Across the Digital Nation: Federal grants make human services a bright spot

Rishi Sood

The financial turmoil affecting many state and local governments has created a Catch-22 situation for one particular agency segment: human services. Because they are heavily dependent on federal matching grants to help operational and technology development, human services departments in many respects are less-affected by revenue shortfalls.

These organizations are expected to continue receiving significant funds from the federal government over the next three years as state organizations comply with legislation around the Temporary Assistance for Needy Families program, the Reed Act, which distributes unemployment funds to the states, and the Workforce Investment Act, which authorizes spending on training and other work-force development activities. However, a state must provide a certain percentage of funds in order to receive federal technology funding. A decrease in state funding may mean a substantially greater loss of funds from the federal government.

For example, a fiscally constrained state that forces a $1 million cutback on technology spending for human services may lose an additional $8 million from federal sources. The combined loss for the agency suddenly becomes $9 million, not just $1 million. Hence, the Catch-22.

Despite this unique situation, early research indicates that human services departments are a bright spot in the state and local government marketplace. New technology opportunities have been realized in 2003, and additional initiatives are still slated for requests for proposals development over the next six months. Compared to other agency areas, IT spending in the human services segment won't be as affected by the economic downturn.

The areas of new development appear to be segmented across three major categories. The first can be defined as core agency modernization projects. Opportunities here would include systems modernization for TANF, child welfare and child care programs. The major solution areas here would include case management, eligibility verification and fraud detection.

One of the compelling differentiators about this market is the emerging trend to use a common framework for systems development that would encourage customer-centric applications.

The second category could be defined as business process extensions to existing or modified services. Some opportunities in this area would include child support enforcement, Medicaid claims management, pharmacy benefits management, revenue maximization and electronic benefits transfer. In many respects, the key issues for these services are cost management, increased efficiency and greater automation of business functions.

The third category can be defined as the continuing integration of labor and human services functions. Opportunities here would include unemployment insurance, workers' compensation and job training services. As the functions between human services and labor organizations continue to overlap, data and resource sharing will increase.

Already, the market has seen some recent projects awarded across these areas: Vermont and child care, Illinois and child support, Texas and Medicaid claims management. Moreover, there are significant opportunities that will be released over the next six months, such as New Jersey and California for child support. The flow of projects has not been slowed by the economic environment.

Deep domain expertise always has been a critical issue that separates vendors in this marketplace. Increasingly, extension of services to the outsourcing arena also has been a critical factor in bidding on segments of this market opportunity. Vendors targeting these new areas of development must ensure that the project teams can provide the spectrum of services necessary to transform current operations into the next generation of social service delivery.

Rishi Sood is a principal analyst with Gartner Dataquest in Mountain View, Calif. His e-mail address is rishi.sood@gartner.com.

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