Budget numbers aren't always what they seem, and the proposed U.S. federal Fiscal Year 2017 IT Budget really isn't as bleak as it looks. But we need to dig a little deeper to fully understand the numbers and the potential growth.
First, let's get the (seemingly) bad news out of the way. On paper, it appears that the proposed information technology budget for FY 2017 will increase to $89.8 billion, a 1.3% increase over the 2016 request. That's not a terrible level of growth, but it's a far cry from a few years ago when federal IT budgets tended to go up 4% to 6% each year.
What's more important is where that money is slated to go. Finding that information is more challenging than it should be, and it's why we spend a great deal of time "following the money."
You Will Hear Two Different Numbers Quoted
One thing that makes budget watching complicated is that you may hear two different IT budget numbers discussed. The $89.8 billion number mentioned above is the full IT budget. It's set as part of the president's larger proposed discretionary budget package. But details are only shared for about $81.60 billion of the IT proposal. (The rest is assumed to be targeted at classified programs or other special projects where details are not made available.) That's why you may hear $81.60 billion listed as the official IT budget. It's not, but those are the only IT budget details available to the general public.
So whenever you hear the lower number mentioned for the rest of this year, just keep the larger $89.8 billion number in the back of your mind.
Now, if we only look at the lower, fully itemized IT budget, the increase looks even smaller – just one tenth of one percent, from $81.50 billion in FY 2016 to $81.60 billion in FY 2016. Details are shown in the chart at the end of this post.
Where the Cuts Are
Things also seem to look bleak when you focus on the drastic IT reductions some agencies will be experiencing for FY 2017. For example, the Department of Housing and Urban Development (HUD) is slated for a drop of -15.6% (from $341.57 million to $288.20 million). A large part of that reduction comes from spending on "Infrastructure and System Monitoring Support," which fell from $223.70 million in 2016 to $146.26 in 2017.
Also, the General Services Administration (GSA) is down 8.9 %, (from $710.15 million to 647.20 million). This drop comes via moderate cuts to several programs, such as the "GSA Human Resources IT Transition to Transformation (HRT2T)" line item which dropped from $21.32 million in 2016 to $4.26 million in 2017, and the "Analytics Service Platform" line, which spiked up in 2016, only to drop from $31.43 million in 2016 to $26.26 in 2017.
IDC tracks thousands of different budgeting paths for program-level IT funding across all federal agencies. Details are available in the IDC Government Insights: United States IT Opportunity: Government research advisory service, which includes technology recommendations and key industry forecasting for government IT systems.
But… There's Some Good News Hidden in the Details
So where is the expansion for 2017? First of all, the budget actually will increase a bit more than what the "official" numbers show. The original FY 2016 budget was set at $79.49 billion a year ago (not $81.59, as OMB quotes now). The reason for the discrepancy is that the budget crept up a bit over the past several months thanks to new system and security investments. So, the actual budget increase is "unofficially" closer to a 2.7% increase when compared to the original FY 2016 plan
OMB states that the full budget includes a proposed Modernization Fund. It has requested $3.1 billion to replace legacy IT systems, specifically targeting agencies with the biggest IT issues. One key goal is to leverage shared services as a way of both improving systems and controlling costs. The plan also has $62 million targeted at improving the skill sets of the federal workforce, via direct scholarships and other educational programs.
That's great, but as Figure 1 shows, the full Development, Modernization and Enhancement budget will actually decrease by 6.8%. So, despite the existence of this "fund," not as much will actually go into new systems and enhancements as we have seen in previous years.
Also, there is a request for $370.1 million in security funding, which comes in the wake of the Office of Personnel Management hack and ongoing efforts to strengthen security at the Internal Revenue Service.
For DoD, a heavy focus will be Joint Regional Security Stacks (JRSS) in fiscal 2017. The spending target for these firewall and network improvements is $172.3 million – more than double what was enacted for these solutions in FY 2016.
All-in-all, the proposed FY 2017 federal IT budget isn't as robust as what we in the IT industry might like to see, but there are some pockets of strong growth, and the trend clearly is toward continued system consolidation and security improvements, which bodes well for cloud providers.
Figure 1, below, shows the basic FY 2017 Federal IT budget as it was shared by OMB, plus two trailing budget years. We added the darker shaded percent columns to show what level of increase or decrease each section shows (comparing FY 2016 to FY 2017).