Civilian IT budgets to dive in 2024, PSC forecasts

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Expect a return to pre-pandemic IT spending levels in the coming years, the trade group warned.

An end to pandemic-driving spending boosts is expected to lead to an almost 20% reduction in information technology budgets at civilian agencies, according to a new forecast from the Professional Services Council, a trade group representing leading federal contractors.

Defense Department IT spending, long a driver of growth, isn't immune to budgetary headwinds, according to the PSC forecast. DOD tech spending is expected to take a .5% drop, and all told, overall federal IT spending is poised for a 10.3% dip next year.

Despite these dire forecasts, IT spending is something of a bright spot when compared to overall federal spending trends, according to PSC. Cuts are expected across the federal civilian enterprise over the next few years, but coming IT spending cuts are expected to be less drastic than overall spending reductions, and IT spending is expected to recover more quickly than overall spending levels, particularly on the civilian side.

PSC is forecasting steep discretionary spending cuts at the Environmental Protection Agency and the Department of Transportation over the next five years, with more modest cuts expected at the Departments of Justice, Interior, Commerce, Veterans Affairs, Health and Human Services, State and Homeland Security over the same period. DOD spending is expected to climb modestly, along with spending at NASA and the Departments of Treasury, Education and Labor.

A lot depends on whether Congress passes full-year appropriations for fiscal year 2024. The House just passed a continuing resolution that sets up two deadlines for a potential partial government shutdown. Under the House CR, funding for Transportation, Housing and Urban Development, Agriculture, Energy and Veterans Affairs would expire on Jan. 19, 2024, while most security agencies — including DOD, State, Homeland Security and others — would see their funding expire on Feb. 2. 

The Senate is taking up and expected to approve the House-passed legislation in time for it to be signed into law before the current stopgap bill funding federal operations expires on November 18.

Another wildcard is the Fiscal Responsibility Act, which set topline discretionary spending limits for fiscal years 2024 and 2025 and was conceived as a way to incentivize Congress to enact regular appropriations bills, as opposed to continuing resolutions. The FRA, which was signed as part of the deal that extended the debt limit back in June, calls for a revision of defense and nondefense spending caps in the event a CR is in place on April 30 2024 or 2025. Under the act, nondefense spending caps would be revised upward in the event a CR is still in place at the end of April, while defense caps would tick down slightly. 

Typically CRs don't extend that far into a fiscal year, but it's not impossible that Congress will settle on a full-year continuing resolution to get budget battles out of the way ahead of a contentious election season. The Defense Department is watching that possibility closely because of the 1% sequestration that would be triggered in the event full-year appropriations aren't passed.

"I don't read it as super probable yet," DOD Comptroller Mike McCord said in a keynote at a PSC's Federal Market Forecast Conference in Arlington, Va. on Wednesday. "But you kind of have to be concerned at least."