The Perfect Storm
The ongoing wars in Iraq and Afghanistan continue to siphon billions of dollars from federal coffers, and solution providers fear a long-term impact on IT spending at both the federal and state levels. What's more, there's the presidential election that marks the first since 1952 that has no legacy from a sitting president. And it will be the first time since 1968 that the country will change administrations in the midst of a war.
"The problem you've got in an election year is that people are more frozen than they have been in the past," said Ron Rittenmeyer, chairman and CEO of EDS, Plano, Texas. "There is a lot of money being diverted to the war effort. We are closing deals, but I think it's an area where we don't know what 2009 is going to bring."
And smaller solution providers are already predicting that the war effort coupled with economic woes will dry up the flow of federal dollars earmarked for state and local IT projects.
Kathy Pakkebier, president of PCS in Denver, a company that builds mobile data solutions for police, fire departments and ambulances, predicts that the homeland security grants needed to fund her projects could vanish next year.
"Basically, the funding will dry up," she forecast for these grants in 2009. Instead, she said her company would focus on maintaining existing customers. "We are part of the ongoing operating costs," she noted. "What we do [local government] can't do without. If we maintain our position as a solution provider, these aren't luxury items. We won't have a banner year [in 2009 and beyond], but we will be able to maintain our current customer base and we'll be able to dive deeper into the accounts."
Then there's the election and a definite uncertainty among solution providers over which candidate would be best for IT (see poll, below).
For some vendor executives, John McCain is the choice.
"Technology should be separated from politics," said Cisco Systems Chairman and CEO John Chambers, who is also a senior technology adviser to McCain. "What we would hope to see in the next president, be they Republican or Democrat, is somebody that really understands how to use technology to address growth opportunities, job creation, more economic stability, productivity which translates into better standards of living, and giving this opportunity to more and more people. And an ability to tackle the tough issues, such as health care, etc. ... I think should be a major national goal. And an enabler of that should be high tech, because if you can take 20 or 30 percent of the costs out of health care and use the savings to provide services to those that aren't getting covered, you could not only provide a higher quality of health care, you could do it in a way that gives access to all Americans."
Others surveyed by CRN endorsed Barack Obama. Health care VARs in particular took interest in his pledge to devote $10 billion a year for five years to bring the U.S. health care system in line with electronic health information system and records standards. A much smaller minority preferred Hillary Clinton.
Meanwhile, Intel President and CEO Paul Otellini declined to say whom he supports in the presidential election, but he was quick to offer an IT strategy for the new administration. "Among our biggest issues is the competitiveness of the U.S. and our high-tech industries that help fuel America's growth," he said.
"Take the R&D tax credit, for example. Without a doubt, this credit helps keep innovation and high-paying R&D jobs in the U.S. Yet our lawmakers have let the credit expire repeatedly over the years, instead filling the gap with repetitive short-term extensions, which, frankly, have negative financial consequences and disrupt research planning. This key credit should be enhanced and made permanent as soon as possible."
Otellini also supports a boost in funding for basic research in our national labs and universities. "We need the political will to provide the funding that was agreed to by Congress and the president last year with the America Competes Act," he said.
Longer term, he said, the U.S. needs to strengthen math, science and engineering education at the K-12 through graduate school levels. He'd also like to see the next administration continue to support the advancement of trade agreements worldwide in order to improve access to markets around the world.
But solution providers agree that the Iraq war and its staggering ongoing costs are the biggest threat to not only federal government IT spending, but its related ripple effect could put a damper on the public sector. Still, some solution providers see a brief but significant window of opportunity, especially in the federal IT market.
Michael Fox, senior vice president and director of sales and marketing at SRA International Inc., a government solution provider in Fairfax, Va., said he's seeing federal agencies rushing to spend their budgeted IT dollars before the November election. Following the election, however, he expects IT spending to significantly come to a crawl as the new administration gets situated. His advice: Act quickly to take advantage of this narrow window of opportunity.
JENNIFER HAGENDORF FOLLETTDAMON POETER contributed to this story.