States' Budget Crises Cloud SLED Market

The outlook for state, local and education [SLED] IT spending is mixed despite the growing economic malaise that has seen state budget shortfalls more than triple this fiscal year over the previous year's gap.

Last week, the National Conference of State Legislatures [NCLS] issued its State Budget Update based on data collected from state legislative fiscal directors in June and early July. What it showed was that state budget gaps for fiscal year 2009 are projected to grow to more than $40 billion compared to about $13 billion for fiscal year 2008.

The report includes information on budget gaps for fiscal year 2008, revenue performance through May and budget gap projections for fiscal year 2009. Solution providers in states hammered by the mortgage crisis say state IT contracts are being scaled back or scrapped. "In Florida, we've seen a huge cutback [in state IT spending]; everybody's budget just got slashed," said Dave Gilden, a partner in Acuity Solutions, a Tampa, Fl. security and networking consulting solution provider. "Our year-over-year state business has seen a substantial slowdown; it's off by 50 percent. Product purchases and new projects have been put on hold."

By contrast, Gilden says his higher education business is holding up nicely, "We're not seeing the same impact in education. There is some trickle down impact from the state on local government, but anything that is Florida Department of is getting hit the hardest," he said.

But in the energy rich Rocky Mountain West and Texas, there is no discouraging word in SLED spending. "We're energy rich and have a lot of tax dollars available and [business] is really no different than we've seen over the past 3 to 5 years," said John Palley, general manager of business development at ISC Corp., a solution provider in Casper, Wyo. Which generates over 60 percent of its business from the SLED market.

And Jay Uribe, president and co-founder of Mobius Partners, a solution provider in San Antonio, Tex. says his local government and education business is up about 50 percent so far this year over last. "I've seen more strength in the local governments than anything, but education has been up as well," he said. Uribe says that booming energy prices have helped Texas dodge any economic bullets and he sees no slowdown on the horizon for his government and education business.

The National Conference of State Legislatures acknowledged that the state fiscal crisis is spotty. "Not every state is facing challenges," NCLS executive director William Pound said in a statement. "States that have significant portions of their tax bases tied to natural resources seem to have escaped major budget problems."

NCLS said the housing crisis is impacting budgets in 17 states, while natural resources were bolstering budgets in 10 states.