The TechAmerica Foundation’s Vision Federal Market Forecast projects federal budgets in line with the Bipartisan Budget Act until policy choices crystalize after 2015. TechAmerica Foundation’s 50th annual Vision Federal Market Forecast Conference runs two days starting tomorrow at the Fairview Park Marriott in Falls Church, Va. “Despite budget pressures, the federal government remains a large potential market for companies that are fully invested in it,” said Elizabeth Hyman, executive vice president, TechAmerica. “The Vision Forecast helps IT companies gain a competitive edge in the federal marketplace by gleaning valuable insight into the future of government spending.” The overall forecast sees long-term economic challenges limiting federal IT budget growth, but opportunities still exist. The civil IT budget is flat in near term, but should grow with discretionary spending. The defense IT budget faces near-term pressure with inflation-level increases over five years. The on-book unclassified IT budget will be $73.7 billion for fiscal year 2015. Without reform measures, Social Security, Medicare, Medicaid and other mandatory expenses plus interest payments are set to rise to 79 percent of federal outlays by fiscal year 2024, leaving only a modest amount of room for discretionary expenditures.
Citation preview
1. Press Preview October 27, 2014
2. Vision Federal Market Forecast Press Policy
TechAmericaFoundation.org The Vision Forecast represents the
collective work and intellectual analysis of the Vision team. The
presentations and slides are the opinion of the TechAmerica
Foundation Vision process and do not represent the opinion of any
individual person or company on the team. Presenters merely convey
the collective outcome, and their presentations do not necessarily
reflect their personal or professional view nor that of their
companies.
3. Vision: 50 Years of Forecasting the Federal IT Market
Research Methodology Facts: Secured 360+ interviews with government
officials, industry executives and think tank analysts Forecasts
for 10 years in defense and 5 years in civilian IT budgets 25
forecasting teams covering defense and civilian agencies 99
participants representing 34 companies for the defense IT forecast
232 participants representing 53 companies for the civilian IT
forecast Research process begins in April and culminates with the
Vision Conference in October TechAmericaFoundation.org Elizabeth
Hyman Executive VP, TechAmerica
4. Forecast Approach 5. Agency Team Review 4. Expert Interviews
4 2. Discretionary Forecast 1. Macroeconomic Forecast Research
Scenarios 3. Draft IT Forecast 6. Final Forecast
6. Study Teams 6 Defense Study Teams Macro Economic /DoD
Topline Cybersecurity Services and Support C4ISR DoD Services and
Agency Overview Army Outlook Navy Outlook Air Force Outlook
Industry Outlook Aircraft Vehicles Shipbuilding Space (Military)
International Defense Missile Defense Civilian Study Teams Federal
IT Budget Technology Outlook Dept. of Homeland Security Dept. of
Justice HHS Military Health System Veteran Affairs Dept. of Energy
Dept. of Transportation Dept. of State Dept. of Treasury
Acquisition Outlook NASA USDA
7. Macroeconomic & Defense Forecast Rich Ashooh, DoD Vision
Chair
8. Economic and Security Outlook Impacted by New Uncertainties
U.S. and global growth outlook U.S. real GDP growth was 2.2% in
2013; could be closer to 2% in 2014 Unemployment has dropped to
5.9%, but labor market participation is falling Worldwide growth is
mixed and uneven Asia-Pac moderating, Europe slowing U.S.
budget/deficit situation Bipartisan Budget Act (BBA) provides
visibility through FY15 Deficits have fallen in FY2014-15, but are
projected to rise again Markets assessing the impact of ending
Federal Reserve bond buying program, timing of future interest rate
increases Ongoing Middle East and Ukrainian conflicts are bringing
uncertainty to the global security and energy outlook Expect slower
global growth and a more complex security environment 8
9. Defense 16% $608B Social Security 23% $893B Medicare 14%
$528B Other Mandatory 18% $679B Medicaid 9% $337B Defense 11% $630B
Social Security 25% Medicare $1,492B 15% $857B Medicaid 9% $545B
Other Mandatory 16% $983B Interest 14% $804B Long-Term Federal
Budget Dynamics Have Not Changed Mandatory and interest set to rise
to 79% of federal outlays by FY24; mandatory alone exceeds the
entire FY15 US budget. Outlays in Current Dollars FY15 Mid-Session
Review $3.863 Trillion OMB Projection for FY24 $5.914 Trillion
Non-Defense 15% $568B Source: Fiscal Year 2015, Mid-Session Review,
Budget of the U.S. Government, July 2014, Table S-5, p.26 9
10. End Strength and Active Force Structure to Contract by 2025
Expect continued preference for capability over capacity; potential
exists for faster ES/force structure reductions in near- to
mid-term. 0 1 2 3 1972 1977 1982 1987 1992 1997 2002 2007 2012 U.S.
Military Active Duty End Strength Forecast on Active Duty End
Strength (in thousands) Component 2001 2015 2020 2025 Army 481 490
435 420 Marines 173 182 175 173 Navy 378 324 321 312 Air Force 354
315 312 310 Full-Time NG/Reserve 65 77 72 68 Net Total 1,451 1,388
1,315 1,283 Source: US Department of Defense Fiscal Year 2015
Budget Request Overview, April 2014, p.A-2; FY2014 DoD Green Book,
pp. 255-256. Photo: U.S. Navy photo by Chief Photographer's Mate
Johnny Bivera (RELEASED) 10
11. 2014 TechAmerica Forecast Drivers FY15 is turning out
according to the Bi-partisan Budget Act playbook Expect continued
reliance on CRs, no major $ shifts Incremental deals only, with new
policy and resource directions to come later OMBs May guidance for
FY16 sets a lower topline for future negotiations with Congress (2%
below FY15 projection) Expect discretionary to drop at least
$125-150B more over FY16-19 Defense growth path for FY16-17 will
not survive Post-war drawdown ends with the full U.S.-Afghan
withdrawal Efforts to raise only defense above BCA caps will not
succeed Convergence of Presidential Budget and Budget Control Act
adding near-term predictability But industry needs to seriously
account for out-year disruptors Expect another round of cuts to
discretionary, starting in FY16 11
12. Alternative Discretionary Forecasts: FY15-25 Scenario #1:
Sequestration Red Line Enforcement implemented in winter of
2015-16, going to 2025 Scenario #2: TechAmerica Forecast FY16-17
incremental deals hold discretionary to inflation-only $235B below
FY16-25 PB projection, plus $165B OCO savings Scenario #3: Economic
Downturn/Recession Assumes major economic downturn beginning
2016-17 More than $800B below FY16-25 PB projection Scenario #4:
National Security Contingency Assumes external event drives major
defense growth after 2017 $130B above FY16-25 PB projection
(increases begin in FY18) TechAmerica forecast assumes modest
movements between the PB and BCA lines until policy choices
crystalize after 2016. Impact on Spending 12
13. Narrower Budget Path is Emerging, but Disruptive Scenarios
are Possible Further discretionary cuts will be front-loaded at the
beginning of the forecast as the trade space is still greatest in
those years. 700 800 900 1,000 1,100 1,200 1,300 1,400 Current $B
Federal Budget Discretionary Budget Authority (without Overseas
Contingency Operations) Revised BCA Caps 2014 TechAmerica Forecast
National Security Contingency Economic Downturn/Recession Trade
Space Has Narrowed: Sequestration Gap v. Budget Now in the $50-70B
range in FY16-18 (vice $91B) Smaller Gap by FY24 Federal
Discretionary Budget History FY14: $1012B FY15: $1014B 13
14. DoD Topline Forecast 20-Year Perspective Including OCO
(discretionary budget authority in $billions) Topline drops from
FY13-16 due to BCA, BBA and a declining OCO; bottoms out in FY17
followed by roughly inflation-only gains Federal Discretionary
Budget History 0 100 200 300 400 500 600 700 800 $8 FY17 post-war
low: $538B MILCON , Other $63 RDT&E $141 $250 $559 Current $B
$98 $73 $159 $267 $625 $115 $11 $630 FY15 PB + OMB projection
(includes OCO placeholder of $29.9B for FY16-21) $69 $120 $179 $97
$15 $479 CAGR: FY05-15 FY15-25 Other & MILCON -6.09% 3.24%
O&M 3.40% 0.66% MILPERS 1.63% 1.21% RDT&E -0.91% 1.48%
Procurement 0.10% 1.61% $691B FY10 Wartime High FY10 FY15 14
15. Investment Building Back from Sequestration, Drawdown
Investment is sustained at $150-160B level through FY17; growth
path resumes by FY 18 supporting F-35, SSBN-X, KC-46 and LRS
Federal Discretionary Budget History 79 80 84 99 101 103 102 102 90
92 90 93 95 99 104 104 105 108 108 112 115 68 72 76 78 79 79 75 72
63 63 63 62 65 68 68 68 69 71 71 72 73 0 40 80 120 160 200
Procurement RDT&E CAGR: FY13-16 FY16-18 FY18-25 Investment
0.43% 3.80% 1.71% Base Budget -Current $B $147 $153 $188 2.08% CAGR
2015-25 Peak $182 FY13-16 investment trough in the $150B range
FY23-24 procurement forecast is $24-25B below OMB projection
15
16. Overseas Contingency Operations (OCO) Forecast OCO declines
gradually as our Afghan involvement comes to an end; TechAmerica
Foundation forecasts a gradual transfer of OCO costs to base
budget. Federal Discretionary Budget History 15 22 20 20 22 26 24
20 17 12 15 10 6 1 1 0 15 53 62 38 72 94 93 87 108 110 87 62 66 47
33 18 14 2 5 7 19 24 51 67 35 34 31 17 10 6 6 3 1 5 0 50 100 150
200 17 91 73 166 116 76 82 115 162 159 146 20 64 86 Full Afghan
withdrawal deeply reduces OCO in FY16-17, dropping to zero in FY19.
Post-FY17 costs begin migration 37 Actual Projection Investment
Operations & Maintenance Military Personnel/Other Current $B
Iraq surge Afghan surge 15 Combined GWOT & OCO costs will
exceed $1.5T after FY15 187 16
17. Summary of Macroeconomic & Defense Forecast Today we
face the most diverse threats Ive seen in my 50, now 51, years in
the intelligence business. -- DNI James R. Clapper at the 9/11
Commission 10th Anniversary, July 22, 2014 A modest recovery in the
top-line of defense spending is expected in the forecast period
Macroeconomic and global factors present only downward pressure
U.S. policy status quo creates limited opportunity for flexibility
in budget trades Defense force structure and policy changes will
impact out-year budgets Potential for economic and security
disruptors is high although impact of each on defense runs counter
17
18. Federal IT Forecast Robert Haas, Vision Strategic Forecast
Council
19. Top 3 Agency Issues: 2015-2020 19 Budget Pressure Budget
Constraints Political Gridlock Macro Pressures Drivers for
Transformation Leadership Workforce Communication Technology
Transition Government Organization Enterprise IT Planning
Disruptive Technologies Vision Forecast is analyzed through these
three pillars
20. Total IT Market Forecast FY15-20 $80.7 $73.7 $84.0 $87.8
$77.0 $0 $20 $40 $60 $80 $100 '10 '11 '12 '13 '14 '15 '16 '17 '18
'19 '20 Total IT Budget ($B) Fiscal Year FY10-FY15 FY15-FY20 CAGR
Current $ -1.8% 2.6% CAGR Constant $ -3.4% 0.9% Source: TechAmerica
Analysis Note: Excludes classified IT and quasi-governmental
organizations Bi-partisan Budget Act drives near-term IT market. 20
Current Constant
21. $42.9 $43.4 $49.8 $46.7 $45.5 $0 $10 $20 $30 $40 $50 $60
'10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Civilian IT Budget ($B)
Fiscal Year Civil IT Market Forecast FY15-FY20 FY10-FY15 FY15-FY20
CAGR Current $ 0.2% 2.8% CAGR Constant $ -1.4% 0.9% Source:
TechAmerica Analysis Note: Excludes mission IT Civilian IT budget
is flat in near term but grows with discretionary spending 21
Current Constant
22. Civil IT Forecast Highlights Cost savings continues to be a
high priority as spending is shifted between different investment
priorities LPTA: Budget constraints are forcing agencies to limit
extras and focus on IT as a commodity Innovation cannibalizes
budget from legacy systems Budget uncertainty constraining
technology migration Cybersecurity continues to challenge agencies
Security issues slowing adoption of new technologies Civilian
agencies seek solutions that quickly cut costs and improve
operations 22
23. $37.8 $30.3 $34.3 $41.1 $31.5 $0 $10 $20 $30 $40 $50 '10
'11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Defense IT Budget ($B)
Fiscal Year Defense IT Market Forecast FY15-FY20 FY10-FY15
FY15-FY20 CAGR Current $ -4.3% 2.5% CAGR Constant $ -5.9% 0.8%
Source: TechAmerica Analysis Note: Does not include classified IT
or mission IT DOD IT budget faces near-term pressure with inflation
level increases at end of forecast period. 23 Current Constant
24. DoD Forecast Highlights RFPs being released sooner than
expected; option years cancelled Larger procurements appear to
anticipate protests Consolidation driving alignment between DISA
and Services LPTA still preferred by contracting offices despite
issues; some attempts to balance with program needs End strength
reductions will continue to impact IT usage Joint Information
Environment becoming more defined, but more process and program
details required Security contingency may drive some
mission-related IT spending Open systems used to reduce software
spending Cybersecurity more formalized as a mission; challenges
remain Cloud, mobility and info sharing still face cultural and
security issues Classified IT represents about $6.1B additional
(DOD FY15 Request) Expect increasing use of working capital funds
with consolidation 24
25. Summary for Federal IT Forecast 1. Long-term economic
challenges limit growth 2. Slow IT budget growth during forecast
period 3. Opportunities still exist despite challenges 25