But the outsourcing largely will stay within U.S. borders because of political pressure to bolster the American IT workforce, coupled with security concerns.
''The opportunity to outsource non-core government competencies in information technology is becoming increasingly attractive to state and local government within the current economy,'' says Jim Krouse, manager of state and local market analysis at Reston, Va.-based Input, a government market IT research firm. ''The growth will become dramatic as retirements outpace the ability of governments to staff important technical, functional areas.''
Input research shows that state and local government IT outsourcing will jump from $10 billion in fiscal 2003 to more than $23 billion by fiscal 2008. Those numbers are showing a compound annual growth rate of 17 percent over the next five years.
But Krouse says the increase in outsourcing is not expected to start for another year.
''At a 30,000-foot view, I would not anticipate seeing much growth in the next year based on a languishing economy and the fact that we're approaching an election cycle,'' explains Krouse. ''Next year's growth will be moderate and then serious economic growth is anticipated by 2005.''
After that, says Krouse, several factors are expected to move into place.
''There is a serious number of retirements coming in the government sector and that means there will be a serious limitation of seasoned government IT workers by 2008,'' he adds, noting that the current glut of out-of-work IT workers should largely be employed again by then. ''The people retiring are the ones familiar with legacy systems and historic government operations. You'll see more acceptance, politically, of outsourcing. And part of it will be forced necessity.''
Outsourcing, particularly offshore outsourcing, is a hot button of debate these days. With a large number of American IT workers out of a job, shipping corporate jobs overseas is raising a lot of ire within the workforce and that is spilling over into the political arena.
But Krouse says there will be a twist to the outsourcing game once more and more workers begin to retire. Once a government IT manager, for instance, accepts his gold watch and retires, he can go work for an outsourcing firm and do the same type of work he was doing before -- possibly making more money at it.
''We've seen that government entities can lock in certain costs if they can lock in terms for three years or as long as 8 years. That's a powerful tool,'' says Krouse. ''At the same time, with the erosion of the workforce, the outsourcing people are looking for skilled workers and people who are familiar with government contracts. What better place to look than at the retired worker community? It's a shell game with some of these highly skilled retired workers.''
And when it comes to government agencies, Krouse says he doesn't expect to see any major upswing in offshore outsourcing.
''It's all about lost jobs and security -- those two factors,'' he adds. ''It's hard enough for state officials to outsource because there's the perception of lost jobs in their own agency. But when you start talking about lost jobs nationally, that's a lot more political. I don't think government agencies will want to get into that fire storm. And they won't want to outsource any work overseas that could cause security concerns. That's a big stigma.
Krouse also notes that in the future IT workers may be more apt to find themselves working for an outsourcing company than for a government agency.