State and local government spending on information goods and services is projected to grow at a 3.3 percent rate between now and 2019, increasing to $70 billion from $60.4 billion over that period. This would mark the third consecutive annual forecast of better than 3 percent growth.
However, government contractors looking to make the most of this market may want to pick and choose their business development targets.
State governments are likely to be the most robust consumers in the market. Deltek’s research into state budgets found that state-level IT spending grew almost 5 percent over the past year, and will likely continue at this rate or better over the next few years.
Health care is the primary growth category for IT investments as states, many of them leveraging federal funding incentives, look to modernize Medicaid systems in order to reduce fraud and improve outcomes for beneficiaries.
Another major investment area with states, general government operations also is likely to continue to make up for years of deferred expenses. Data center upgrades, cloud storage strategies, enterprise solutions and mobile communications are all major drivers in this segment. So-called “solutions” represent another potential growth opportunity as states integrate systems to support management analytics, streamline business processes and cautiously implement new enterprise resource planning systems.
Public higher education should be another solid market for IT consumption. Given surging enrollments and institutional competition, the market for operational, instructional, and research technologies are likely to remain steady despite recent cuts in state aid.
The trickier portion of the state and local market will be comprised of local governments and public K-12 school systems. Stymied by persistently low employment levels and a housing market that continues to see a low volume of transactions, revenue for cities, counties, and schools has only just returned to pre-recession levels.
The K-12 education market, which has historically been dominated by a few specializing vendors, invites more competition. Most school districts are struggling with school consolidations and compensation overhead. However, the population of school children will continue to rise, putting more emphasis on technology-driven administrative efficiency and instructional productivity over the long run. Federal investment in moving schools toward broadband connectivity is presently building the infrastructure for this long-term trend.
Fortunately, ongoing research conducted by Deltek and the Public Technology Institute found a definite upturn in the mood of local IT buyers. Most local government chief information officers say they believe that budget cuts are behind them, though they aren’t expecting major upticks in their funding.
The city and county market will likely favor those who can rapidly churn prospects and determine their financial condition as well as where they are in their technology lifecycles. The vendors that will fare the best will likely be those who can pick up on the long lead times that are required for buyers to cobble together funding for major upgrades.
The state and local market continues to provide an excellent counterbalance to the federal. Money can be made in every corner of the market, but only by vendors that recognize the key differences among buyer conditions and motivations.
Chris Dixon is Deltek’s senior manager for state and local industry analysis.
More from Capital Business: