State IT budgets on the rise after tumultuous years during recession

March 2

State revenues and budgets are projected to increase this year and in future years, offering hope to technology vendors eager to sell their wares.

State IT budgets are back on the rise after some tumultuous times during the recession. Many are restoring IT spending, re-funding old projects and approving new procurement, a stark contrast to current and planned federal spending.

A closer look at IT budgets and projections illustrates a distinct upward trend. IT budgets jumped sharply from fiscal 2010 to 2011, in large part because of an influx of federal stimulus dollars.

The increase tapered a bit in 2012 and flattened in 2013 as the stimulus dried up and states scurried to lower their budgets. Fiscal 2014 shows an uptick in IT budgets of about 4.8 percent, and spending is projected to grow in the future.

Still, not all areas of government fared equally well. The areas of general government and health care/social services together accounted for more than 50 percent of IT budgets over the past five years. This isn’t surprising, given that health IT budgets have seen some of the biggest gains and have the highest five-year projected growth rate.

General IT operations and maintenance make up nearly one-quarter all IT budget purchases. The other top categories include software, communications and networking, and computer equipment.

While general IT operations and maintenance is the largest overall category, it also shows the weakest projected growth, potentially making room for contracting in other areas.

Professional services budgets are anticipated to increase the fastest of all categories as states seek ways to thoughtfully plan for systems and reduce their spending through outsourcing.

The recommendations for contractors are fairly straightforward. IT contractors that aren’t in the state market should consider getting in, and those already in the market should remain.

Chris Cotner is a principal analyst for state and local industry analysis at Herndon-based Deltek, which analyzes the government contracting market and can be found at www.deltek.com.

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