Examining the State, Local and Education Technology and Telecom Market for 2021-22

GovWin’s most recent quarterly analysis studying the performance of the state, local and education (SLED) market, the State and Local Procurement Snapshot – Q2 2021, shows that the market for technology & telecom is stable and healthy. Using a fiscal year ending in June, tech spending rose from $133.5B in FY ‘19 to $134.3 in FY ’20 and then showed a slight decrease to $129.3B for FY ‘21. It is then expected to flatten before rising in ‘24.

Read on for an excerpt from a Q&A interview with Chris Dixon, Senior Manager of SLED Market Analysis for GovWin, that will profile the top trends and spending patterns in the technology and telecom industry and examine expectations for the near future.

Q: How will President Biden’s budget priorities affect SLED IT?

A: In the short term, federally funded purchasing will be driven by government reaction to the pandemic revenue impacts. Deltek has been collecting state and local spending plans for ARPA funds. Right now those plans are focused on backfilling cuts made in 2020. Later this year, when the second tranche of funding is available, we expect to see more forward-looking plans. However, if we look at the White House’s proposed federal budget, Biden’s agenda has more of a social services focus.

Biden has proposed investments in workforce development. This includes high schools, community colleges, job placement centers, unemployment programs, and all of that interconnected space. If he gets the funding in those areas—and that’s a big “if”— I’d expect to see many upgrades and improvements to all of those business processes and systems.

I’d expect to see things like a consortium of governors and mayors coming together to talk about how we want our unemployment systems to work and how we want our workforce development and job placement systems to work. This will result in a round of innovation that hasn’t occurred since the Clinton administration’s “workfare” policies.

Then in the blended space between social services and healthcare you’ve got a lot of interest in investing in addiction treatment and mental health. Cities are spending immense amounts of money on homelessness. We saw the court decision by Los Angeles to set aside a billion dollars for housing the homeless there, so there’s IT systems that have to manage those facilities and manage those programs and placements. There’s IT systems that need to track social work across jurisdictions. They need to be tracking outcomes and service delivery for prisoners who are re-entering society and for homeless persons.

These systems are among the worst backwaters of government IT. During good times, they are the first to get cut and the last to get investment. When times are bad, it’s too late to make changes to overburdened systems. For these to get a major influx of funds would make a big difference. Real modernization, rather than simple expansion of capacity, would allow social services agencies to see comprehensively across a variety of public and private sector programs and make data-driven decisions on performance and outcomes.

Q: How will the expansion in E-Rate affect tech spending in SLED government?

A: Thanks to the American Rescue Plan Act (ARPA), governments are going to be buying around $7.2 billion in additional communications equipment and services over the next several years. The goal of this supplemental is to provide end-user broadband connectivity for use by K-12 students. The Biden administration has been adamant about closing the on-campus/off-campus connectivity gap for students. This differs from the regular E-Rate program, which is to equip classrooms with better connectivity and collaboration infrastructure. The new funding will include purchases related to broadband service subsidies along with related gear such as modems, routers and tablets/PCs. None of this is going to add to the capital or equipment outlay of the school districts. It’s really a means-tested technology benefit to citizens, which is administered by the district. SLED has dabbled in this sort of thing before but never at this scale.

As a result I have to treat it in a special way in Deltek’s SLED IT market forecast – as an unusual piece of addressable demand on top of the normal market. There will be some challenges to getting it implemented as districts won’t have a framework for doing this. I don’t expect it to gain steam until the new school year begins in Fall ‘21.

The organic SLED technology demand is forecasted to decrease slightly for fiscal year 2021 and then flatten out in 2022 and 2023 before climbing again in 2024. The extra $3.5B per year in E-Rate funds should show up in the 2022 and 2023 fiscal years – representing a sort of icing-on-the-cake boost to the market.

Q: Do you have any advice for technology vendors?

A: I mentioned how this is an interesting time when there is a lot of uncertainty on the part of government about where to go next. For vendors, this represents an opportunity to provide outreach and thought leadership within this market. 

To move forward, a vendor can find confidence in the natural cycles of the market as we see with front-end transformation following backend modernization. Of course, you cannot ignore federal government and the Biden administration as drivers of downstream SLED priorities in areas like social services and justice and public safety. While these initiatives and priorities are not guaranteed, they do provide guidance particularly for the companies that can effectively target and support the social services and education spaces while the SLED market coalesces around a DX/CX vision.  

We know cybersecurity, which is really a never-ending war against evolving cyber threats, will continue to be high on buyers’ agendas. Vendors will have to be nimble and ready to rapidly adapt their offerings to meet whatever is the “hot” threat of the day. Right now, it’s ransomware in the energy industry, which has high overlap with locally operated public utilities. Tomorrow, it will be something else. However, the window of opportunity wherein decision makers will have the will and public support to buy threat-based solutions will open and close rapidly with each new cyber event.

To see the full interview with GovWin’s Chris Dixon, and to understand where SLED government contracting is experiencing the most growth, click the button below to get your copy of GovWin’s latest quarterly analysis on the U.S. state and local government market.