Online extra: Across the Digital Nation -- State and local market poised for a rebound in 2004

Rishi Sood

The state and local government market has endured significant problems over the last 18 months. Most notably, severe budget deficits led to across-the-board spending cuts and postponing major technology initiatives.

In many respects, the states have pursued new technology projects that have focused on the four major maxims of governing in a shortfall: cost containment, cost avoidance, revenue generation and revenue discovery. Despite these constraints, state and local agencies still spent more than $42 billion dollars on technology goods and services in 2003.

In 2004, the picture appears to be brightening. Half-way into the fiscal year, many public-sector organizations have tightened the budget belt to accommodate the revenue pinch. As the economy appears to be picking up, these organizations are better positioned to accelerate technology spending to meet enterprise objectives. In fact, spending will outpace 2003 levels and likely accelerate during the second half of the year.

One of the most interesting new market opportunities is the business value of technology implementation. After tumultuous budget years, governors and senior executives are interested in results-driven technology implementation and enterprise management tools.

These enterprise initiatives are tied increasingly to tangible business results, and even may be funded through more innovative partnerships with the vendor community. In many respects, technology development in this area is a natural extension of the four maxims of government that took root in 2003.

Another key market opportunity will be modernizing health, human services and labor agencies. With continued federal funding and new matching grants, many state and local organizations have started initiatives on unemployment insurance, workers compensation, child support enforcement and Medicaid. Upgrading these programs extends into new case management systems, increased eligibility determination and fraud detection tools, and extensions of business process outsourcing contracts.

2004 also is one of the first major infusions of homeland security money to the state and local government market. With the election this year, federal, state and local authorities are keen to have major projects implemented to establish a case for greater public security.

Another continuing market opportunity in this pace is increased federal funding of cybersecurity projects along with expansion of multijurisdictional communications systems. State and local governments likely will pursue greater remote monitoring programs and establish technology initiatives at the ports.

There seems to be a light at the end of the tunnel in 2004. This may be a transition period for state and local governments. In many respects, 2004 may be the start of an important switch from raiding rainy-day funds to being fiscally solvent. As the economy continues to pick up, state and local decision-makers will likely have additional resources for fiscal year end and have greater flexibility in 2005 budgets.

Consequently, vendors that have downsized state and local business initiatives over the last 18 months must begin to take notice: The market appears to be poised for a rebound. As savvy vendors know, the opportunities awarded in late 2004 and 2005 are won in the pre-sales activity that takes place today. Therefore, vendors must get back in tune with key decision-makers and agency contacts. Vendors that continue to short shrift the state and local marketplace will be at a significant disadvantage.

Rishi Sood is a principal analyst with Gartner Dataquest in Mountain View, Calif. His e-mail address is

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