Following the Federal Money

Eye on
the $tates

Following the Federal Money

By Thomas R. Davies
Contributing Writer

Devolution has caused quite a stir in the public sector. A recent report called it the most significant change in intergovernmental relations in over 30 years. Officials at all levels of government are trying to determine how best to proceed in this new era.

What has gone relatively unnoticed, however, is that with the exception of welfare reform, very little has changed in the funding of information technology projects by the federal government. Now, more than ever, the federal government continues to be responsible for financing many information technology initiatives at other levels of government.

Public sector spending on information technology is truly an intergovernmental game. As the information technology industry awakens to this reality, many leading companies are bringing their public sector sales and marketing organizations together under one umbrella.

Why are the leaders taking such bold steps to align themselves to create a unified public sector organization? A look at the federal money trail into state and local government paints a very clear picture why. Almost every federal agency provides state and local governments with funding that, directly or indirectly, is used to support information technology-related needs. Of the more than $500 billion budgeted to the largest federal civilian agencies, over 40 percent of this funding is sent to state and local governments. In some areas, such as transportation and education, funds received by state and local governments from federal departments account for over 60 percent of the federal department budget. Drawing a clear line between what is federal and what is state and local is very difficult to do.

Where does this funding go and what is it used for? The U.S. Department of Health and Human Services is a good example. HHS provides state and local governments more than $130 billion in annual financing. This staggering amount accounts for over half of all funds received by state and local governments from the federal government. These funds are used to deliver benefits to recipients, administer health and human services programs, and automate critical business processes. State and local government IT projects for eligibility determination, managed care, child welfare and welfare reform depend upon this flow of funding.

With this flow of dollars it should come as no surprise that without federal funding, many state and local IT projects would be significantly smaller, if they existed at all. Of the state and local projects tracked by leading market research firms, over 25 percent receive some type of federal funding. These projects include child support collection, electronic benefits transfer, child welfare systems, eligibility determination systems, Medicaid information systems, criminal history information systems, year 2000 projects, unemployment insurance, workers compensation, fingerprint identification, transportation road projects, inventory management systems, integrated health care systems, health care data warehouses, statewide telecommunications networks and community-based Internet access.

The state of Kentucky, for example, recently received $6.7 million from the Edward Byrne Memorial Discretionary Grant Program administered by the U.S. Department of Justice. The Byrne grant is used to provide leadership and direction in controlling the use and availability of illegal drugs and to improve the functioning of the criminal justice system, with emphasis on violent crimes and serious offenders. Included in the Byrne grant program is a provision providing technical assistance to state and local units of government. Kentucky is using the grant to modernize the technology supporting the criminal records system.

Some grants require state and local governments to provide partial financial support for projects. Texas, for example, is in the process of implementing a fingerprint identification system to help reduce state Medicaid fraud. The federal government is providing 90 percent matching funds to the state for the investigation and prosecution of fraud in the Medicaid program under a federal grants program. This grant source was used to finance the technology used in the pilot program.

Often, IT funding is part of a larger federal initiative. For example, the Department of Education provides Challenge Funds to educators to promote the use of computers and the information superhighway in preparing citizens for productive employment in the 21st century. A new Technology Literacy Challenge Fund will provide $200 million to state education agencies to help implement statewide technology plans. These funds will be used for critical needs such as equipping classrooms with computers; connecting classrooms to the Internet and developing software.

To take advantage of the intergovernmental dimension of IT spending, smart companies are closely tracking federal grants and determining how to leverage their sales, marketing, business development and strategic alliances across all levels of government. As they do so, these companies are seeking teaming partners who are equally adept at moving flexibly across the public sector, in some cases on a global basis. The organizational challenge is how to closely align public sector sales and marketing without losing the separate identity and focus each marketplace requires.

In the future, the winners will increasingly be those companies that determine how to unify their public sector organizations. As they do, these same companies will be the ones that will be able to support their customers' aspirations of building a seamless government enterprise.

Thomas R. Davies, Ph.D. is vice president of Federal Sources state and local government consulting practice in McLean, Va. He can be reached at daviest@fedsources.com. Dave DeBrandt contributed to this article.

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