In the Warpath

But those happy days may be over, except for war-related technology. The president's fiscal 2005 budget, calls for spending increases in military, intelligence and some national security sectors, but it gives relatively little to IT-about $61 billion. That's an increase of $700 million over the previous fiscal year, a meager boost compared to the boom days. Fiscal 2003 proved to be the last year of big spending increases-since then, the tech budget has grown a mere 6 percent.

The government market took on a gold-rush atmosphere following the Sept. 11 attacks and the emergence of the new Homeland Security Department. Many presumed-correctly-that technology would play a central role in the U.S. response to terrorism. But by and large, dreams of big security spending haven't materialized.

Only $1.7 billion in the fiscal 2005 budget goes toward "real homeland security projects," says Ray Bjorklund, the senior vice president of Federal Sources Inc., a market research firm that conducted a detailed analysis of recent and future budgets. Among security-focused agencies, much more is spent on administrative projects and on improving project performance. True security spending is spread among the Energy, Justice, State, and Health and Human Services departments, as well as other agencies that aren't under the Homeland Security umbrella. The budgets of Homeland Security and those departments combined show an unremarkable 12.3 percent compound annual growth rate.

Across government, agencies are cutting back. The Treasury Department is reducing spending by 4 percent; this at the department that operates the largest civilian telecom network and is involved in a number of IT-heavy projects to track money laundering and terrorist financing schemes.

Among all civilian agencies, tech-related spending is down for human resources (4.2 percent), health and education (1.2 percent), and has all but halted for transportation and economic development projects, which get an almost 17 percent cut. The areas with the highest increases-above 5 percent-each account for less than $730 million in spending, with the average at about $385 million.

The Defense Information Systems Agency-the military's central IT purchaser-will see its tech budget drop 9 percent in fiscal 2005. DISA is taking advantage of multibillion-dollar investments made in telecommunications network infrastructure during the commercial boom. Today, that hardware is cheap and plentiful, so DISA can tighten its purse strings.

Other parts of the Defense story also are gloomy. Spending on supply-chain management projects, which some thought would revolutionize military logistics and planning, has plummeted almost 14 percent. The biggest tech spending increases, unsurprisingly, are dedicated to warfighting and related activities, the domain of a small number of entrenched contractors.

Because there's not much new money, there are fewer new projects. On the civilian side, only 138 are planned for fiscal 2005, compared with 298 in fiscal 2004. As for Defense, the number is 115, down from 632. Collectively, new projects represent only $1.1 billion in IT spending for fiscal 2005.

All these cuts, analysts and federal officials say, are largely the result of the Bush administration's determination to constrict discretionary spending across government and to force agencies to better manage programs by threatening to withhold their funding. The Office of Management and Budget has labeled more than 700 technology projects "at risk" of termination, frequently because of poor program management.

That should come as a wake-up call to industry, Bjorklund and others contend. The real money lies in saving projects, not starting new ones. That should comfort large IT vendors best positioned to work within an agency and to lobby OMB and Congress to protect prized projects.

But for those hoping to cash in on Uncle Sam the big spender, the message looks much bleaker: The party may be over.