Navigating The Rough Economic Waters

This year is shaping up to be a perfect storm of uncertainty in the public sector market. The country remains embroiled in two wars, the subprime mortgage debacle that has infected the housing market is creating havoc with state budgets, and a new administration will take over in Washington early next year.

Definitely not business as usual. In fact, it's the first time since Lyndon Johnson that the country has changed presidents in the midst of a war.

But as I talk to solution providers around the country, I sense more head-scratching than panic. On one hand, some federal solution providers say they are seeing a mini boom in government spending as agencies scramble to spend their budgets prior to the new administration taking over. Those same solution providers predict bust to follow boom as new agency heads move cautiously on IT spending.

Of greater concern, however, is the ongoing war in Iraq. The war effort is siphoning money that impacts the entire federal budget, including IT spending. As EDS Chairman and CEO Ron Rittenmeyer noted, "There's a lot of money being diverted to the war effort and we don't know what impact that will have on fiscal 2009."

And when federal spending is under pressure, you know what flows downhill to the states, which are already in a world of hurt. One solution provider told me last week that one of his state projects was first funded, then put on hold and finally canceled.

One of the biggest problems in states such as Arizona and California, where the housing and mortgage crisis has hit hardest, is that sales tax revenue has taken a big hit. Several state CIOs slated to attend this week's NASCIO conference in Chantilly, Va., were even forced to cancel their trips at the last minute because of travel freezes imposed by their respective states.

So what does this all mean? My feeling is that war, politics and a chaotic housing market aren't going to throw smart solution providers off the scent. Kathy Pakkebier, president of PCS in Denver, builds mobile data solutions for police, fire departments and ambulances, capitalizing on Homeland Security grants to local governments. One of her hottest markets is Arizona. "Public safety is recession-proof," she said. "Even if cities can't hire police officers, they have to have the tools to do their jobs."

Other solution providers view public sector IT spending in the same vein. While IT spending may not in fact be recession-proof, it certainly isn't discretionary spending. Government agencies at all levels may pause in their IT spending to absorb the economic and political body blows. But a recession may in fact create more opportunity to convince the public sector market to beef up its IT spend as a way to navigate through the economic storm.

How are you battening down the hatches for your business?
Send e-mail to Everything Channel Industry Editor Craig Zarley at [email protected].