RESTON, Va. -- Despite controversy over outsourcing in the states and in Congress, fiscal pressures on states and localities will force the emergence of a post-partisan consensus that will allow outsourcing to move forward after the 2008 elections, according to the State and Local IT Market Forecast 2007-2012, a report released today by INPUT, the authority on government business. IT infrastructure and business-process outsourcing are expected to drive outsourced spending from $6.3 billion in 2007 to $11.4 billion in 2012 for a compound annual growth rate of 12.6%.
The states and localities are about to head into another period of fiscal turmoil as the housing market settles out and Baby Boomer taxpayers begin to think about retirement and living on fixed incomes, said Chris Dixon, manager of state and local industry analysis at INPUT. However, with the U.S. expected to add another 60 million people by 2030most of them in the nations metropolitan areasthe states and localities are going to have to suppress the costs of delivering servicesand start doing it fast. The only other way out of this for them is to fundamentally reconsider the way they collect taxes, and I dont see any traction on that front in the next five years.
Between now and the elections of 2008, most of the activity in outsourcing will involve IT infrastructure and Medicaid Management Information Systems (MMIS), which are relatively uncontroversial. Large-scale business-process outsourcing (BPO), especially in regard to the provision of social services, will have to be revisited.
The 2008 elections will be hotly contested. Neither political party wants to be too closely associated with outsourcing of public services right now. But after the elections, Congress and the White House will sit down with the governors and mayors to hammer out a compromise that serves the interests of taxpayers, benefits recipients, and public sector workers, said Dixon. Then it will be off to the races.