B2G Blog - Forecasts & Spending

Lessening the Blow of Sequestration

Tue, 14 May 2013 09:01:00 -0400

OMB may have found a way to bring $5 billion of the $85 billion sequestration price tag, back into play. The recalculations would free up $4 billion from the Pentagon and $1 billion from other agencies such as NASA and DHS.

When Congress moved money around among various accounts in the Continuing Resolution which took effect in March, it restored $5 billion of the sequestration cuts due to accounting rules that govern the different accounts. According to a quote from a government official in a recent Government Executive article, “Under the law, if [lawmakers] cut those accounts below their post –sequester level, there is a provision that credits back some of the funds.” A 1985 budget law prescribes that funds be restored to accounts that had been deeply cut via sequestration.

Much of the specific calculations and data behind the restoration of funds is still hush hush. According to Associated Press article that broke the story, the process is ongoing and public officials they contacted spoke under the guise of anonymity.

Although much of the dire consequences of sequestration are yet to be felt by most American citizens, public pressure is mounting to decrease the impact of sequestration cuts. Agency budget officials have been working with Congress to permit the transfer of funds between accounts to lessen the blow of the cuts. Some agencies have been able to avoid or shorten furloughs due to this process, such as Department of State, Department of Justice, and Department of Homeland Security. Department of Defense will benefit the most from the new calculations by being able to avoid $4 billion cuts.

FY 2014 Federal Budget Request: Challenges and Opportunities

Tue, 07 May 2013 08:53:00 -0400

Although two months late in delivery, the president’s FY2014 Budget Request continues promotion of administrative priorities while proposing cuts and savings to trim the deficit. Deltek's newly released report, FY 2014 Federal Budget Request: Challenges and Opportunities, analyzes the spending priorities, policy plans and information technology trends and initiatives in the FY2014 budget request.

The Obama Administration is requesting $3.8 trillion for FY2014. The budget focuses on jobs creation and economic growth to strengthen the American middle class. Deltek’s report examines patterns in the $1.2 trillion discretionary budget, as well as the $82 billion information technology budget, including market trends, drivers, and contractor-addressable spending.

Using a well-honed methodology for gleaning the contractor-addressable portion of federal spending, Deltek calculates projected expenditures for FY2014 for ten different federal product/services market segments.

The chart above shows the contractor-addressable portion of funding across federal agencies, as well as compound annual growth rate for each from FY2012 to FY2014. Nearly all of GSA's budget authority is under "Spending Authority from Offsetting Collections, Discretionary" to provide GSA the authority to fund its operations using funds collected from sources other than appropriations, primarily service fees.

Should the budget pass as written, Deltek estimates the contractor-addressable portion of IT spending for FY2014 to be $106 billion, which includes traditional IT spending captured in the Exhibit 53, as well as IT spending not typically captured in Exhibit 53 reporting, such as in embedded weapons systems.

Additionally, Deltek predicts contractor-addressable federal spending on architecture, engineering, and construction services will reach $27.7 billion in FY2014. Aerospace and defense spending will reach $149 billion. And operations and maintenance spending will reach $80.6 billion.

The budget request and Deltek’s research reveals the following in regards to the different market segments:

Information Technology: IT priorities are largely the same as the past 2 years, including shifting from an asset to a service mindset, infrastructure and data center consolidation, and continued transition to cloud computing.
Architecture, Engineering & Construction: Expect a continued shift in funding from major to minor construction, including deferred maintenance, especially in civilian agencies.
Aerospace & Defense: Despite budget constraints, DoD is focused on protecting investments that support the new defense strategy, and the war drawdown continues to impact spending on ground systems and mission support equipment.

As the federal government strives to reduce the deficit and decrease spending, finding contracting areas of opportunity becomes increasingly difficult. The request provides insight into the administration’s priorities, however the eventual enacted budget is somewhat of a wildcard. Don’t expect appropriations to conclude prior to Oct. 1, continuing resolutions are likely to prevail.

For more information on Deltek’s report FY 2014 Federal Budget Request: Challenges and Opportunities see the GovWin IQ website at www.govwin.com.

A First Look at Army?s FY 2014 IT Budget

Tue, 30 Apr 2013 10:05:00 -0400

Like other areas of Defense spending, the Army’s information technology budget is shrinking in FY 2014. Despite the decline there are still areas of business opportunity if we dig deeply enough. This post takes a look at some Army programs with total FY 2014 funding <$50M that are slated to receive high percentages of development money.

Last week the Office of Management and Budget (OMB) released the Exhibit 53 document for Fiscal Year 2014. This document provides data concerning agency IT budgets for the last couple of years and outlines where agencies plan to spend in fiscal 2014. In this post we will take a look at the Army’s IT investments, including the overall numbers and programs experiencing declining funding. In an effort to identify potential business opportunities, we’ll also take a look at a few smaller programs (total FY 2014 funding <$50M) slated to receive high percentages of development money. We will focus on smaller programs because much of the funding for larger programs is already wrapped up in large multi-year contract efforts. Industry is going to have to dig deeper into the budget this year to find opportunities worth pursuing.

The Big Picture
Drilling into the available data, we find that like other areas of the Defense budget, Army IT funding has been declining. Specifically, Army’s IT budget has decreased from $9.76B to $9.27B, or -4.94%, over the period from FY 2012 to FY 2014.

Programs with Declining Funding
Starting with programs whose funding is declining, listed below are the five programs experiencing the largest percentage decrease.

Installation Information Infrastructure Modernization Program (I3MP) – Seeing I3MP on this list is somewhat surprising given the emphasis in recent years that Army leadership has placed on modernizing the infrastructure of the now primarily CONUS-based Army’s camps, posts, and installations. This said, budget trimming has forced the Army to downsize its modernization efforts. These are proceeding apace at select locations – Europe, Korea, and some CONUS – but the pace and extent of modernization has been reduced out of fiscal necessity.

Joint Battle Command-Platform (JBC-P) – Investment in the JBC-P remains a high priority for the Army, but the level of funding has been declining for a couple of years now. Looking at the Army’s detailed budget submission for JBC-P reveals that the drop in FY 2014 will be the largest, followed by a rebound in FY 2015. The Army anticipates funding required for the JBC-P will rise in FY 2015 to $119M and $113M in FY 2016.
Long Range Advanced Scout Surveillance System – LRAS3 is a legacy system that has been fielded.

Biometrics Enabling Capability (BEC) – Another surprising name on this list, funding for BEC in fiscal 2014 is limited to just under $4M to support the technology refresh of BEC Increment 0, ensuring requirements for system availability, throughput and capacity continue to be met by refreshing the hardware infrastructure with latest generation technologies. Given a pending Full Deployment Decision and designation of BEC as a Program of Record, I would expect funding to pick up in the years ahead.

Movement Tracking System (MTS) – Funding has been cut entirely for the MTS because it is converged into the PM FBCB2 Joint Battle Command-Platform (JBC-P), as the 'JBC-P Log'.

Programs Receiving Development Funding
Lastly, here is a quick look at programs receiving 100% DME funding. These programs may be efforts for which new contracts will be competed or which will require follow-on contracts for the work to be completed.

Army Processing Centers – An APC is an Army Theater-level hub located in a DoD facility where IT applications are centrally, executed, stored, replicated, and managed. Otherwise known as the “cloud,” APCs are provided via the Army Private Cloud (APC2) contract. GovWinIQ is already tracking the potential re-competition of these contracts in 2015.

Close Combat Tactical Trainer – The CCTT is a networked system of manned simulators that provide combat support, combat service support, and computer generated forces. It trains crew through battalion level combat elements of both the RC and AC in their collective tasks. This is a requirement managed by Army Program Executive Office Simulation, Training and Instrumentation (PEO STRI). Lockheed Martin holds the latest contract to be awarded for CCTT and this expires in 2016.

Electronic Data Manager v1.2 – The Electronic Data Manager is the rugged computer element of Air Warrior (AW) ensemble worn as a kneeboard. A requirement managed by Army Aviation and Missile Command, work for EDM has been provided by Raytheon since 2006.

Army Contract Writing and Management System – A system to support the full spectrum of the Army's acquisition, technology and logistic (AT&L) end-to-end business processes. The requirement is for a single uniform solution for contract writing and management capability and financial auditability. This requirement is being competed under the name Army Procurement Execution Program (APEX).

Unified Command Suite – The UCS vehicle is a self-contained, stand-alone C-130 air mobile communications platform that provides voice and data to civil support teams. FY 2014 Base funding in the amount of $18.000 million will modernize, upgrade, and procure components for the Unified Command Suites for Civil Support Teams. Funding supports the UCS platform shelter and integration for 22 UCS systems, Video Teleconference (VTC) upgrade for 21 UCS systems, Satellite Communication (SATCOM) terminal upgrades for 22 UCS systems, and cryptological device modernization of 21 UCS systems. Two current contract competitions related to UCS are underway - The Unified Command Suite & Transportable Communications Package Advanced Echelon (ADVON) and UCS Basic Operator Course Instructional Support.

As we can see, the Army’s FY 2014 request registers a slight rebound from FY 2013, when annual Army IT spending sank below $9.2B for the first time in years. Given that Army’s IT budget is declining, what can be said about those programs that the Army is cutting spending on and those in which it is investing?

Georgia's FY 2014 Budget

Tue, 30 Apr 2013 08:53:00 -0400

Despite a financially cautious approach, Georgia Governor Nathan Deal proposed an additional $2.1 billion to the FY 2014 budget compared to FY 2013, bringing total spending to $40.8 billion for the coming fiscal year.

The governor wants the FY 2014 budget to focus on eliminating waste, streamlining government operations, stimulating economic growth, and preparing for economic uncertainties. While most agencies’ base spending is reduced in FY 2014, investments will continue in key areas of health care and education. Governor Deal has defined health care as the largest cost driver in Georgia’s recent budgets, and that increased Medicaid expenses will require an additional $246 million in both FY 2013 and FY 2014 over current funding levels.

True to his word, the governor increased the Georgia Department of Community Health’s budget by $888 million, and the Department of Education saw an increase of $812 million. The University System of the Georgia Board of Regents also received a healthy increase of $220 million. The average reduced funding for departments was pretty minimal – the highest being a $23 million decrease for the Technical College System, and an $8 million decrease for the Office of the Governor.

Unlike states that report proposed IT budgets alongside new fiscal budgets, Georgia only reports actual IT expenditures from the year prior. The data collected for FY 2012 also reflects a change in IT reporting methodology. In previous years, project portfolio amounts were included, but those amounts are no longer included in an effort to ensure more consistent reporting and to better compare IT spending with other states.

It is also important to note that some state entities with large IT expenditures expected, like the University System of Georgia, are not required to report. Only 80 percent of required agencies reported in FY 2012, with just 41 agencies having a commissioner signature on their proposals. Due to the reporting style of Georgia’s IT spending, FY 2013 and FY 2014 are projected by Deltek.

Despite a cautious outlook on state and national futures, Georgia maintains a steady spending rate in its total fiscal budgets. The Georgia Technology Authority (GTA) has made several new investments in recent years, and its current momentum is self-described as the nation’s largest state IT modernization. GTA officials said the primary focus in FY 2012 was building strong partnerships with the state’s strategic IT service delivery partners in support of collaboration; this is expected to continue in the years ahead.

For more information on Georgia FY 2014 budget, visit the state profile here.

Deltek releases annual state-of-the-states analysis: Webinar to be held this Thursday

Mon, 29 Apr 2013 15:06:00 -0400

Every year, Deltek analysts carefully comb through all 50 governors’ state-of-the-state and budget addresses to identity crucial trends in rising and falling priorities. Understandably, the past few years haven’t been so fruitful, with states cutting key programs, canceling major projects and shifting efforts to stay afloat amid recession’s strapped-budget undertow.

Fortunately, states are successfully weathering the storm, and this year’s report contains a bevy of potential vendor opportunities as governors’ agendas increased project items for the first time since 2008. Overall, the total number of governor agenda items rose a sharp 11.6 percent from 2012.

In addition to the report, Deltek is presenting a free webinar this Thursday at 2 p.m. EST so vendors can learn how to align technologies with current and emerging policy trends. Go here to register for the free event.

Major take-aways from “State of the States, 2013,” include:

Governors’ renewed interest in performance-based management, particularly in education
More effort to cut corrections and incarceration costs by investing in probation, parole and electronic monitoring programs
Heavy focus on Medicaid expansion (both for and against), and how to reduce its costs
Increased dedication to developing a strong future workforce by establishing a wealth of present educational opportunities, led by digital learning platforms
Amplified justice and public safety initiatives due to natural disasters (Hurricane Sandy) and national tragedies (the Newtown shootings)
Continued plans to streamline and consolidate government operations through technology

The report also breaks down governors’ 2013 goals per vertical market, with several charts detailing the number of agenda items mentioned year to year and technology-specific projects.

The full list of report graphs include:

2013 by vertical
2011-2013 comparison by vertical
2008-2013 average by vertical
2013 Agenda Item Popularity vs. 2011-2013 average by vertical
Top 25 cross-over agenda items
Agenda items with mention of technology, 2013
Agenda items mentioned by state, 2013
Community development, economic development/regulation, natural resources/environment, and transportation agenda items, 2013
Education agenda items, 2013
General government services and public finance agenda items, 2013
Health care and social services agenda items, 2013
Justice/public safety agenda items, 2013

To read the full, 33-page report, please go here. Deltek clients that subscribe to State & Local Industry Analysis (SLIA) may also request (via their Deltek Client Advisor) the Excel workbook containing all of the agenda data compiled for the report.

Lastly, please register for our free webinar this Thursday to learn more about the initiatives and implications of 2013’s state-of-the-state addresses.

Michigan's FY 2014-2015 Budget

Wed, 24 Apr 2013 09:06:00 -0400

Michigan Governor Rick Snyder is utilizing his fiscal year 2014-2015 budget to highlight Michigan as the nation’s “comeback state,” calling for both fiscally responsible and innovative spending to ensure a bright future. With no big surprises, education, health care reform, and transportation are among the state’s top investment priorities. More than 75 percent of the budget is dedicated to education and health and human services, and state spending will go hand in hand with outcome measures and performance metrics.

The FY 2014 budget totals $51.8 billion, a 7 percent increase from FY 2013. The FY 2015 proposed budget tops $53 billion. Table 1 below represents the total budget starting in FY 2010.

Michigan’s FY2014-2015 budget is spot on with Governor Snyder’s goals to increase better health outcomes, education, and transportation for Michigan citizens. Touted as the “comeback state,” Michigan is turning a corner as employment rates and personal income rise. The unemployment rate is decreasing faster than the national average, and the housing market is starting to gain momentum. Further, the governor has called for a focus on long-term solutions and assistance for struggling local entities. For a deeper dive into the state’s budget, please click here for an Analyst Perspective (log-in required).

Deltek is currently tracking more than 30 core-IT opportunities in the state of Michigan, valued at an estimated $3.3 billion. Vendors interested in forming a partnership with the “comeback state” should visit our Michigan state profile to access procurement information, budget documents, and key contacts.

OMB Report Charts Growth in Discretionary Spending

Tue, 23 Apr 2013 09:15:00 -0400

The Office of Management and Budget’s (OMB) submitted its reports on discretionary spending cuts to the President and Congress just ahead of the release of the President’s Budget Request. Along with a the review of spending caps, OMB also released a preview of sequestration in the spending plans for fiscal year (FY) 2014, which looks at discretionary spending out to 2023.

The Final 2013 Sequestration Report provides estimates of discretionary spending limits for each category in the Balanced Budget and Emergency Deficit Control Act of 1985 (BBEDCA), OMB’s scoring of the enacted 2013 discretionary appropriations bill, and comparisons with estimates from the Congressional Budget Office (CBO) in its Final Sequestration Report for Fiscal Year 2013. Examining appropriations legislations enacted through April 4, 2013, OMB found that the enacted appropriations are within the discretionary spending limits for 2013 and a sequestration of discretionary budget authority is not required. (Note: The assessment by OMB is distinct from the Joint Committee sequestration.) The chart below shows the caps after various re-categorization adjustments.

BBEDCA provides caps for discretionary program spending each year through 2021. Originally, discretionary programs were separated into “security” and “non-security” categories, which are shown above in the funding levels for fiscal years 2012 and 2013.

· The security category included budget accounts for the Departments of Defense, Homeland Security, Veterans Affairs, the National Nuclear Security Administration (NNSA), the Intelligence Community Management Account, and all accounts in the international affairs budget function.

· The nonsecurity category covered everything else. After 2013, BBEDCA provided a single category for all discretionary spending.

The Budget Control Act (BCA) allowed for revision of the spending caps if the Joint Select Committee on Deficit Reduction proposed legislation to reduce the deficit by $1.2 trillion was not enacted by January 15, 2012. Since legislation was neither proposed nor enacted, the caps were revised in OMB’s Final Sequestration Report of Fiscal Year 2012, which was issued January 18, 2012.

· The revised security (“defense”) category included only funding for discretionary programs in the national defense budget function: Department of Defense, portions of Department of Energy (including NNSA), and the Federal Bureau of Investigation.

· The revised nonsecurity (“non-defense”) category covered all other discretionary programs.

· The discretionary category for 2014 to 2021 was replaced by caps for the defense and non-defense categories. While the budget caps were adjusted to reflect the redefined categories, the overall discretionary spending limits were not changed.

The spending caps were changed again, under the American Taxpayer Relief Act of 2012 (ATRA), which reinstated the security and non-security categories for 2013 and reduced the limits by $4 billion, split evenly across the two categories. The limits for defense and non-defense spending were left in place for 2014 to 2021. However, the 2014 levels were lowered by $8 billion, split evenly across the defense and non-defense categories.

The preview report sheds light on several proposed revisions to the spending caps in the President’s Budget. The 2014 Budget includes savings in the mandatory and revenue categories, reducing the discretionary limits, restoring the 2013 sequestration amount, cancelling the 2014 mandatory sequestration order, and increasing the 2014 discretionary levels to those agreed to by Congress in ATRA. The Budget Request also proposes extending the spending caps through 2023. The reductions continue to be split between defense and nondefense categories and are set to take effect in 2017.

While discretionary spending at the budget proposal levels shows less growth, the levels are higher overall. According to the FY2014 Budget Proposal figures in OMB’s Sequestration Preview Report for FY 2014, the discretionary funding levels from 2013 to 2012 average $25.9 billion above those in the Final Sequestration Report for FY 2013.

The gap between the two plans for FY 2014 leaps out as a notable difference in the two series. The $97 billion increase from the Final 2013 Sequestration report is comprised of several changes. In the budget proposal, both the discretionary categories see an increase from restoring limits from ATRA. The revised security category receives an additional $54 billion, and the revised nonsecurity category receives $37 billion. While the proposed budget shows less of a drop than the Final Sequestration figures, spending rebounds a year later. If the proposed budget is accepted (though, there's ample reason to doubt that it will be), spending would approach 2013 spending levels in 2019.

Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin IQ. Follow me on twitter @FIAGovWin.

Transparency success stories: Tacoma Public Schools

Mon, 22 Apr 2013 11:24:00 -0400

The first step in determining what a government is going to want to purchase in the future is to get a good sense of what it purchased in the past. For this reason, the transparency initiatives undertaken by the Tacoma Public School District over the past few years should be encouraging for vendors.

According to Stevel Demel, contracts and warehouse manager, the impetus to make existing contract information more readily available stemmed from a desire to proactively respond to frequent information requests from the vendor community that bogged the procurement department down in paperwork.

“Prior to 2011, the Tacoma School District Purchasing Department would typically get 3 – 5 public disclosure requests for information per month,” said Demel in a written response to Deltek. “As a result, we spent hours copying and preparing documents for disclosure.”

The idea of making all contract information available online came after the district began utilizing online bidding technology for open procurements. This system already allowed the district to automatically post bid tabulations – a fine feature since one of the most frequent requests Deltek gets from members is who they are competing against for a particular procurement. In late 2011, the district was able to pay for the ability to upload its contracts database to the Web for public viewing, which Demel said has dramatically cut down on ad-hoc public disclosure requests.

Tacoma Public Schools provides contract transparency in three forms: inter-local, inter-district and current public contracts. This provides vendors with more or less visibility into all contracting activity for the district, past and present. Additionally, you can filter your searches to search for all contracts set to expire within the next year, making it handy for quick, lead-generating searches. In 20 minutes, I was able to assemble a table of active IT contracts the district currently holds:

“We are convinced more bidders means more competition and better prices, so ultimately our customers are benefitting from our transparency efforts as well,” said Demel.

However, the drive for transparency does have limits, and Demel is skeptical about openly discussing upcoming projects to foster competition.

“We tend to avoid [pre-RFP discussions] if doing so would limit competition or drive the specification,” he said. “We want to strike a balance between fairness and the need for discussions/information.”

Further, Demel said the best thing a vendor can do to win a contract is homework. Doing so will ultimately help them develop the best value proposal or bid. He also said the worst things a vendor can do are assume that the last bid submitted will win and failing to read the bid document carefully enough during the RFP process. Purchases below $75,000 can be limited to a list of pre-identified companies; anything over that figure should be competitively bid.

Federal FY 2014 IT Budget to Grow, but there?s Winners and Losers

Thu, 11 Apr 2013 09:30:00 -0400

Steven VanRoekel, U.S. Chief Information Officer at the Office of Management and Budget (OMB) released a presentation yesterday outlining the Obama Administration’s FY 2014 Information Technology priorities and budget numbers. The bottom line is that they are seeking 2% growth in the overall IT budget year-over-year, but individual department budget changes vary widely, meaning that there are “winners” and “losers.”

Preceding the public release of his presentation, VanRoekel posted a series of tweets on Twitter under the theme: All you need to know about the IT budget in 10 tweets. You can find the series under #FedITx10, but here they are in the descending order in which they appeared:

10-Flat or declining. IT=$82B in the 2014 Budget 2.1% increase from FY12, flat, 0.78% CAGR since 09, negative adjusted for inflation

9-Cut & Reinvest: Now more than ever we must use IT to drive savings to fund innovations that change how govt works

8-Priorities: IT priorities in 2014Budget: Innovate. Deliver. Protect. Evidence

7-Innovate: 2014 Budget enables the Digital Gov Strategy to build a 21st century govt, increase mobile services and Open Data

6-Deliver: PortfolioStat = +$2.5B in savings through IT consolidations and upgrades (over 3yrs)

5-Protect: Over $15B of the IT 2014 Budget is going to enhance our Nation’s cybersecurity

4-Evidence: 2014 Budget NEW evidence-based innovation initiative in my office to strengthen evaluations & drive results, beyond IT

3-Innovate with Less: Since 09 we flattened IT $ while FY01-FY09 IT increased ~2x At that rate, we’d be at +$110B on IT today

2-Dogfood: For geeks (like me!) interested in an Open Data 2014 Budget, key tables in XML here:

1-Progress: 2014 Budget enables strategic IT investment for a 21st century govt, drives innovation & protects our national assets

IT Budget “Winners” and “Losers”

The budget submission information included in VanRoekel’s presentation contains some top-line budget numbers which allows for some initial analysis. The IT budget summary table in the presentation calculates the amount and percentage change for FY 2014 based on FY 2012 budgets, even though he provides FY 2013 Continuing Resolution (CR) budget estimates that are different. To provide a more detailed perspective I ran the numbers comparing the dollar and percentage change for all scenarios.

The tables below are grouped by the “Winners” and “Losers” based on the percentage change from FY 2012 to FY 2014. The third table provides a comparison between Defense and Civilian segments, along with total federal IT.

Conclusion

While we are still waiting for the release of detailed IT budget information from OMB the proposed $1.4 or $1.7 billion increase for FY 2014, depending on which baseline year you use, is sure to surprise many who watch this market. Certainly, a 2% yearly growth rate is anemic compared to the growth rates we have seen over the last decade or so. (OMB reports a 7.09% compound annual growth rate (CAGR) between FY 2001 and FY 2009 and they are projecting a 0.78% CAGR between FY 2009 and FY 2014) Yet, many expected lower growth – if not an outright decline – in the federal IT budget for this coming fiscal year.

Now the budget is in the hands of Congress, which has historically appropriated more for IT than what the President requests. With fiscal priorities clashing and sequestration impacts now being felt across the market, federal IT could weather the current fiscal storm in relatively good shape.

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Originally published for Federal Industry Analysis: Analysts Perspectives Blog. Stay ahead of the competition by discovering more about GovWin FIA. Follow me on Twitter @GovWinSlye.

Highlights of the President?s FY2014 Budget Request

Wed, 10 Apr 2013 13:34:00 -0400

Today President Obama delivered a $3.8 trillion spending plan to Congress which includes a $1.2 trillion request in discretionary funding levels and nearly $82 billion for information technology for FY2014. The budget focuses on jobs creation, economic growth and to strengthen the American middle class.

The budget proposal also includes $1.8 trillion in additional deficit reduction measures over 10 years to reach a total deficit reduction of $4.3 trillion. The proposed deficit actions would reduce the deficit to 2.8%of GDP by 2016.

Additionally, the budget proposes $400 billion in cuts to health programs including Medicare. Savings and cuts would come from negotiating better prescription drug prices, fighting waste and fraud, and requiring the wealthiest seniors to pay more.

The table below shows the FY2013 enacted budget levels and the proposed FY2014 levels.

Other budget highlights:

Includes $50 billion for upfront infrastructure investments to invest in repairs to highways, bridges, airports, transit systems, and to encourage innovative infrastructure projects
Invests in in education reforms and training with a commitment to early childhood education
Simplifies the tax code and raises $580 billion for deficit reduction by limiting tax benefits, but not raising tax rates
Creates new “ladders of opportunity” to ensure that hard work leads to a decent living by developing pathways to jobs and partnering with communities to rebuild after the recession
Includes $200 billion in savings from other mandatory programs, such as reductions to farm subsidies and reforms to retirement benefits
Proposes $200 billion in discretionary savings from both defense and non-defense programs
Offers $230 billion in savings from changes in the way the government calculates inflation for annual cost-of-living adjustments for benefits programs

Information Technology

The president’s budget proposes nearly $82 billion in IT funding, a 1.8% increase from the FY 2013 CR and a 2.1% increase over FY 2012 estimated level.

IT-related budget highlights:

$575 million in savings is anticipated from DoD Data Center Closures.
$324 million is being cut from the DoD’s Global Hawk UAV program.
$22 million is being cut from Computer and Information Science and Engineering Research Programs at the National Science Foundation; CISE is the organization responsible for promoting R&D on big data. NSF’s budget takes big hits for its small size, which will affect grant spending on technology R&D.
$81 million is being cut from the DoD’s Precision Tracking and Space System, which is part of Ballistic Missile Defense at the Missile Defense Agency.
$38 million in savings related to the Joint Polar Satellite System is anticipated at the Department of Commerce.
$29 million in savings is anticipated from IRS Business Systems Modernization at the Treasury.

All told, the president’s budget request includes 215 cuts, consolidations, and savings proposals, which according to the administration, are projected to save more than $25 billion in FY2014. The budget proposal outlines the administration’s priorities and proposed methods for generating more revenue, cutting costs, and reducing the deficit. However, it joins competing budget plans in the House and Senate. Serious Capitol Hill budget negotiations are not likely to take place until this summer.

Surviving Sequestration: The 2nd Half of FY 2013 Could See $300 Billion in Federal Contract Dollars

Fri, 05 Apr 2013 09:49:00 -0400

Increasingly, we hear from companies in the federal marketplace that they struggle to plan and forecast their business prospects. There have been so many delays, false starts, and misaligned priorities that it is sometimes hard to know what opportunities are real and how to position your firm to compete. Now, the impacts of sequestration are beginning to ripple through an already skittish market, adding to the uncertainty. Yet, there are some things to consider that might indicate the contracting potential for the rest of fiscal 2013 and beyond.

Whenever things get unbearably uncertain it is important to have access to good data and information, plus a little creative thinking. It is the only way I know how to keep from making reactionary decisions and to get into proactive mode. So when it comes to thinking about the business prospects for the remainder of fiscal year (FY) 2013 it helps to build some historical context.

To get a sense of the historical pace and relative magnitude of federal spending for the remaining two fiscal quarters of 2013 I looked at the reported quarterly contract obligations across the federal government for the last five years. As I have noted in the past, we have seen a shift in federal spending to later and later in the fiscal year. Spending in Q1 and Q2 (in varying degrees) has shifted to Q3 and Q4. Even with some yearly fluctuation, the trend has been fairly stable. (See chart below.)

These shifts have occurred during a period where we have seen increasing use of continuing resolutions (CR), omnibus appropriations and other delays to funding federal agencies. FY 2013 is not particularly unique in this respect, so it does not seem unreasonable to conclude that the trend will hold this year as well.

Projected Spending for the Rest of FY 2013 – a Possible Scenario

Now that we have received data for the first two quarters of FY 2013 it becomes possible to perform some rough projections of what might be still on the table for Q3 and Q4. I used FY 2012 data as a basis to make these projections. For FY 2012, adding together Q1 and Q2 departmental obligations and then dividing that sum by the department’s total obligations gave me the relative percentage of total obligations that occurred in Q1 and Q2. (See the table below for the top 20 federal departments and agencies.)

Assuming that agency contracted spending in FY 2013 will be at least 90% of what it was in FY 2012 (sequestration may represent about a 7% cut, so this 10% difference seemed reasonable to me) I followed a similar approach to calculate estimates for Q1 and Q2 percentages and potential remaining obligations for the remainder of FY 2013.

For example, in the table below the Army had combined FY 2012 Q1 and Q2 obligations of $41.6 billion, which was 38% of their total FY 2012 obligations. The Army had a total of $17.8 billion in contract obligations for Q1 and Q2 of FY 2013, which represents 18% of the projected potential total FY 2013 spend, using my 90% of FY’12 assumption. Applying the percentage left over (i.e. 82%) to my total FY 2013 estimate results in a potential remaining obligation balance for Q3 and Q4 of $79.6 billion for the Army.

Granted, performing estimates at this macro level has its limitations and it requires certain broad assumptions for consistency, like a comparable year-over-year obligation rate and that, to some degree, these expenditures are for recurring needs. Some departments have a measure of cyclicality that is underrepresented in a chart covering just a few years. For example, Energy tends to run cyclically between 40% and 68% for Q1 and Q2 every other year or so like a pendulum. Further analysis into the specific contracts is needed to understand why.

Implications

Comparing the 2012 and 2013 percentages reveals that nearly all of the top 20 departments are behind in obligating funds, even with an assumed 10% reduction in spending from FY 2012. While the one-two punch of delayed budgets and sequestration might explain much of this it still remains that these agencies will need to obligate their remaining budgets by the end of the fiscal year. Even (or especially) in this uncertain budgetary environment, agencies will not likely leave money unspent. It is still a “use it or lose it” world out there. So there may likely be some significant pent-up demand that we could see play out in the remaining two quarters.

If this simple analysis holds even close to reality the potential remaining total contract obligations across all federal departments and agencies could be over $300 billion in Q3 and Q4, or 70% of total FY 2013 contract obligations. The second half of fiscal 2013 could potentially see federal contract dollars really flow.

Surviving Sequestration: Is a Flood of Federal Contract Dollars Coming?

Fri, 05 Apr 2013 09:39:00 -0400

At a luncheon I attended recently, Ms. Kathy Cutler, Director and Chief Information Officer at the Defense Logistics Agency (DLA) mentioned that her agency’s sales to DoD customers had been slow in the first half of fiscal 2013 due to the uncertainty surrounding Sequestration. Ms. Cutler did not say what her expectations are for the remainder of FY 2013, but her comment made me wonder if the trend at DLA is visible in the contract spending at other federal agencies. To analyze the question I used data from the Federal Procurement Data System (FPDS) showing federal obligations reported as of March 31, the end of Q2 FY 2013, under the top 10 Product Service Codes (PSCs). I chose to look at spending under the PSCs because of the visibility it provides into both the rate of federal spending in fiscal 2013 and the kinds of things agencies are buying. Finally, I took the fiscal 2013 numbers and compared them with data from fiscal 2011 and fiscal 2012 to gauge the rate of spending to date versus recent historical norms.

Due to the funding bottleneck we like to call Sequestration, agencies still have a large percentage of their average contracting dollars to spend in the last 6 months of FY 2013. Add to this the fact that agencies have obligated far fewer contract dollars to date than is typical and the outlook for vendors in the federal market over the next 6 months is rosy.

Federal Spending by Top 10 PSCs – Civilian Market Segment

Taking a look at the Civilian agencies first, the dark blue columns in this chart show the 10 PSCs under which Civilian agencies spent the highest dollar amounts in FYs 2011 and 2012. The totals for both years have been averaged to provide a single number for comparison. The light blue columns show the total number of dollars obligated under these PSCs as of March 31. This analysis yields several insights:

FY 2013 dollars obligated under PSC M181 Operation of Government-Owned/Contractor Operated Facilities is equal to 42% of the total average dollars obligated in FYs 2011 and 2012.
The lowest percentage of FY 2013 dollars obligated so far is under PSC R499 Other Professional Services. This is equal to 23.5% of the total average dollars obligated in FYs 2011 and 2012.
The highest percentage of FY 2013 dollars obligated so far is under PSC 9660 Precious Metals Primary Forms. This is equal to 57% of the total average dollars obligated in FYs 2011 and 2012.
The percentage of dollars obligated to date under technology PSCs D399 Other ADP & Telecommunications Services, R425 Engineering & Technical Services, and 7030 ADP Software equal 31%, 25%, and 50% respectively, suggesting that spending on technology solutions will remain robust.

Federal Spending by Top 10 PSCs – Defense Market Segment

Analysis of PSC data over the same timespan at Defense agencies shows similar trends. Readers should note that the totals in the red columns are underestimates given that the DoD is typically weeks, if not months late in reporting obligated contract dollars. Also note that some of the Product Service Codes are different from those in the Civilian segment. A few of the trends worth highlighting include:

The DoD has obligated only 15% of the contract dollars that it historically spends under PSC R425 Engineering & Technical Services.
Defense agencies have obligated only 13% of the contract dollars that they historically spend under PSC D399 Other ADP & Telecommunications Services.
Defense agencies have obligated only 31% of the contract dollars that they historically spend under PSC R499 Other Professional Services.
Defense agencies have obligated only 19% of the contract dollars that they historically spend under PSC R706 Logistics Support Services.

Deltek’s Take

The media has been saturated with stories of budget cuts and falling federal spending, but the reality is that agencies were hesitant to spend contract dollars during the first half of FY 2013 due to policy uncertainty from Congress and the White House. Now that agencies have budgets for the remaining six months of FY 2013, we expect agency spending will be significantly higher through the end of September. Agencies are likely to be very aggressive in trying to obligate as many dollars as possible before the end of the fiscal year. With the exception of some multi-year appropriations and funding authorized for reprogramming, agencies must expend their funding within the fiscal year or risk losing it. The challenge will be speed. Overworked contracting shops catching up on stalled procurements and getting a late start on coming acquisitions will struggle, but the fact remains that the federal Government has tens of billions of dollars to spend on vendor-provided goods and services. Is your company ready to capture some of this business?

New Jersey FY 2014 Budget Analysis: Superstorm Sandy just one ingredient in mounting budget problems

Thu, 04 Apr 2013 17:19:00 -0400

Of all the budgets rolled out by New Jersey Governor Chris Christie during his four years as governor, the 2013-14 plan might be the most important of his career. A maelstrom of structural funding issues, political ambition and environmental acts of God have placed the Garden State’s finances in a precarious position – one with no clear path to closing the estimated $2 billion revenue shortfall that analysts forecast by mid-2013.

It was just last year that Christie’s administration confidently predicted more than 7 percent revenue growth as part of the “New Jersey Comeback Plan,” and aimed to push through additional tax cuts. However, much of that growth failed to materialize, and by late September, the state found itself more than $250 million short of initial estimates. After Superstorm Sandy wreaked havoc across the Jersey Shore, the resulting economic fallout ballooned the state’s deficit woes to $451 million.

While emergency federal funds passed in January 2013 will help staunch the bleeding from that particular blow, the state still faces some daunting headwinds: a pension crisis that is expected to cost an estimated $5.5 billion annually starting in 2018; the fourth highest unemployment rate in the nation; a perilous choice on Medicaid expansion, and a strong aversion to tax increases or deep spending cuts on both sides of the aisle to help balance the ledger. Adding to this volatile equation is a governor with national ambitions and all 120 state legislators being up for reelection in November.

All-Funds Spending

Faced with this mix of contradictory incentives, Christie unveiled a budget on Feb. 26 that calls for more than $70 billion in all-funds spending for fiscal year 2014. This represents a nearly 9 percent, or $5.8 billion, increase over the 2013 proposed budget. However, when compared to actual spending totals provided by the governor’s office for FY 2013, that increase shrinks to a little more than $1 billion. While topping the $70 billion mark – something not seen in the past five budget years – the state’s general funds are actually operating at around 2008 levels, something Christie boasted about in his address to the state legislature.

The largest gains from last year’s proposed budget were found in the Department of Human Services ($1.78 billion; 13.3 percent increase), the Department of Labor and Workforce Development ($1.58 billion; 32 percent increase) and the New Jersey Transit Corporation ($809 million; 48.8 percent increase). The funding increases in these three departments combined make up more than 70 percent of the increase from last year’s proposed budget. Not surprisingly, the Department of Human Services saw a big increase year over year. With responsibilities for Medicaid and other health care spending, New Jersey is like every other state in the nation struggling to keep up with rising health care costs that threaten to crowd out other budget priorities.

Christie’s decision to embrace Medicaid expansion (and the gobs of federal subsidies that go with it) will yield $227 million in savings this next fiscal year. Built into Christie’s all-funds budget for the department is a $1 billion increase in federal funding, most of which will go toward expanding health coverage to 104,000 previously uninsured, low-income citizens. The overwhelming majority of the non-state appropriated portion of the Department of Labor and Workforce Development goes toward unemployment insurance and bond funds, with about $900 million coming from the state, federal government and other funds. The budget documents do not break out funding for the N.J. Transit Corporation, but the hefty increase may reflect an underestimated price tag for running the state’s public transportation infrastructure in last year’s budget. Though the governor only recommended $1.6 billion of funding in FY 2013, the corporation wound up spending more than $2.4 billion, just $37 million less than what is proposed for FY 2014.

Environmental priorities took the biggest hit in this year’s budget cycle, with the Department of Environmental Protection losing $180 million (18 percent) of funding compared to last year. Funding for the quasi-independent New Jersey Schools Authority nearly dropped off the map, going from $200 million in proposed funds for 2013, to just $435,000 for this upcoming fiscal year.

For the complete version of this state budget analysis, please download or purchase the complete Analyst Perspective here.

Illinois FY 2014 Budget: Combating fiscal woes for a hopeful recovery

Thu, 28 Mar 2013 15:37:00 -0400

Illinois Governor Pat Quinn delivered his FY 2014 budget address to the Illinois General Assembly on March 6, 2013, revealing a promising road to recovery for the state. In efforts to restore fiscal stability, the state will continue implementing spending reductions, including the consolidation of state facilities, the closing of several mental health institutions, and the restructuring of the state’s Medicaid program. Despite these efforts, pension reform remains a critical issue. To date, the governor acknowledges there has been no vote on a comprehensive pension reform bill – a solution needed to drive Illinois’ economy forward and generate revenue for more important initiatives.

While the need for additional cuts remains, the state’s overall proposed FY 2014 budget reflects a roughly $5 billion increase from FY 2013. The top vertical segment increases are in health care, general government, and economic development and regulation.

Despite an overall budgetary increase, Governor Quinn remains committed to encouraging agencies to follow a “do the same with less” approach. Areas that received the biggest cuts include education (PK-12), public finance and homeland security, as seen below. Many of these department cuts may be attributed to the elimination and consolidation of 75 boards and commissions.

Figure 1: Illinois All-Funds Budget Vertical Comparison

Although budget projections reflect departmental cuts in education, early childhood education is a valued top priority. The state remains committed to investing in early childhood education as well as after-school programs to improve higher education rates. In addition, while justice and public safety spending remains stagnant, the governor outlined vital plans to tackle the violence epidemic that has plagued Chicago and other Illinois communities.

Specifics regarding the state’s IT expenditures were not highlighted in Governor Quinn’s budgetary address; however, the overall IT budget is expected to drop from the previous year. While there continues to be a need to maintain and upgrade the state’s technology systems, a greater need to improve efficiencies and correct financial mismanagement has stunted spending allocations for additional IT projects.

Analyst’s Take

The theme of this year’s budget is centered on doing more with less in order to restore fiscal growth. The lack of action on pension reform has exerted much pressure on resources that could be utilized for other important programs and services within education, economic development, public safety and human services. The state has been looking to tackle the pension crisis for several years as it has begun to affect funding levels for other core priorities. Although overall economic recovery is still tenuous at this point, once pension reform is under control, it is likely that the state will be able allocate more funds for IT projects that have been cut.

A complete analysis of the Illinois FY 2014 proposed budget is available here. Non sub-scribers can gain access with a GovWin IQ free trial.

WIC program funded through Appropriations Act

Tue, 26 Mar 2013 10:20:00 -0400

With last week’s passage of the Continuing Appropriations Act of 2013 (H.R. 933), the U.S. Department of Agriculture’s state-administrated Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) will receive $6.8 billion in discretionary funding. This will provide an additional $250 million for WIC and help alleviate the approximately $350 million cut from the program due to sequestration. Of this total, $35 million is appropriated for management information systems (MIS), and $14 million for infrastructure upgrades. The passage of H.R. 933 funds the government through September 30, 2013, and prevents a government shutdown.

According to the National WIC Association, “With this new higher funding allocation, WIC contingency funds, unspent SNAP transfer funds carried over from the previous year, and unspent recovered funds available for reallocation, WIC will likely be able to manage through the rest of the fiscal year without cutting any participants.” This is a turnaround from the 600,000 women and children projected to lose benefits as a result of the sequestration cuts that went into effect March 1.

Georgia, Indiana, and Rhode Island are just three of many states actively planning to replace or upgrade their MIS. As discussed in previous blogs, Montana and California are two states working to implement new or upgraded electronic benefits transfer (EBT) systems for WIC and other public benefit programs. Recently awarded WIC contracts include New Jersey’s Automated Client Centered Electronic Service System (WIC ACCESS) contract to CMA Consulting, Florida’s EBT contract to eFunds (FIS), and Indiana’s EBT planning services contract to JRW Service Corporation.

Deltek’s GovWin IQ database contains more than 80 pre-RFP opportunities relating to WIC information technology projects and related consulting and quality assurance (QA) services, as well as detailed award and contract information for nearly 100 awarded WIC contracts. Deltek is also closely tracking sequestration’s impact on government contracting and providing insight on how the vendor community can overcome the cuts and continue to win government business at the state, local and federal levels.

Non-subscribers can find out more about GovWin IQ and sign up for a free trial here!