The future of federal technology spending may not be as bleak as current government budget cutbacks seem to suggest, a group of former government information technology officials suggested at a Federal IT forum today.

But changes in the type of technology services agencies are acquiring, the way they acquire them, compounded by election year uncertainty, are forcing contractors to reassess their strategies.

The long term federal IT outlook is positive, said Bill Loomis, managing director at Stifel Nicolaus, which looks at the government IT marketplace from an investor point of view.

There will be near-term headwinds for IT suppliers as civilian and defense agencies plan for lower budgets and ways to reduce costs over multiple budget cycles, Loomis said. Loomis was speaking together with other government IT experts at a Federal IT Forum in Falls Church, Va., sponsored by the TechAmerica Foundation.

However, shifts in priorities to adopt mobile and cloud computing technologies, strengthen cybersecurity and improve citizen services also represent new opportunities for federal IT providers, including small business. And regardless of the election outcome, those priorities are expected to drive IT spending for the foreseeable future, Loomis and most of his fellow panelists concluded.

On the positive side, even with expected cutbacks, the federal government continues to spend on a scale and at a pace that exceeds that of most Fortune 500 companies, said Tim Young, senior manager, Deloitte Consulting, and former deputy administrator at the White House Office of Management and Budget. At nearly $80 billion annually for the past several years ($79 billion in the current fiscal year), IT spending amounts to roughly 7% of the federal government’s discretionary spending, compared to 3% to 5% spent by most Fortune 500 companies, Young said.

Discretionary spending will decline, he said. “Until Congress does something with mandatory (entitlement) spending, discretionary spending will have to decrease,” he said, and that will affect IT spending.

Roughly 70% of federal IT dollars are “spent on keeping the lights on” historically, he said. “We’re getting some traction with our clients…to move dollars from (operation and maintenance) spending to new development projects,” in support of agency missions, he said.

Budgets are not the only factor driving the IT environment; public expectations are also a significant factor, said Molly O’Neill, Vice President, CGI Federal and Fellow, CGI’s Initiative for Collaborative Government. O’Neill was formerly CIO of the Environmental Protection Agency.

“The expectations of government by the public are changing. The public now, and for the past 10 years has been able to do their banking online,” as well as shop for goods and other services, she said.

“Their expectations for services have changed,” she said, “so if government doesn’t’ change, it becomes increasingly irrelevant,” and drives people to look for other solutions. “This push on expectations of government…is just as big a driver as the budget” on IT planning, she said.

Another factor is the growing appreciation by members of Congress for the importance IT plays in helping government work more efficiently.

“When I started at OMB in 2003,” said Young, there was “a lot of discussions we had with appropriations staffs that was more of a push versus a pull approach to technology: You saw OMB pushing technology (as a tool to help agencies) and Congress not really understanding what it would do. Since then, you now see more of a pull from Congress” which wants to see technology put to better use. He cited the FAA’s Next Generation Air Transportation System (NextGen), the evolution of health IT systems, and information sharing initiatives as examples of how Congress has been more proactive in supporting technology initiatives.

He attributed the change in part to a “younger generation filling staff positions in Congress. They understand that technology should be treated more as an investment than as discretionary spending.”

There are still many challenges facing agencies and government IT suppliers, however.

“Federal customers are asking ‘How do we get off the big mainframes?’ when there’s the promise of saving a $100,000, but it requires a $10,000 investment now,” said Tim Hoechst, chief technology officer, Agilex Technologies, Inc. “They have to spend new dollars on modernizing their systems. The challenge is where to find those investment dollars.”

Suppliers also need to adjust to the government’s growing preference for, and ability to, issue contracts for IT in smaller chunks.

“We’re moving to an agile acquisition model,” said Dan Chenok, Senior Fellow, IBM Center for The Business of Government, and a also a former OMB branch chief. Contractors need to be more agile and flexible with the way the respond to contracts as well, he said.

These challenges may actually help small businesses, said Tim Atkin, executive vice president & chief operating officer of SRA International.

Contracting is “moving away from a big-bang, large contract (environment) to where contracts are being broken up into small pieces,” he said.

Young added that with multiple award blanket purchase agreements, there is “lots of pressure on rates to come down. That is where the value of small businesses comes in, which has a substantially lower the cost structure” for contractors.

And while the outcomes in this year’s elections will have an impact on federal budgets, the underlying need for IT and cybersecurity aren’t expected to change significantly, the panelists said.

“I don’t see a huge shift from the cloud, or from cybersecurity, whatever happens with the elections,” said O’Neill.

Perhaps the only real distinction if Republican presidential candidate Mitt Romney is elected, said Young, is a probable swing away from in-sourcing toward more outsourcing of IT and other services.