States' rights

Looser federal grip on IT funds could allow more business to flow<@VM>Twists and turns of the money trail<@VM>Uncle Sam's helping hand

"The question is how far the federal government is willing and able to go. ... There will be some sort of compromise to allow flexibility as well as to keep some accountability [in the process]," said Bob Stauffer, health and human service business development manager for Deloitte Consulting.

Systems integrators could see a surge in outsourcing and large-scale information technology projects under proposed changes in how the states are allowed to spend federal funds earmarked for IT programs.

Rep. Tom Davis, R-Va., early this month asked federal agencies, state officials and industry representatives to recommend ways to streamline the funding process, either through legislative reform or changes in how federal agencies manage the grants programs.

The federal government provides about $2 billion in grants each year that fund system planning, development and operation of entitlement programs administered at the state level, including Medicaid, child support enforcement, child welfare and food stamps, according to the General Accounting Office.

However, state officials complain that the rigid rules attached to the grants prevent them from spending the money most efficiently, such as on enterprisewide projects that would allow information sharing among state agencies with overlapping responsibilities.

"The whole idea of raising service to the citizen is not being enabled through this type of policy," said Kimberley Williams, director of industry strategy for education and government for PeopleSoft Inc., Pleasanton, Calif.

Changes that would allow states to more freely pursue outsourcing and enterprise projects would be a boon for the large integrators, which specialize in these types of projects, said John Goggin, vice president and director of government strategy for the market research firm Meta Group Inc., Stamford, Conn.

"It will build their business," Goggin said. "As things move to an enterprise approach, you are going to see the major integrators develop long-term relationships with the states for five or 10 years."

The competition among large integrators drawn to these opportunities would have a profound effect on the competitive process, he said. The pool of companies that compete at the state level would be sharply reduced as second- and third-tier integrators partner or team with first-tier integrators for the enterprise and outsourcing opportunities, he said.

"This will allow the [government] customer to streamline purchasing, and it will allow small companies to sell to business rather than to government," Goggin said.

However, reform is still a ways off. State officials asked Congress last year to examine the grants process as a prelude to reform. Most recently, Davis, chairman of the House Government Reform subcommittee on technology and procurement policy, asked state and industry officials who testified at a July 9 hearing to submit draft language that lawmakers could use as a basis for legislation to streamline the funding process.

He also has asked federal officials at the departments of Health and Human Services and Agriculture to see whether they could make internal reforms that would preclude legislation, said David Marin, Davis' press secretary.

As the responses are received, the subcommittee "is going to look at developing legislation to address the problem, and we are going to study what the impact would be on homeland security initiatives," Marin said, noting that the subcommittee is also overseeing federal IT funding to the states for homeland security purposes.

If legislative action is taken this year, it will take 12 to 24 months before regulatory changes occur that might have an effect on the purchasing cycle, analysts and industry experts said.
Larry Singer, Georgia's chief information officer, who testified before the subcommittee and has advocated the issue for the National Association of State CIOs of Lexington, Ky., said there is a great deal of enthusiasm on Capitol Hill for addressing the IT grant process.

If Congress doesn't take action this session, he said he expects they will take up the matter again in the next session.

Bob Stauffer, health and human service business development manager for Deloitte Consulting, was cautiously optimistic.

"The question is how far the federal government is willing and able to go," he said. "There will be some sort of compromise to allow flexibility as well as to keep some accountability [in the process]."

Aldona Valicente, Kentucky's CIO, said Congress should provide statutory relief to restructure the advanced planning document process, on which funding approval hinges, and streamline the cost allocation process.

Singer advocated stronger action, saying the review of IT expenditures associated with federal programs should become part of the overall program review and not subject to a separate review.

He also called for elimination of restrictions on cross-program uses of federal funds when IT program systems share integrated networks and architectures. Restrictions against using federal funds to purchase proprietary applications and systems development also should be eliminated, he said.

The proposed reforms would allow states to dramatically improve service to citizens, Williams said.

For example, most children typically receive more than one form of assistance. If these systems were connected, then parents or guardians registering a child would be able to contact the government once rather than several times, she said.

Williams said an enterprise approach comprises customer relationship management on the front end of the system, the storage of data in the middle and the ability to capture and analyze the cost of service to the constituent on the back end.

The reforms also would drive standardization of infrastructures, which would allow states to save money because they won't have to concern themselves with whether software and systems are compatible, Goggin said.

Williams agreed. "States are realizing that a comprehensive applications approach is the way to go," she said. "It's too costly for them to maintain the interfaces [among applications]."
Still, the funding reform won't cure political or cultural issues associated with information sharing, Goggin said.

Turf battles are likely to occur within state human services agencies and departments that administer the various entitlement programs.

"Each agency will think its records shouldn't be shared across the enterprise," he said. "[Funding reform] will not solve all of their problems."The federal funding process is indeed complex and lengthy. States that want to obtain money to build information systems for programs such as Medicaid, child support enforcement, child welfare and food stamps must submit advance planning documents, or APDs, to the relevant federal agency. These documents may require a statement of needs and objectives, a requirements analysis, a feasibility study, a cost-benefit analysis, a statement of alternatives considered, a project management plan, a proposed budget and prospective cost allocations.

There are two major types of APD submissions: planning and implementation. They are used at prescribed stages in the state systems development and acquisition process. In addition, states may be required to submit APD updates, requests for proposals and contracts, sometimes with modifications.

The federal agencies within the departments of Health and Human Services and Agriculture that administer these programs are the Administration for Children and Families Child Support Enforcement program (HHS), the ACF's Child Welfare program (HHS), the Center for Medicare and Medicaid Services Medicaid program (HHS) and the Food and Nutrition Service Food Stamps program (Agriculture). They review these submissions ? generally they must complete the review within 60 days ? then make funding decisions. Following its review, a federal agency can approve or disapprove the request or ask the state for more information. If more information is needed, the agency has another 60 days to review and respond to the state's reply.

States also are required to include cost allocation plans when submitting an APD or an update. These plans are used to identify, measure and allocate expected project costs between the state and the federal programs. Each federal agency expected to provide funding must approve state cost allocation plans for systems development and acquisition projects.

Source: General Accounting OfficeUncle Sam's helping hand

The federal government provides large portions of funding, ranging from 50 percent to 90 percent, to help states build information systems that administer federal programs. Here's the mix.

Child support enforcement

Feds: 66 percent

States: 34 percent

Child welfare

Feds: 50 percent

States: 50 percent

Medicaid eligibility

Feds: 50 percent

States: 50 percent

Medicaid claims processing

Systems planning and development

Feds: 90 percent

States: 10 percent

Systems operations

Feds: 75 percent

States: 25 percent

Food stamps

Feds: 50 percent

States: 50 percent

Source: General Accounting Office

About the Author

William Welsh is a freelance writer covering IT and defense technology.

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