States Finally Get Moving

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States Finally Get Moving

By Thomas R. Davies
Contributing Writer

Legislators have finished up their work on the fiscal '98 budgets in most of the state capitals. As the dust settles, it is clear that the year 2000 message has been delivered and, in most cases, received.

In state after state, legislators heard compelling testimony over the past few months from the chief information officers and other top IT officials about the need to act quickly. While not all 2000 projects were fully funded to the levels requested, most states have now received the necessary approvals and budgets to get started. One state has indicated it has received over $100 million in new appropriations for year 2000 projects. These year 2000 projects will keep the states, and their vendors, extremely busy in the year ahead.

This is a dramatic change in the state year 2000 picture from one year ago. States that moved early to address year 2000 - such as Nebraska and Missouri - adopted a traditional procurement model for year 2000 services. Under this approach, a single prime contractor received the award for statewide year 2000 services. But as the date grows closer, the procurement model is rapidly changing.

Many states, especially larger ones such as California and Florida, have established master contracts where year 2000 vendors are prequalified for selection. This allows the individual state agencies and departments to go directly to these purchasing vehicles to award contracts. Since these state term contracts are frequently available to local governments, school districts and nonprofit organizations, this will expand the year 2000 business that will be done using this approach to procurement. In a recent survey, almost half the states indicated they have established master service contracts to prequalify vendors for year 2000 services.

The impact of year 2000 on plans for new information technology buying is just now beginning to be felt. Many states have estimated that their year 2000 costs could exceed $100 million. Since a significant portion of this cost will come from base budgets, states are being forced to make difficult decisions regarding priorities for new projects.

Once state agencies receive their approved operating budgets for fiscal '98, the new funds available for year 2000 work will need to be allocated among many competing needs.

But competing priorities may take a back seat to year 2000. Governors such as George V. Voinovich in Ohio have made it clear that year 2000 comes first. In his 1998-99 executive budget, the governor stated "to prevent the compromise or interruption of vital government services, Ohio's state agencies are prioritizing year 2000 preparations over all but their most critical operations and maintenance activities."

Fortunately, many states such as Florida and New York have completed statewide assessments of their year 2000 needs. These evaluations have given them a basis for making the tough decisions regarding the risk and business impact of failing to make systems year 2000 compliant. States are also moving aggressively to resource and staff their year 2000 projects. Retaining qualified staff to do year 2000 work is becoming a critical concern. States are adopting strategies such as paying out bonuses for those who commit to staying with state government through the year 2000. And some are beginning to express frustration over industry's recruiting of skilled state employees.

For vendors, the repercussions of all this activity is being felt across the country. Companies who never before marketed to state and local governments are now entering the market for the first time. Traditional systems integration companies, who have a long history of doing business in this market, are leveraging their long standing relationships with state governments to win additional business. Outsourcing companies are getting positioned to pick up additional business as some governments simply run out of time and resources to get the job done. Consulting companies are benefiting from the significant work that needs to be done in the form of assessments and project management. And companies who provide software, hardware and application solutions to state and local governments are promoting the advantages of purchasing new modernized systems that are year 2000 compliant rather than simply fixing old legacy systems.

If there is a silver lining to the year 2000 picture it is that states are benefiting from a very healthy economy, and revenue collections that have exceeded forecasts. The balance sheets for most states are more than adequate to provide the non-recurring funding that projects such as year 20000 work depend on. Some states have record level rainy day funds. Reluctant to commit these surpluses to on-going obligations, state officials are more inclined to spend the funds on non-recurring projects such as year 2000. However, these obligations will only happen if state leaders, in most cases working closely with industry, make a compelling case for doing so.

Tom Davies, Ph.D., is vice president of Federal Sources state and local government consulting practice in McLean, Va. His e-mail address is DaviesT@fedsources.com.