Education IT spending to spike -- eventually

Information technology spending in the state and local education sector could reach $10 billion by 2010, according to a new report. But significant growth likely won’t come until 2008 and even then that depends upon several factors, such as controlling runaway health care spending and improving state and local revenues.

“I categorize it as gloomy with somewhat of a rosy horizon,” said James Krouse, manager of Input’s state and local market analysis, in his new report. “I’m just saying [that] in the next couple of years, all indications are that it’s going to be a very tough market.”

The report predicts a compounded annual growth rate of about 7.8 percent for education spending – including higher education and kindergarten through 12 grade – over the time period. However, Krouse said increasing education spending would depend on shifting resources from other areas, namely health care. The education IT market also trails homeland security and public safety spending, but that spending is likely to remain intact, he said.

“For many years now – and I think I’m not even close to being alone -- health care has picked the pocket of education budget,” he said. “Every time health care costs keep going up, the state and local level education is getting constricted.”

What’s going to happen is that the bubble is going to burst on health care spending, Krouse said. It won’t come during the Bush administration because it has unsuccessfully and ineffectually tried to do that and was rebuffed by Congress. He said state governments will be unable to absorb rising health care costs.

“Again this is speculative, but it’s gotten to the point where it’s grown beyond measurable control,” he said.

Krouse said higher education is getting less federal money and is relying more on tuition and student fees. But there will always be more IT innovation at that level because of expertise and homegrown resource pools.

But the K-12 sector will continue to look for federal grants. As this sector is given wide latitude in implementing certain mandated programs, such as the No Child Left Behind Act, he guessed there might be more pressure from federal regulatory agencies to find out how and where federal funds are spent.

But there isn’t going to be much innovation in this area because schools are mostly looking to purchase computers to put students online or strengthening the connectivity among school districts. “Beyond that, where’s the innovation?” he asked.

Although there may be a role for outsourcing IT at that level, Krouse said the sector is too fragmented and he hasn’t found any contracting opportunity for outsourcing. However, several technology companies, including Microsoft, Oracle and Dell, are positioning themselves as service providers for these markets.

But Krouse repeatedly cautioned that this is all speculative.

“This is crystal ball stuff,” he said.