4 Things to Know about the Federal IT Budget Proposal

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Big-ticket IT procurements and system modernizations provide a road map of agencies’ spending priorities in the year ahead.

As budget hearings get underway on Capitol Hill, agencies’ technology investments probably won’t get top billing. But big-ticket IT procurements and system modernizations provide a road map of agencies’ spending priorities in the year ahead -- and could mean big bucks for vendors

Overall, the total federal IT budget proposed by President Barack Obama in his fiscal 2016 budget blueprint released last month would tick up to $86 billion, a 2.7 percent increase above the current year’s levels.

Here are four takeaways from the administration’s IT budget request courtesy of a closer reading of budget documents and a new Bloomberg Government analysis.

Remember, It’s Just a Request

The president’s budget request is just that. Lawmakers write the actual spending bills that put money in agencies’ coffers -- and they'll will have the final say.

Nothing illustrates that more than the beleaguered Internal Revenue Service’s ambitious plans for revamping its internal IT infrastructure.

Under the president’s request, overall IT spending at the Treasury Department (the parent agency of the IRS) is set to rise 19 percent. Budget documents spell out an additional $1 billion in IRS tech spending, including to support an overhaul of its signature tax-processing initiative, known as CADE 2.

But the department is clearly in a precarious position when it comes to Congress with hat in hand.

Congress has shown no appetite for increasing IRS funding from rock-bottom levels, in part because of the outrage over the targeting of conservative groups for extra scrutiny by the agency’s tax-exempt division.

“IRS in this whole analysis is probably the most subject to the winds of political fortune ... If you think about this in terms of risk and opportunity, while the growth rate is there and that's the opportunity, the political risk is quite high as well,” said Cameron Leuthy, a senior budget analyst with Bloomberg Government. He spoke during a webinar Thursday sponsored by Bloomberg, the Coalition for Government Procurement and the IT Alliance for Public Sector.

IT Modernization Projects Represent Business Opportunity

Overall, the Department of Health and Human Services is planning the biggest IT spend among civilian agencies next year -- a total of $11.3 billion, although most of that is eaten up in transfers to the states.

Still, excluding those transfers, the department is prepared to pony up $2 billion to bolster IT infrastructure at the component level.

The Centers for Medicare and Medicaid Services has requested an additional $490 million to revamp IT systems and $313 million to continue building out the backend of HealthCare.gov, known as the “data services hub.”

The National Institutes of Health wants an additional $781 million for IT, the Food and Drug Administration wants an extra $584 million and the Centers for Disease Control and Prevention is seeking a $324 million bump.

"What we're seeing here is obsolescence in the current technology that underpins these bureaus,” said Jesse Holler, a quantitative analyst with Bloomberg. “And because of this, they're taking part in a large-scale modernization, and this is particularly true for HHS."

This represents potential opportunity for contractors. There’s no consistent schedule agencies follow for refreshing their technology; in fact, the government tends to hold on to its equipment longer than most private companies do.

"For the vendor community, these are not opportunities that come up every year, so it really matters,” Leuthy added.

Clearing Up Cloud Spending Confusion

We’re also finally getting accurate details about federal agencies’ spending on cloud computing services.

Last year was the first time the Office of Management and Budget directed agencies to report spending on cloud services (guidance was tweaked this year to include spending on all “provisioned services”), but a coding error by the Social Security Administration last year skewed the results. SSA had reported nearly all of its IT spending as being for cloud services.

According to the 2016 budget blueprint, agency cloud spending is about $7 billion, or about 8.5 percent of all IT spending.

Among the biggest cloud shoppers in government -- according to the 2016 request -- are the Department of Homeland Security (for its cybersecurity and national protection system), NASA and National Oceanic and Atmospheric Administration.

The General Services Administration is mulling over creating a new cloud category under the IT Schedule 70 contract vehicle to promote a more commoditized approach to buying cloud and more recently queried industry on creating an entirely new cloud-only contracting vehicle.

Cybersecurity Still Big Bucks

All told, the administration is proposing to spend $14 billion governmentwide on cybersecurity initiatives.

That includes $582 million for DHS to manage the continuous diagnostics and mitigation program, under which agencies can procure real-time cyber tools and services with no upfront costs.

DHS last week awarded Northern Virginia cybersecurity firm Knowledge Consulting Group a $29 million task order to offer continuous monitoring as a service capability under the CDM program.

Enhanced cybersecurity also accounts for increased IT spending at the agency level.

Take the State Department, for example. Foggy Bottom’s IT budget is set to increase by a total of $218 million, the first major increase for the agency in more than five years, according to Bloomberg’s analysis.

That includes a 23 percent increase for the electronic communications systems, and a $10 million set-aside specifically to boost cybersecurity measures at the agency. Last fall, State revealed its unclassified network had been breached by hackers and subsequent media reports last month indicated the agency was still struggling to squelch malicious activity on its networks.

The cash infusion will support the “necessary re-architecting of the classified and unclassified networks that offers additional protections and mitigates known security vulnerabilities,” according to the department’s 2016 budget request.

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