As Federal Budgets Shrink, State, Local IT Spending On The Rise

Despite an anticipated drop of 8 percent in federal IT spending between this year and next, the state and local government market remains strong and chock full of opportunities for systems integrators offering targeted solutions, according to analyst firm Gartner.

State and local government IT spending is expected to reach $56.6 billion in 2013, a modest increase of about 2 percent compared to $55.4 billion this year, before climbing nearly 5 percent in each of the following two years. Spending in the sector is expected to climb to $59.4 billion in 2014 and to $62.1 billion in 2015, according to Gartner.

In contrast, Gartner expects federal IT spending to drop 8 percent to $75.2 billion in 2013 -- the steepest decline in 12 years -- and isn’t predicting a return to growth in federal IT spending until at least 2015.

[Related: Gartner VP Predicts Steep Falloff In Federal IT Spending In 2013 ]

"State and local governments are starting to see that light at the end of the tunnel. They’re right-sizing their budgets," said Christine Arcaris, research director, government, at Gartner, during a session at this week’s XChange Public Sector channel conference in Charlotte, N.C. "Operational and IT spending did contract from 2009 to 2010, but we’re seeing a lot of those issues pushed to the back burner."

Signature Technology Group, a solution provider based in Phoenix that specializes in data center technology, is seeing increased demand for software infrastructure upgrades among its government clients, said Aaron Zeper, vice president of sales and marketing at Signature.

"We’re definitely seeing it getting easier; there’s more progress moving forward. Before, they would scope projects and issue RFPs, but the deals wouldn’t happen," Zeper said.

At the same time, competition for contracts could get stiffer as federally-focused integrators look to state and local government opportunities to make up for declines at the national level, Arcaris said.

"If you are in defense with a deep expertise in secure communications or video analytics, that [knowledge] can be transferred to the department of public safety," Arcaris said.

NEXT: Where The Opportunities Are

Hot technology opportunities for solution providers in the state and local government space include big data and analytics as well as cloud and mobility, but only in cases where they are targeting the right solution to the right agency, Gartner's Arcaris said.

For example, big data and analytics come into play for health, human services and tax agencies, which are looking for ways to combat fraud, waste and abuse. Public safety agencies will have budget to spend on mobile data solutions and other technology as they work to implement next-generation 911 services, computer-aided dispatch and records management systems.

Government agencies will also be more apt to roll out solutions that generate revenue or decrease the cost of a business process, she said. Putting mobile devices into the hands of meter maids to upload tickets could speed the collection of fines, while providing analytics to state Medicaid agencies could uncover long-term cost savings as they examine disease control.

The concept of shared services is of particular interest to state and local government agencies, as they aim to turn their existing proficiencies into a profit center by providing backend functions or services to other agencies.

But Signature’s Zeper sees conflict on the shared services horizon.

"Every agency thinks they’re going to be the services provider; they all have visions of becoming a profit center," Zeper said. "We may have a glut of overbuilt infrastructure."