Too much or not enough?

Question prompts feds to scrutinize how they spend their share of the $45 billion IT budget

Ask anyone if the federal government is spending enough money on information technology, and you'll get as many answers as there are computer systems running in downtown Washington, D.C.

It's too much. It's not enough. It needs to be doubled. It should be cut. Investments must be smarter, leaner and meaner. Or the government should manage IT more like the private sector, which spent almost $700 billion last year on IT services, according to an estimate by Gartner Inc.

When Mark Forman, the Bush administration's new IT chief, asked if the estimated $45 billion the federal government will spend next year on IT is enough or too much, he threw into play a question that has plagued federal budget analysts for years on every big-ticket item, from health care to defense—and now IT.

How do you know whether you are spending too little, too much or just the right amount? Many experts say you don't. But with White House orders to spend smarter, experts say the question is not how much you get, but how you spend what you get.

"Anytime you talk about a number that size, you have to talk about the mission," said Lee Holcomb, chief information officer for NASA, which spends one of the largest percentages of its discretionary budget on IT. "Given the mission [the government is] trying to support, is that the right investment?"

It's hard to generalize how much a government should spend on IT investments because "of the difference in the state of development and the different kinds of missions" agencies perform, said Bruce McConnell, president of McConnell International LLC, a consulting firm, and former chief of information policy and technology at the Office of Management and Budget.

Not "How Much?' but "What to Do?'

From fiscal 1990 to fiscal 1999, federal spending on IT increased, when adjusted for inflation, between 5 percent and 20 percent a year, according to the McLean, Va., based consulting firm Federal Sources Inc. Client/server networks were bought to replace mainframes. Big ideas emerged to modernize programs. Dollar for dollar, systems were renewed, replaced and reinvigorated. Federal IT spending increased 7.7 percent just in fiscal 2001 to $44.5 billion, according to FSI.

But those were heady days. OMB has begun to apply stricter budget controls on agencies' IT investment requests, which some IT managers and industry executives say will likely slow the growth of IT spending. OMB wants agencies to show how they are making investments with an eye on capital planning, enterprise architecture, performance management, security and e-government.

Congress will put pressure on agencies to think more carefully about spending, too. Larry Allen, executive director of the Coalition for Government Procurement, expects Congress to cut the $45 billion fiscal 2002 IT budget because some lawmakers don't think that agencies prudently spend their IT budgets. "Agencies will be facing increased scrutiny in how they manage their IT budget to bring about effective government," Allen said.

The cuts may have already started. House appropriators last week slashed the administration's request for an interagency e-government fund from $20 million to $5 million because the proposed program had not been authorized by Congress. And Rep. Bob Goodlatte (R-Va.), chairman of the GOP high-tech working group, said that agencies waste "hundreds of millions of dollars a year." Some agencies, he said, are protecting their turf and refuse to coordinate efforts within their own walls, not to mention across agencies.

That waste is what Forman wants to eliminate. Instead of focusing on dollar amounts, Forman wants to identify productive IT programs and expand them in the agency and across government, he said. "The bigger question is: How do we get more value out of that $45 billion?" Forman said. "At $45 billion, we should be the leader [in IT], but we're not."

Ann Steward, director of e-government in the United Kingdom's Office of the e-Envoy, talked about the same investment philosophy when she visited Washington, D.C. "It's not about throwing money at this. It's about wise and targeted investment," she said.

Still, the United Kingdom is spending about $1.5 billion for a cross-government fund—more than 10 times the amount proposed by the Bush administration, which wants a three-year, $100 million e-government fund.

Other changes signal a different approach to IT spending. For the first time, Cabinet secretaries with IT experience are making IT a top priority. Secretaries Anthony Principi at the Department of Veterans Affairs and Tommy Thompson at the Department of Health and Human Services have begun efforts to coordinate, consolidate and streamline IT services, and have signaled that they want to conduct business more efficiently.

That is why the VA's troubled electronic benefits information system, called VetsNet, is under scrutiny and why Thompson has ordered a departmentwide consolidation of HHS' financial management and human resources systems, as well development of an enterprisewide architecture. It's also why John Reece, the new CIO at the Internal Revenue Service, is consolidating his administrative operation.

"I think we all feel the pressure," Reece said. "The whole world is much more sensitive about value, and because we're in the government, that doesn't mean we're immune to it."

Reece wants a two-year budget cycle so he does not have to return to Congress every year, hat in hand, to ask for more money for the IRS' multibillion-dollar modernization program. The program will make it easier for taxpayers to file online, speed refunds and replace a cumbersome system designed in the 1960s. With a two-year window, he said, he can more carefully manage the money and control his costs. But is it enough money?

"I really believe when it comes to technology, this is a custom deal," Reece said. "It's very hard for me to generalize. Right now we are squeezing...value...out of every dollar we can get our hands on."

The Cost of Security

IT experts say the one area the federal government should not skimp on is security.

The biggest risk in the budget battle is making sure information systems governmentwide have proper protections. Officials say it is one thing if someone cannot file a form online, but there is a much more serious problem if hackers or government employees access private data held in government databases, such as defense plans, Social Security numbers, health information or tax files.

"Things are hurting very badly in critical assurance," said Don Scott, senior vice president of Electronic Data Systems Corp.'s federal division. "The government is not spending a lot of money on those kinds of things. It finds difficulty in spending money on things that may or may not happen."

Security has always been underfunded, and further budget cuts will only make things worse, say experts in the field.

"Things are starting to crumble. The money isn't there to support the infrastructure," said James Buckner, CIO at the Army Materiel Command. "We just haven't been able to calculate what percentage of the budget should be [spent] on infrastructure."

Military IT officers believe the budget is chintzier than they had hoped back when President Bush was promising on the campaign trail to transform the military. At a July 11 hearing of the House Armed Services Committee's Military Readiness Subcommittee, Major Gen. Larry Northington, Air Force director of financial management and budget, said that DOD has shortfalls in funding for some IT programs that the military cannot fix.

Brian Burns, deputy CIO at HHS, said the shortfalls in all of government will force agencies to look for funding elsewhere. "The bottom line is we're going to have to start looking for consolidation and cost-saving measures to help self-fund these issues," he said.

Growing the IT Budget

Spending on government IT for the long term, however, should increase, Gartner predicts. From now to 2015, Gartner studies project that total IT spending in government and the private sector will increase 15 percent in the United States. And many federal IT projects—such as modernizing the IRS and air traffic control systems, the Navy Marine Corps Intranet and overhauling the systems at the Customs Service—carry hefty price tags and have a life of their own. They cannot be halted without dire consequences to the economy and customer services, experts say.

Ray Bjorklund, who analyzes government IT spending as vice president of consulting at FSI, expects IT budgets to increase soon.

"It's the early stage of this administration," he said. "We may decide we really aren't spending enough. I think we're anticipating a substantive increase in the 2003 budget." But he said no one really knows for sure until the Bush administration discloses how much it wants to spend and how it would spend it.

Meanwhile, top government managers are trying to make a business case for investing more in IT, including delivering electronic services to the public.

"If we were the private sector, I would submit we wouldn't even think twice about [spending more] if technology advances are needed in order to deliver better service, meet our mission demands and if there's a business case," said Charles Armstrong, executive director of the Customs modernization program.

"The real question that we ought to be asking is not, "Is it too much?' but "Is it enough?' " Armstrong said. "And the answer is that it's not."

One way to measure how much the government should spend on IT is to look to the private sector. Writing in "Memos to the President," a book published last year offering advice to the new president, William Zollars, chief executive officer of Yellow Corp., a transportation company based in Overland Park, Kan., said it is smarter to "invest $2 in development of new systems and technologies" for every dollar invested in legacy system support. The government also should avoid projects that take more than three years to complete. "While it's valid to focus technology investment on cost savings or operating efficiency, the returns begin to diminish if that investment is not also improving the customer's overall service experience," Zollars said.

And he warned, "The majority of your investment must be on new stuff if you are going to move forward." And that means spending more to reap the benefits of a good investment, he said.

The Political Game

Although it has been a slow process, agencies have begun to rethink how they spend IT money and how to pool their resources. What that means for the IT budget, some hardened federal IT experts say, is that it will most likely not shrink but be reallocated. "If there were a more enterprisewide approach, and if agencies adopted more commercial processes, there would be money left from the stovepipes, and those monies could be invested in e-government and transformation," said Olga Grkavac, executive vice president of the Enterprise Solutions Division of the Information Technology Association of America. "It's not that there is too much money, but money could be more efficiently spent."

But it all comes back to politics, said Dick Stubbing, professor emeritus at the Terry Sanford Institute of Public Policy at Duke University who spent 20 years working as a budget analyst at OMB. And someone has to "step back and say, "Is this the right mix for what the nation needs?'

"It has to be done centrally, reporting ultimately to the president, someone with the power to make the change possible. And the way you make changes is in a crisis," Stubbing said.

For now, he said, there is no crisis.

Dan Caterinicchia, Christopher J. Dorobek, Diane Frank, Bill Murray, Colleen O'Hara and George I. Seffers contributed to this report.

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