Over the last few years, SLED cloud strategy has played a pivotal role in public sector modernization efforts. Agencies have invested in application migration, utilized more software-as-a-service capabilities, and constructed increasingly hybrid environments across public cloud, private cloud, and on-premises infrastructure.

In FY27, state and local governments are navigating a complex technology environment amid changes in policy, the accelerated adoption of emerging tech, and the rapid growth of digital services and citizen expectations. Cloud adoption continues to impact technology consumption; AI is introducing challenges around data, security, governance and contracting; and agencies are facing mounting pressures to modernize aging systems while becoming more efficient and generating measurable long-term ROI.

The Defense Health Agency (DHA) recently hosted the 2026 Defense Health Information Technology Symposium (DHITS) in New Orleans, bringing together more than 2,200 attendees to discuss the future of military health IT.  The clear message throughout the event was that technology, data, and digital capabilities are increasingly viewed as a combat support capability directly tied to warfighter readiness. 

Earlier this month, the Trump administration released a new executive order titled “Securing the Nation Against Advanced Cryptographic Attacks,” in efforts to accelerate the shift to post-quantum cryptography (PQC). While the new EO is directed at federal agencies, the downstream effects on SLED will be impactful, particularly through funding alignments, vendor requirements and shared infrastructure.

On May 7, 2026, the FEMA Review Council released its final report recommending a substantial shift in how disaster preparedness, response and recovery are managed nationwide.

As we approach Sled Fiscal Year End (SFYE), SLED agencies are balancing budgets in a constrained environment, addressing rising constituent expectations, tackling growing cybersecurity challenges and supporting accelerated AI adoption.

For industry, this confluence of factors creates both complexity and opportunity. In today’s environment, success in SLED comes down to connecting IT investments to clear and measurable ROI in operational efficiency, modernization, resilience and cost savings.

The FY27 federal budget request was released on April 3^rd, and is providing an initial look at the momentum and impact IT investments will have in the coming years.

The Department of War’s unprecedented $1.5T request underscores attention on national security and pushing towards next-generation warfighting capabilities, while across the whole of government, there is expected to be a continued mandate to drive efficiency, consolidate systems and align technology investments with administration priorities.

In mid-March, AFCEA NOVA hosted the Naval IT Day in Chantilly, Virginia with the core message on how Navy and Marine Corps digital priorities are enabling the naval force. The message was clear, IT is not just a necessary function, it is a mission-critical warfighting capability.

During this year’s Smart Cities Connect Conference and Expo in Raleigh, NC, one topic garnered considerable attention: AI. Within many city governments, AI is past experimentation and has moved into production. In 2026, city IT leaders are prioritizing  safe, secure, and data-driven AI deployments that deliver measurable outcomes in mobility, public safety, infrastructure management, and climate resilience.

However, as cities move toward operational AI, challenges exist around data readiness, governance, and integration across departments.

This year’s Beyond the Beltway conference highlighted key strategic findings from IT leaders that signal where 2026 technology investments will be made and where to focus efforts for success. In 2026, state and local governments are at an inflection point: with rising expectations evolving alongside tightening budgets, staffing and timelines, success will depend on alignment of solutions to modernization requirements, workforce challenges and measurable ROI-driven outcomes.