New priorities in IT spending mix

Despite budget shortfalls, increased Medicaid costs and unexpected homeland

security spending, information technology spending for states will hold

steady, according to a market research firm specializing in the public sector.

"Over the long term, this is a very attractive market," Jim Kane, president

of McLean, Va.-based Federal Sources Inc., said March 18 at FSI's eighth

annual State of the States Conference. The event is aimed at IT vendors

seeking to find out what opportunities are available in the state and local

government market.

State and local government IT spending for fiscal 2002 is estimated

at $39.9 billion — a $1 billion increase from the last fiscal year, Kane

said. For fiscal 2003, FSI estimates $40.4 billion in spending, and $41.5

billion the following year.

The company forecasts that in fiscal 2003, 30 percent of the total state

and local IT spending will be on services ($12.3 billion), followed closely

by personnel ($11.7 billion), then hardware ($8.2 billion), telecommunications

($5.3 billion) and software ($2.9 billion).

Because of budget shortfalls — 42 states are projecting a combined

$40 billion in lost revenue — state officials likely will use their relationships

with vendors to further develop existing programs and will be less likely

to fund larger projects, Kane said.

But states also have new priorities with homeland security, including

public health, public safety and law enforcement. Kane said federal funding

will flow to state and local governments, but he wasn't certain which level

would get more funding. However, he said, "we think relatively more of that

funding is going down to the local level."

Local officials have voiced approval for direct federal funding for

homeland security initiatives.

Opportunities in public safety include communications networks and equipment,

integrated justice systems and surveillance. In regard to health and human

services, projects will include child welfare and support enforcement systems,

online vital records, and requirements mandated by the Health Insurance

Portability and Accountability Act of 1996, Kane said. Other areas — education,

economic development, and finance and administration — will remain stable,

while the environment and natural resources will decline as a priority.

Rock Regan, president of the National Association of State Chief Information

Officers and Connecticut's CIO, said NASCIO is focused on homeland security,

cybersecurity, privacy issues balanced with security issues, and enterprise

architecture.

Costis Toregas, president of Public Technology Inc., a technology arm

of several national associations of counties and cities, also said homeland

security is a concern and an area of growth for vendors. He said that area

includes energy, environment, transportation and public safety matters.

Toregas also said PTI plans to announce a partnership with the federal

Critical Information Assurance Office to design and deploy an information

sharing and analysis center (ISAC) for local governments. And Regan said

the states are developing a state-level ISAC.

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