession and that’s why this feeling of pessimism and resignation is settling on CIOs, he said.

Beyond budgets, CIOs also are worried about the trickledown effect on programs.

The TechAmerica Foundation found CIOs say transformation efforts, whether it’s the move to the cloud or data center consolidation, face challenges because of the budget reductions from sequestration. CIOs also are feeling pressure from the need to spend most of their IT budgets on operations and maintenance of legacy systems and not on new technologies.

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CIOs say they can’t transform as fast as they would like because of the budget pressures. But they recognize there are opportunities for savings, but the budget environment prevents them from achieving that money.

Haas said one of the biggest areas of concern — in this almost post-shutdown continued sequester and debt ceiling crisis world — is with the workforce.

“Between retirements, pay freezes, training and talent retention, human resources managers really have their arms full at this point in time,” he said. “The Office of Personnel Management identified one of their challenges with their retirements running 30 percent ahead of schedule as of June. So certainly they are seeing impacts.”

He added contractors also will be affected by the changes in the federal workforce.

“A lot of times your knowledgeable government partners are no longer there. So you don’t have that expertise on the inside to work with,” Haas said.

Along those same lines, CIOs and other federal IT executives also said leadership vacancies at the top of their agencies hurt progress with their IT transformations.

Positive outlook on some issues

There are some silver linings from the survey.

CIOs say initiatives such as strategic sourcing and consolidation initiatives are having an impact. They say there are plenty of opportunities around big data to generate more value for the agency.

CIOs also say smaller and smarter contracting will continue to be a priority, which helps with innovation in times of small budgets.

“The agencies and the contracting community have been more realistic and have resigned themselves. It’s certainly visible in what they are planning for in 2015 and beyond,” Hodgkins said. “It’s the President’s budget and Congress that have not reflected those realities. It’s been part of what [DoD] Secretary [Chuck] Hagel has been commenting about. We can’t go into these situations and be put in a position here we can’t plan for this. If we can plan for it, we can move things around and make informed decisions instead of this meat axe approach to try and take these cuts.”

He added the out years are going to be tough for contractors and agencies, and there is a potential for more workforce layoffs in the public sector market.

“We’ve been telling people, 2013 was hard, but the next few years could potentially be even worse,” Hodgkins said.


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