Forrester Predicts Less Money for Federal Tech, More for State and Local

A new analysis suggests a decrease in tech sector spending for the federal government under President Donald Trump, but significant growth in that sector for state and local governments.

Released this week, analysis by Forrester Research predicts federal tech spending to decrease 0.1 percent in 2017 and 0.6 percent in 2018 “as the incoming Trump administration works with Congress to cut federal spending.” The forecasted dip in federal tech sector spending comes after several consecutive years of growth in that metric by 1 to 3 percent.

However, total public sector spending in 2017 and 2018 is still expected to grow by 2 percent, with more spending among state and local governments offsetting a slump in federal spending. Forrester forecasts state and local government tech spending, which today represents about 56 percent of total government sector spending in tech across the United States, to increase 4 percent in 2017 and 2017.

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Driven largely by investments in cloud computing, state and local tech spending will increase its share of overall public sector tech spending two points from 56 percent to 58 percent by the end of 2018, according to Forrester. 

The slow pace of growth in the public sector tech spending is contrary to rapid year-to-year growth in the private sector has experienced since 2010. Public sector investments in computer equipment, communications equipment, software and other hardware have been “essentially flat” the past six years, while the same investments have grown by 25 percent in the private sector. These opposing trend lines have an impact on mission and are one of the main causes for the federal government’s reliance on legacy systems.

Forrester identified three trends in its forecast likely to direct the biggest shifts in where dollars will be spent: cloud migration, retaining talented tech workers and an increased reliance on contractors.

The federal government tackled cloud early on, but state and local governments are now coming around. Cloud migration is the single biggest reason why state and local spending in the tech sector are on the upswing.

Forrester also predicts tech staff costs and software spending “will grow faster than total budgets,” presenting a problem for public sector organizations already challenged to retain skilled tech employees. Tech staff costs are expected to grow by up to 3 percent through 2018, with software spending expected to increase by 2.5 percent over that time. This will likely force the government to outsource more work to “external parties,” such as contractors. Not surprisingly, tech outsourcing spending is expected to grow as much as 5 percent.