Report: Growing budget shortfalls among states

This year's state budget shortfalls will result in fewer new technology initiatives as the states struggle to maintain existing technology infrastructure in an ever-widening budget gap, according to analysts and industry experts.

Two-thirds of the states are reporting declining revenue and more than half face expenditures that are exceeding levels projected in their fiscal 2003 budgets, according to the "State Budget Update," released Nov. 22 by the National Conference of State Legislatures of Denver.

States have at least a collective $17.5 billion budget gap to fill before fiscal 2003 ends, which for most states is June 30. The gap accounts for roughly 3.6 percent of the original fiscal 2003 appropriations. The total could rise as states gather additional information on revenue collections in the coming months.

"Because most states require a balanced budget each year, these gaps must be resolved by the time state officials close their books," said Bill Pound, NCSL's executive director. "2003 certainly will be a year of tough policy decisions."

Tom Davies, senior vice president at Current Analysis Inc., Sterling, Va., said that the budget shortfalls will cause the states to cut back on information technology spending as they focus on cost savings in the next six to 12 months.

John Kost, vice president of worldwide public-sector research for Gartner Inc., Stamford, Conn., said he expects states to continue allocating funds for existing projects, but that shortfalls likely will result in a slowdown in new IT initiatives.

To create new opportunities at the state government level, integrators will need to offer solutions that enable governors to propose structural changes in how the state does business, he said.

"IT solutions can make delivery of services more cost-effective. Some states may make investments in new approaches, if the vendors can truly prove they have a viable solution," he said.

The State Budget Update reported:

  • Thirty-three states report revenue collections below forecasted levels through October;

  • Twenty-nine states have revised their revenue estimates for fiscal 2003, with 26 lowering the revenue forecast;

  • Thirty-one states report budget gaps in the early months of this fiscal year;

  • Twenty-four states report that Medicaid or health care problems, which typically account for 15 percent of the average state's general fund expenditures, are over budget for the early months of fiscal 2003;

  • Twenty-nine states report that spending is exceeding budget levels.

  • The outlook for the remainder of the fiscal year is bleak, with 38 states concerned or pessimistic about revenue performance.

    Only 10 states report a stable of optimistic outlook: Florida, Hawaii, New Mexico, North Dakota, Rhode Island, Tennessee, Utah, Washington, West Virginia and Wyoming.

    To deal with budget gaps and revenue shortfalls, states may choose from a variety of cost containment measures, including tapping reserve funds, cutting programs, reducing Medicaid eligibility, making changes in personnel policies, delaying capital projects and implementing short-or long-term tax increases, the group said.

    Last year, many states were able to use rainy-day funds and other measures to address the $37 billion 2002 budget shortfalls.

    About the Author

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

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