Government IT Spending: $61.5 Billion by 2015

State and local governments will spend $61.5 billion on information systems and professional IT services in 2015, an compound annual growth rate (CAGR) of 3.1 percent from the $52.8 billion in spending forecast in 2010, according to a new report from INPUT, a trade organization for IT providers servicing government agencies.

The report, State and Local Information Technology Market, 2010-2015, also finds several government verticals poised to outperform the 3.1 percent CAGR, including:

• Justice and public safety
• Transportation
• Budget and public finance
• Healthcare
• Education
• Economic development

Certain IT segments, such as outsourcing and software, are also expected to grow more than others. The report utilizes a sample of the budget requests of governors, mayors, and county commissions, coupled with comprehensive research, expert knowledge of state and local IT procurement processes, and long-range plans to forecast spending trends for the next five years. It focuses on technology, acquisition processes, and regulations that shape the size and direction of the market. Among the trends predicted in the report are:

• Gradual stabilization of state and local revenue streams
• A continued focus on IT systems serving programs that are subsidized by the federal government via annual grants and occasional stimulus funding
• Implementation of technology to dramatically bend the cost curves in the education (primary/secondary), general government services, and justice/public safety verticals
• Increased reliance on federal funding for IT systems providing operational support to federally-funded/state-operated programs in the health care and social services verticals
• Investments driven by federal demands for compliance in the areas of contract performance, transparency, reporting, and accountability

"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," said Chris Dixon, Manager State and Local Industry Analysis at INPUT, in a prepared statement.

State and local governments are also gearing up for November 2010 elections, which will likely impact budgets. "There is a natural turnover of contracts and aging legacy systems that will require investments; at the same time, a new batch of governors will probably make changes and look for ways to save money by decreasing staff and readjusting pension obligations," according to Dixon. "These cost savings allow agencies to reallocate some of their funds to technology."