Across-the-Board Government Spending Cuts Likely to Have Implications for the IT Industry

Last summer, Congress passed the Budget Control Act (BCA) in order to raise the debt ceiling. The BCA dictated that in the event that the Joint Select Committee on Deficit Reduction, which was created by the legislation, was unable to find $1.2 trillion in spending cuts, then across-the-board cuts, or sequestrations, would be triggered. The Committee failed to find the necessary spending cuts and thus, sequestration is currently scheduled to go into effect on January 1st, 2013. Sequestration will be applied to both defense and non-defense spending, as well as to mandatory and discretionary spending in years 2013 to 2021 (there will be limited exemptions). The automatic cuts will equal $1.2 trillion from 2013 to 2021.

Therefore, unless Congress and the Administration see fit to act during a “lame duck” session of Congress – and find an alternative – sequestration will go into effect on January 1, 2013.

The non-partisan Congressional Budget Office and the Office of Management and Budget (OMB) have both established that in order to achieve these savings there will have to be a 9.4 percent cut to defense programs and an 8.2 percent cut to non-defense discretionary spending. While OMB has outlined what programs it anticipates could be impacted, it has not yet provided guidance on how the cuts will be assigned across specific programs.

CompTIA represents the interests of small- and medium-sized IT firms and leads in the area of IT workforce development. With these constituencies in mind, we have reviewed the OMB outline regarding sequestration and have several concerns.

Government as a Consumer of and Partner in Innovation

It is widely anticipated that government contracting could be significantly impacted by sequesteration in both the defense and civilian discretionary accounts. Various estimates put U.S. government annual IT spending at approximately $80 billion. Under sequestration, institutional prime contractors to the Department of Defense may experience cutbacks in government contracts. Yet, much like the auto industry, these large firms are the tip of the iceberg, as they require support from a cadre of small- and medium-sized IT firms to provide a variety of IT services. The ripple effect of federal budget cuts in contracting seen throughout the economy could be profound.

As a consumer, the federal government helps to drive the IT industry. For example, within the last 18 to 24 months, federal agencies have started to migrate servers to cloud environments. Mobile apps for the enterprise and government sector are further behind in terms of adoption by federal agencies, while unified communications and M2M platforms are still in the experimental stages. Across the board cuts to federal agency budgets could have a direct impact on these transitions and on the IT sector’s drive to innovate. A restriction in procurement could remove incentives for firms to invest in newer, innovative, emergent technologies to meet these government technology adoptions. Many smaller firms, including CompTIA members, are developing products to meet contract specs (like mobile apps) and now could be forced to put such projects on a back burner.

Beyond the intersection of government consumption of innovation there is, of course, government investment in research and development – particularly at the basic and applied research levels. Several organizations, such as the American Association for Advancement of Science, the Information Technology Industry Foundation and others, have released reports detailing how potential federal R&D programs could be impacted by sequestration. The reports detail the alarming impact that sequestration would have on innovation, national productivity and jobs. A short-term cut in R&D could impose a long-term penalty on our national competitiveness.

Small Business Programs

Aside from the down stream effects of sequestration in relation to government contracts and R&D, there are also some specific small business programs that could be adversely impacted by the sequestration process. For example, the OMB report identifies the Small Business Lending Fund as an eligible program for sequestration cuts. This fund supports loans to community banks in order to encourage these banks to increase small business lending. While the size of cuts may not be considered large within the scope of all cuts, these types of reductions around support and lending programs are harmful because a little help goes a long way for the small entrepreneur.

Workforce and Skills Gap

As the leading global provider of vendor-neutral IT workforce certifications, CompTIA sits uniquely at the intersection of innovation and education. Approximately 300,000 IT jobs are currently unfilled in this country. Policies and programs that expand lifelong education in computer sciences and basic IT skills – as well as policies and programs that lead to meaningful careers in IT – are desperately needed if the U.S. is to spur job growth, innovate and compete globally. Yet many of the federal programs that play a role in supporting workforce development are at risk of being cut under sequestration.

For example, the office in the Department of Education charged with coordinating programs in adult education and literacy, career and technical education, and community colleges is at risk. Further, the Trade Adjustment Assistance Community College and Career Training Grant Program is at risk. This program provides community colleges and other institutions funds to support those men and women who have been economically dislocated due to the vagaries of global competition and are in need of re-training to get back into the workforce. Finally, the Department of Labor’s Veterans Employment and Training office, which provides resources and expertise to assist and prepare veterans to obtain meaningful careers, maximize their employment opportunities, and protects their employment rights, is at risk.

The IT industry is united in its concern over possible sequestration consequences. All of us take seriously our nation’s fiscal position and the need to responsibly address the deficit. Nevertheless, innovation, support for our small businesses and preparation of our workforce are investments that should not be shortchanged. We hope that Congress and the White House will head off the blunt instrument of sequestration and, instead, work together with scalpel-like efficiency to cut spending wisely and not at the expense of critical investments that are at the heart of our national prosperity.