When it comes to forecasting the spending by state and local governments on technology goods and services, it pays not to let the trees block your view of the forest. That’s why it’s important to look at the broader statistical average of activity as determined by tens of thousands of elected and appointed decision makers.
Consider the components of this far-flung market:
- 50 states (plus D.C.) serving the entire US population of 313 million people and employing three million workers
- 36,000 municipalities and 3,000 counties serving the entire US population and employing seven million workers
- 13,600 public school systems educating 49.5 million students and employing six million teachers, assistants, and administrators
- 1,600 public higher education institutions serving 15 million students and employing two and a half million professors, assistants, and administrators
It comes as no surprise that – like a herd of bison – this consumer base (that drives state and local spending) tends to lumber along. Rarely does it stampede or turn on a dime. Yet, these same qualities make it easy to see the general direction in which the market is headed.
Therefore, Deltek expects the state and local IT market to grow from $56.4 billion in 2012 to $64.9 billion in 2017. This represents a compound annual growth rate of 3.1% and $8.5 billion in new spending during the period.
This is solid improvement from the depths of the recession, which saw the market growth rate plummet from its highs in 2008.
The key drivers behind state and local IT consumption during this period of incremental recovery will be mostly reactive to several developments that have led to unintended consequences:
As soon as the revenue downturns hit government, agencies endured multiple across-the-board budget cuts. All of a sudden PCs, printers, servers, and other commodity technologies that were turning over every five years had their refresh horizons pushed out to seven years or more.
As one IT director said, “If it’s not broken we aren’t fixing it, and, if it can be fixed, we aren’t replacing it.” Now, much of the equipment that was put into a holding pattern in 2009 is reaching the end of its reliable lifespan. IT officials are telling their bosses, “You don’t have to replace it if you don’t want to, but I’m not promising you it won’t break when we need it most.”
Government reform efforts
Over the last few years, nearly two dozen states and a few major localities have launched commissions to make recommendations for improving government operations. Most of the recommendations deal with people, facilities, and furniture.
However, virtually every recommendation has a downstream technology impact that becomes apparent only after the agency consolidation, privatization, or business-process re-engineering is well underway. By then it’s too late to turn back. The governor can’t refuse $5 million in systems integration costs when she has already obligated $200 million in savings from streamlining.
These days it’s not hard to find a city or county that has rolled its employee headcount back to year 2000 levels. Local governments have personnel in public safety and public health. Public schools have released teaching assistants. The states have dismissed corrections workers and administrators in the areas of welfare, transportation, and finance. Government will not be refilling these positions any time soon.
State and local elected officials, however, are already pivoting toward post-recession, growth-oriented agendas. Achieving ambitious new goals with strained workforce will require investment in performance management tools, automation of manual processes, modernization of legacy systems, and contractors augmenting public workers.
Governments won’t be looking for flashy technologies for their own sake. Governors, mayors, county commissioners, and school superintendents don’t care about “the cloud” or “mobility” or “tablet devices.” However, if any of these is part of a solution that meets a bread-and-butter need, they will consider it and, most importantly, find money for it.
For all the talk of running government like a business, few elected officials see the business value of technology. Most see it as a cost center rather than a portfolio for capturing savings in other, more costly, operational areas. Yet, with tax revenues returning to pre-recession levels and budget deficits shrinking, the confidence of the government consumer is improving. For agency IT departments, it will seem like a glacier receding from the landscape. As the buyer landscape slowly thaws, vendors must begin seeding opportunities now. State and local governments need your solutions. They just don’t know it yet.
Chris Dixon is senior manager at Deltek and a member of Deltek’s State & Local Industry Analysis team, which provides strategic and tactical assessments of state and local IT markets, including software, hardware, communications, network services, professional services, and outsourcing along with insights into government spending, market trends, policy and legislation, and business development best practices.