Cuts in IT Programs Looming for States

It's going to take some tough love by state chief information officers to get their information technology systems and projects through the next few troubled years. Pennsylvania's Charles Gerhards said his state might have to forgo refreshing personal computers or even scale back its enterprise resource planning efforts this year because of budget shortfalls. Nevada's Terry Savage said his state may have to delay the second phase of its statewide telecommunications project for the same reason. And New Jersey's Wendy Rayner said her state might have to delay upgrading legacy information systems because of lack of funds. State officials have known for months that the slowing economy likely would bring budget shortfalls. But the extent of those shortfalls ? and the possible cuts in IT programs that would result ? are just now coming into focus. Michael Fenton, North Carolina's chief technology officer, said the information resource management office he oversees, which is responsible for technical architecture and quality assurance, is expecting a 25 percent cut that would reduce its fiscal 2001 budget from $12 million to $9 million. The IRM budget is about 7 percent of the state's overall IT budget, he said.Altogether, the states will spend an estimated $38.8 billion on IT in 2001, according to Federal Sources Inc., a research and consulting firm in McLean, Va. But spending plans, of course, could be altered if budgets decline below expected levels, and legislators vote for cuts in IT spending.Many analysts believe the biggest impact of declining budgets likely will be felt 12 to 18 months down the road.The National Conference on State Legislatures surveyed the 50 states in February to access the economy's impact on their budgets. The NCSL found that while 31 states expected revenue for 2001 to be on target or above forecasted levels, every state is cautious or guarded about revenue for fiscal 2002. Their caution is attributed to various tax cuts and rising costs associated with Medicaid and K-12 education.Those likely to be hardest hit by budget shortfalls are Midwestern and Southern states, including Alabama, Arkansas, Indiana, Kentucky, Michigan, Mississippi, North Carolina, Ohio, South Carolina, Tennessee and Virginia, according to the survey.But even states in the Northeast and Northwest have fallen upon hard times. For example, New Jersey is expecting a budget shortfall of between $500 million to $1 billion in fiscal 2002, Rayner said.While the precise outcome in many states is still in doubt, CIOs interviewed at the National Association of State Chief Information Officers conference earlier this month in Austin, Texas, agreed that declining revenue will have a profound influence on IT policy and spending throughout fiscal 2002 and 2003.The consensus among those who attended the conference was that upgrades to information or telecommunications systems would be the first projects to be delayed or terminated. To this end, states are likely to take a "bare-bones approach" to maintaining existing IT systems, said John Goggin, vice president for electronic government strategic service at the market research firm Meta Group, Stamford, Conn.State governments have several options for how they might handle information technology in a tight budget year, said Chris Dixon, NASCIO's digital government coordinator. Governors and state legislators might make across-the-board cuts, break multiyear funding into annual requests or make selective cuts on a program-by-program or project-by-project basis, he said. "[Each] state will likely use a combination of approaches," Dixon said.Some state CIOs said they will be looking for contractors that are able to provide self-funded models that minimize program costs, and for opportunities to share system components among states to offset costs. NASCIO is hoping that code sharing, or reuse, among states can bring down the cost for rolling out e-government, said Dixon. The states that will be most likely to sustain existing technology initiatives are the ones that have a cabinet-level CIO who is empowered to make critical decisions, said Thom Rubel, program director for state information technology at the National Governors Association. Twenty-five states have CIOs that report directly to the governor, while 24 states have CIOs that report to either a staff, legislative or cabinet-level officer, according to NASCIO. Hawaii, the remaining state, is moving toward a CIO-type structure.CIOs charged with this level of authority will be able to make selective cuts and defer certain nonessential projects, but still be able to move forward, Rubel said, adding that for states lacking a cabinet-level CIO, "it will be tough going, and agencies will take bigger hits."The revenue shortfalls are not expected to damage e-government, nor are they expected to unravel the progress made on this front in recent years, said state CIOs and industry observers. The concept of e-government is seen as an economic engine, and therefore is not only viewed favorably but defended vigorously by governors and some state legislators, said Rubel. For example, Nevada's Savage said that although there have been some IT budget cuts in his state, e-government initiatives are proceeding as originally planned.While some CIOs are convinced tight state budgets will jeopardize some of their key projects, others believe state legislators will stand firmly behind them when it comes to IT spending.Take Texas, for example. Carolyn Purcell, Texas Department of Information Resources executive director, said the state's tight budget is not likely to affect her office because the state legislature knows IT is a worthwhile investment.About $1.5 billion of the $110 billion fiscal 2002-2003 Texas budget is set aside for IT goods and services, said Billy Hamilton, Texas' chief deputy comptroller, who spoke at the conference. "I don't see any flagging in the support for IT [in Texas]," Hamilton told Washington Technology. Texas has set aside adequate funds in the budget to cover the state's IT needs, he said.Instead, Texas policy-makers are focusing on the funding challenges surrounding non-IT programs, such as teaching and education, he said. Indiana CIO Laurie Larimer agreed. "Legislatures are seeing that technology is at the core of service delivery," she said.Ultimately, the Indiana legislature will have to decide where cuts are to be made, said Larimer, adding that she is reluctant to sacrifice IT service and that delays in upgrading infrastructure are merely "a deferred expense." Larimer said in times of budget downturn, the self-funded model for e-government is not only preferable, but essential to keep services going. In Indiana, she said, the self-funded model is contributing directly to legacy system replacement.To this end, the Indiana Department of Motor Vehicles channels money from all transactions, online and in person, into a fund that is designated solely for upgrading the department's legacy systems, she said.