What's ahead for states in fiscal disarray?

Slow recovery expected from budget woes

When life hands you lemons, find a way to make lemonade. That may sound trite, but representatives of state IT departments suggested companies remember the underlying truth of the common expression.

The audience at Xchange Public Sector listened to Doug Robinson, executive director of the National Association of State CIOs (NASCIO); Kyle Schafer, West Virginia's CTO; and David Taylor, Florida's CIO, discuss the grim budget prospects of most states in the near term.

The states have faced “major fiscal stress since December 2008, [with] declining resources from the drop in real estate and high unemployment rates,” Robinson said. “It's a very deep dive, and it's not going to be a steep ascent. This is going to be slow recovery,” he noted.

At the same time, Robinson added, there are signs of recovery. He cited a May report where states were beginning to see increased revenues, though states such as Florida, Nevada and California, which were hit the hardest by the real estate decline, still have a long road to recovery.

Not every state has been affected in the same way. Schafer said that West Virginia has come through the economic downturn in better shape than most, ending each budget year with a surplus. This is largely because the state has relied on tax revenues generated by extractive industries such as coal, natural gas and timber, he said.

“We've not seen the stress other states have seen, but it's going to worsen over the next few months and years,” Schafer said. “Without the federal stimulus we'd be in worse shape,” he added.

Speaking about Florida, Taylor said: “Our legislature has dealt with it proactively and cut billions out of the budget each of the past [few] years. We used stimulus money to ease the decline. … Now our revenues are starting to turn up.”

It is difficult to put a precise dollar amount on the size of the state IT marketplace, Taylor noted. It is estimated to be around $40 billion, but “there's no good, hard data because the spend is often embedded in projects” not limited to IT, he said.

Among the strategies being used by states this fiscal year to reduce spending are reductions in local aid, layoffs, furloughs, reductions in employee benefits, across-the-board cuts, targeted cuts, use of rainy day funds, and agency reorganizations, Robinson said.

NASCIO collaborated with TechAmerica and Grant Thornton in 2010 to survey state CIOs' views on their IT budgets for fiscal 2011-2013, Robinson said. The survey found that 58 percent expected their IT budgets to be cut, 15 percent thought it would increase, 13 percent thought it would stay the same, and the remaining 13 percent were “still deliberating” -- that is -- still fighting over it, he said.

The silver lining in the ongoing budget woes? “Many CIOs see the budget decreases as an opportunity to improve [operations] by breaking down barriers,” Robinson said, improving their ability to propose consolidation and moving to shared services.

This year, state governments' IT priorities have shifted. Forty-four percent of the participants listed virtualization as a top priority, followed by cloud computing (29 percent), collaboration (19 percent), and mobile technologies (8 percent).
The list of priorities varies from state to state. In Florida, for example, security continues to rank very high, Taylor said. Robinson noted that security had been No. 1 on the national list for five straight years.

In West Virginia, Kyle said, virtualization would have been at the top of the list two years ago. “But technology changes so quickly, now we would evaluate cloud [and] whether we should be looking at a cloud solution rather than virtualization,” he said.

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