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August 30, 2005

US governmental tech spend on the increase

After a period of budget shortfalls, US state and local governments will increase their technology spend over the next five years. Indeed, Datamonitor expects IT spend by US state and local governments to reach $62.4 billion by FY2009. This total includes both external spending on IT contracts as well as spending on internal technology items such as IT staff and office equipment.

By CBR Staff Writer

A number of technology trends will affect this predicted growth in technology spend, especially increasing investment in technology to support public safety and social services functions, a shift in focus towards software and services, and renewed interest in IT consolidation. Rise in spend will also be driven by the need to improve constituent services, reduce costs and increase internal efficiency.

IT spending centers on public safety and social services

State and local governments focus their IT spending in the areas of public safety and justice and health and human services. In FY2004, these two government functions accounted for slightly more than half of total technology investment by state and local organizations. Datamonitor predicts that these will remain the top areas of focus for IT investment throughout the five-year forecast period.

State and local governments are investing in technology in response to public and media attention on their capabilities to handle emergency situations and support community protection on an ongoing basis. In addition, technology offers state and local governments opportunities to reduce the administrative costs of social services while also improving employee productivity and accuracy.

Investment in services growing fastest

Datamonitor anticipates that state and local governments in the US will increase their investment in services and software at a faster rate than investment in hardware and networking equipment.

IT services is the fastest growing segment of state and local government technology spend. Organizations are looking to services such as support, consulting, systems integration and outsourcing for several reasons, including compensating for retiring staff, reducing administrative costs and keeping up with current technology trends.

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Software is also a fast-growing area of spending, as state and local governments look to increase internal efficiency with back-office systems such as financial management and human resources.

IT consolidation entering a new stage

Many state and local governments are consolidating their IT management and operations into one central office or department of information technology under the leadership of a chief information officer. These reorganization plans often aim to reduce overall IT operating costs, eliminate redundancies, increase productivity and improve efficiency.

While not a new trend, Datamonitor notes that IT consolidation is entering a new stage focused on isolating IT management from political agendas and making IT operations part of a larger institutional change.

For example, the state of California is currently undergoing its second technology consolidation plan in 10 years. After dismantling the Department of Information Technology in 2002, the state is now establishing a Department of Technology Services, which will integrate and manage all statewide IT applications, systems and projects. What makes this undertaking different from the previous endeavor is that it now a key facet of Governor Schwarzenegger’s pledge to make the California’s government more responsive to constituent needs.

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