Stimulus funding to prop up states

The state and local government market slowdown has been dramatic. The economic crisis, budget shortfalls and mandatory furloughs have forced government technology leaders to postpone large-scale modernization efforts, extend the duration of infrastructure life cycles and prioritize cost optimization projects. For those reasons, Gartner Inc. has reduced its forecast for state and local government information technology spending by about 6 percent — from an earlier projection of $54.5 billion to a current forecast of $51.2 billion.

In the past six months, technology priorities have centered mainly on cost containment, cost avoidance, revenue maximization and revenue generation. Initiatives include budget management tools, Medicaid cost recovery, integrated tax and auditing systems, and privatization of government assets, respectively. Those types of projects will continue to receive support and funding to help balance budgets and offset future costs.

Because most state and local governments begin a new fiscal year in July, the second half of 2009 represents an important baseline for government agencies to launch new technology initiatives. Buoyed by stimulus funding, state and local governments will have an opportunity to launch a limited set of new technology initiatives. Although most stimulus-related activity will likely not occur until 2010, technology vendors should be aware of the following areas of growth and changes to technology management practices.

Total state and local IT spending

2009: $51.2B
2010: $54.6B
2011: $57.0B
2012: $59.5B

2009 spending forecast by segment

Administration/finance: $10.4B
Human services: $9.3B
Transportation: $7.9B
Public safety: $7.9B
Health: $5.8B
Criminal justice: $4.6B
Natural resources: $1.9B
Public works: $2.2B
Other: $1.1B

Source: Gartner Inc.

  • Government health care. Continuing investments in Medicaid modernization, expansion of the State Children’s Health Insurance Program and additional funding for clinical applications such as electronic medical records and clinical data repositories will be key areas for targeted technology initiatives.
  • Transportation and public works modernization. The plan to repair and modernize the country’s infrastructure will largely fall into those two agency segments. The resulting technology impact will center on the expansion of intelligent transportation solutions, public transit and port security projects with a focus on remote video surveillance, and project management systems that enable spend-management tools.
  • Eligibility determination and fraud verification. With the rise in demand for social services, state and local governments will need updated systems to determine eligibility and limit fraudulent use of those services as they efficiently enroll, process and direct new recipients. There will be investments in new Temporary Assistance to Needy Families systems, child welfare upgrades and unemployment insurance modernization initiatives.
  • Software as a service, application outsourcing and cloud computing. Those new models represent key alternatives to the traditional modernization process. Although still in their infancy, those alternative delivery models will likely see greater adoption in this constrained market environment as government agencies gravitate to the newer funding models, such as software as a service; transfer management of specific applications to the vendor community — application outsourcing; or adopt cloud computing to extend technology without buying the infrastructure.

Although the federal stimulus package provides a set of funding guidelines to drive new modernization activities, state and local governments face a variety of structural issues that will have a major effect on long-term technology planning. The fiscal impact of pension obligations, entitlement programs and state-specific issues has changed the nature of technology planning. Consequently, vendors must emphasize the tangible impact of targeted technology modernization rather than focus on large-scale government transformation.

About the Author

Rishi Sood is vice president, government industry market strategies, at Gartner Inc.

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