Eye on the States

Patience needed to unlock homeland security funding

Thomas Davies is senior vice president at Current Analysis in Sterling, Va.

Disappointment. That describes what most of the information technology industry is feeling regarding state and local homeland security spending. Companies are discouraged with the amount of money spent on homeland security, the lack of opportunities in their sales pipelines and the relatively small size of the projects that have been launched.

For the most part, however, these companies have no one to blame but themselves. The underlying source of their dissatisfaction can be traced back to unrealistically high expectations, largely resulting from their experiences with the year 2000 problem and e-government. Unless IT companies adjust, they will continue to be disappointed and will possibly miss out on the opportunity that is now beginning to materialize.

The reality is that homeland security has very little in common with either of these two previous waves of spending. For one, homeland security does not have the same market drivers as Y2K and e-government. Spending on the former was driven by a hard and fast date change, and on the latter by the euphoria that followed the explosion of the Internet. There are no such powerful technology drivers for homeland security.

Homeland security is a business-driven market opportunity, not a technology-driven one, and business strategy will drive homeland security IT spending. Furthermore, until the state and local business strategy for homeland security evolves, new IT spending will take a back seat.

A more instructive point of reference is welfare reform. When federal welfare reform legislation passed in 1996, there was no immediate explosion of spending on technology, as many had expected. Rather than throw technology at the problem of reducing welfare caseloads, the states spent much more time rethinking their business processes and figuring out what new processes and policies they needed to put in place.

Unlike Y2K or e-government, homeland security is being driven by the federal government, which just released the national homeland security strategy. Most state and local governments have been waiting for the national picture to come more into focus before fully committing to a course of action.

State and local governments will not get too far out in front of the federal government. There is very little to gain and much to risk in doing so, especially in an election year. In addition, with the considerable fiscal stress the states are under, they need to be especially careful to align their actions with federal homeland security policy and funding.

So what can you expect in the year ahead? First and foremost, keep your eyes on federal grants to the states. Admittedly, it's difficult to determine right now just how much the states will get of the estimated $37 billion to $45 billion in fiscal 2003 homeland security spending. Expect the spending to follow the three-point homeland security strategy adopted by the federal government: preventing terrorist attacks, protecting against vulnerabilities and minimizing damage if an attack does occur.

One recent assessment suggested that the $10 billion being spent on minimizing damage ? the smallest of the three categories ? could be targeted for the largest percentage increase as investments in first responder capabilities expand. If so, watch closely the grants from the Centers for Disease Control, the Federal Emergency Management Agency and the Department of Health and Human Services.

The federal agencies responsible for preventing future attacks are spending about 60 percent of available homeland security funds. This includes one of the largest providers of grant funds, the Justice Department, which historically has been the primary source of funding for upgrading state information collection and management capabilities.

State and local governments will move forward with homeland security in a fragmented manner, and not as a monolithic group. The complete picture only will become apparent with time, as their homeland security business strategies evolve, as their understanding of the technology options available becomes clearer, and as they figure out the tradeoffs and merits of different courses of action.

As this market opportunity evolves, a new word is needed: patience.

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