President Bush's Proposed FY06 Budget Represents Growth in IT Spending for Federal Government; FSI Completes Initial Analysis of Bush Administration's 2006 Budget to Congress.

MCLEAN, Va. -- President Bush's proposed FY06 Information Technology (IT) Budget of $65.2 billion, announced yesterday, appears to represent a more than 7% growth rate. A four year view shows the IT budget represents a compound annual growth rate (CAGR) of 5.5% over four years (FY03 through FY06).

"This is not unexpected, and represents healthy growth for IT, considering that the top line budgets of many agencies are dropping or funded below requested," said Karen Wilson, vice president, consulting for FSI. "The IT portions of this budget are growing, which is good news for the industry."

The 2004 actual IT spending, per the Office of Management and Budget (OMB), was less than what was enacted in the budget; $59.1 billion, compared to just $58.6 billion actually spent.

"This was highly unusual. Many public IT companies have been reporting sluggish government spending to their investor community. We believe this sluggishness could be in part due to OMB exercising its authority in oversight of IT programs," said Ray Bjorklund, FSI's senior vice president and chief knowledge officer. "OMB may be slowing down the apportionments on major IT programs to ensure that there is proper emphasis on program management, due to some major mis-steps in government IT projects over the last few years."

That being said, the projected spending for government fiscal year (GFY) 05 and 06 appears to be catching up for any sluggishness in GFY04.

Some examples of major new projects include:

--Department of Veterans Affairs (VA): Health eVet - funded at $311 million for FY06. The project replaces the existing VistA-Legacy system. VistA is the technical infrastructure that supports the VHA provision of health care to veterans.

--Department of Homeland Security (DHS): Border & Transportation Security's (BTS) Consolidated Enforcement Environment is funded at $31.6 million for 2006. This is a DHS system designed to support the intelligence, interdiction, law enforcement and investigative efforts of the Department.

--DHS: Homeland Security operations center - which is a consolidated emphasis on developing the capability for HSOC, and is budgeted for $38 million of new funding.

--DHS will receive $11.6 million for tools for infrastructure protection to manage cyber-security

--Transportation Security Administration's (TSA) Freight Assessment Program is funded at $10 million in 2006. This provides a supporting system to government's databases on shippers and air carriers, with the intent to analyze data for effective intelligence and protection of citizens and freight.

There are also several programs that are not new, but appear to have sizeable increases from FY05 to 06. Overall, the ten largest program increases from GFY05 to 06 represent an increase of $1.9 billion. Some examples include the following:

--TSA will receive $382.5 million for electronic baggage screening technology

--TSA will also receive $215.7 million for the combined credentialing investment.

--Department of Justice (DoJ) will receive long-needed funds for consolidated enterprise infrastructure totaling some $154 million.

There is much emphasis in the government on "information sharing" stemming in part from the Intelligence Reform Bill passed in late 2004. While the budget does contain several examples of information-sharing projects (such as the consolidated law enforcement project in DHS noted above), the bulk of the funding at this point appears to be interwoven among many projects such as existing data sets to be consolidated and shared, infrastructure and communications network improvements, and other similar projects.

Homeland security initiatives government-wide, in the DHS and other agencies with homeland missions, will increase 42% from 2004-2006, with an increase of $748 million to $1.13 billion from 2005 to 2006.

Another area of emphasis is healthcare. This general area will grow 13.4% increase from 2004 to 2006. However, from 2005 to 2006, there is not much increase, which may signal re-alignment of existing funds.

There is noticeable growth in new projects of healthcare-related IT. As opposed to information sharing, healthcare IT is called out in several areas in the budget - most notably in the VA and the Department of Health and Human Services. Some examples include Health eVet program noted above. Also, the Centers for Medicare and Medicaid Services will provide $457 million in development/modernization/enhancement grant funds to the states for the federal share of State Medicaid Management Information System systems costs.

One area noticeably missing from the budget are funds for the Social Security Administration (SSA), given the President's focus on social security reform. The SSA budget takes a big hit in IT. This could indicate that the Administration does not know what shape the IT investments will take in any reform, or that the enabling legislation defining IT investment will not be passed in time for GFY06.

"We feel confident that this proposed spending will be positive for professional services firms and those systems integrators that provide professional services in helping government agencies define and manage their IT initiatives," concluded Bjorklund. "The budget's emphasis on security and sensor technologies also bodes well for equipment manufacturers that have robust capabilities for distributed control and networking."

About The FSI Consulting Practice

As the nation's preeminent supplier of government IT market intelligence since 1984, FSI has been helping clients make better business decisions and operate more effectively with fact-based, actionable intelligence for succeeding in the government IT market.

FSI provides a combination of online services, consulting and events to provide a "one-stop" source of business-to-business market intelligence for the government IT marketplace. FSI's respected and experienced consulting professionals are dedicated to strengthening the business development, marketing, and sales functions of companies selling into the government market.

FSI is a methods-driven, fact-based, analytical consultancy, providing actionable intelligence based on data, primary and secondary research, and experienced analysis.

FSI's Consulting Practice professionals have a wealth of experience ranging from research, market intelligence, budget analysis and survey methods, as well as management and technology consulting to the federal government. FSI's expert consultants hail from industry leaders such as Booz Allen Hamilton, Unisys, EDS, Veritas, Arthur Andersen, Deloitte, ICF Consulting, Arthur D. Little, Ernst and Young / Cap Gemini, and government entities including GSA, DISA, Army, Air Force, Navy and the White House.

About FSI

FSI (Federal Sources, Inc.), a Washington Management Group Company, delivers fact-based, government-IT market intelligence to both the largest existing government contractors and new market entrants via online subscription services, tailored consulting, GSA Schedule services and industry-leading events. These programs, underscored by a hands-on approach to client support, enable IT vendors and government organizations to make informed business decisions and experience rapid return on investment. FSI was founded in 1984 and is headquartered in McLean, Virginia. For more insight from FSI on the 2006 IT budget you can register for the Federal Outlook Conference on April 12 at www.fedsources.com.