According to a recent report from INPUT, a market research firm focusing on government IT spending, budget deficits will suppress state and local IT spending in 2009.  While budgets will remain tight throughout the forecast period, states and localities are still expected to seek new administrative efficiencies in order to redirect money toward priorities areas.

INPUT forecasts the U.S. state and local government market to grow from $48.4 billion in 2008 to $64.9 billion in 2013. Professional services and outsourcing will account for 48.4% of the market's $16.5 billion in growth as state and local governments seek to automate manual processes, augment staffing, and take advantage of private-sector competencies. This accounts for 6.8% compound annual growth rate.

"State and local governments provide services that touch citizens on a daily basis," said Chris Dixon, manager of state and local industry analysis at INPUT. "They can delay and stretch their spending cycles, but they cannot put off spending for more than a few years. Tight budgets will mean less tolerance for speculative IT investments with savings that cannot be captured and reallocated toward bread-and-butter services in education, public safety, infrastructure, and health care."

INPUT expects tight budgets to put further pressure on hardware investments as state and local governments consolidate IT infrastructure in an effort to eliminate duplicative spending. This will call for tighter relationships between hardware manufacturers, value-added resellers (VARs), and the major integrators helping governments identify savings points and scope out solutions. Where major implementations are not required, governments will increasingly look toward hosted software (software-as-a-service) options.