Economic slowdown hits state IT budgets

Economic slowdown hits state IT budgets


The downturn in the U.S. economy has begun biting into state information technology budgets'mostly because tax revenues have fallen short of forecasts.

Several governors already have ordered budget cuts that will reduce IT spending, and about half the states are re-evaluating their systems investment plans, officials said. Meanwhile, some states benefiting from higher oil and gas production tax revenue have been insulated from the downturn and even plan to increase their IT spending.

According to the Nelson A. Rockefeller Institute of Government at the State University of New York in Albany, governors in Alabama, North and South Carolina, Michigan and Mississippi already have mandated budget cuts.

'Tennessee and Louisiana, which have perennial problems, will have to do something this year,' said Nick Jenny, an institute policy analyst.

Other states that haven't acted yet but have seen tax revenue shrink include Arkansas, Delaware and Florida, Jenny said.

The budget problem so far has hit mainly manufacturing states. But if the financial-services sector of the economy takes a big hit, states such as California, New Jersey and New York will face budget problems, too.

Widespread effect

The economic slowdown has hit about half the states, said Aldona K. Valicenti, Kentucky's chief information officer and president of the National Association of State Information Resource Executives. In Kentucky, state officials are planning for the possibility of a 2 percent budget reduction.

When state budgets contract, 'large projects go through, but others might be delayed,' Valicenti said. CIOs already are responding by reducing costs such as travel expenses, she said.
State budgeters face not only lower tax revenues, but higher expenses from their Medicaid programs, Valicenti and Jenny noted [GCN/State & Local, January, Page 1].

Kentucky CIO Aldona K. Valicenti, president of NASIRE, says state IT budget cuts could affect the association's meetings.
Whatever the fallout, Valicenti said, although companies such as General Motors Corp. can shut down factories or even close down completely, 'you can't shut the state of Kentucky. ' We're less affected than the private sector, but the future is still out there.'

North Carolina faces a budget shortfall of about $790 million, state officials said. As a result, the Information Technology Services Office has terminated 71 of its 174 contract employees over the past two months, or 41 percent of its contract staff.

Recently appointed North Carolina CIO Ron Hawley said his office had returned $6.5 million of its $180 million fiscal 2001 funds to the state's general fund to help make up the budget shortfall. About $3.5 million of the returned funds came from reductions in the office's E-Grant program, which provides funds to state agencies to put services on the Web.

North Carolina plans to reduce its fiscal 2002 IT budget by 5 percent, from $192.8 million to $182.7 million, spokesman Les Williams said.

'We're taking a look at reducing contractual services,' Hawley said. 'The budget shortfall is creating a need for ITS to focus on essential services and look for reductions in other services.'

Hawley's office has delayed or canceled some projects because of the budget cuts, he added.

But North Carolina is forging ahead with its plans to build a procurement system in a bid to reduce costs, Hawley said.

Schooling is spared

In South Carolina, the state faces a revenue shortfall of about $500 million out of a budget of roughly $5 billion. Gov. Jim Hodges has proposed a 15 percent across-the-board cut in fiscal 2002, sparing only the education budget.

The Ways and Means Committee of the South Carolina House of Representatives has announced a different plan, proposing cuts of up to 40 percent in some agencies to reach the same goal.

Mississippi agencies are working to avoid layoffs in part by reducing travel expenses, CIO David Lichtliter says.
Regis Parsons, director of the South Carolina Budget and Control Board's Information Resources Office, said his IT operations certainly will be hit by the cuts. The office provides data center telecommunications services on a charge-back basis.

As other South Carolina agencies reduce their IT spending in the fiscal year beginning July 1, the systems shop will receive lower revenue, Parsons said.

Employees still here

'There have been no RIFs here at the Budget and Control Board yet,' Parsons said. 'We are not filling vacant positions. We are also limiting travel. We have not reduced training or equipment purchases yet.'

Mississippi CIO David Lichtliter faces cuts for the rest of this fiscal year.

'It's not looking real good,' he said. 'We're experiencing revenue shortfalls.' State tax revenue was off about $200 million out of a $4 billion budget, Lichtliter said.

'All the agencies that get direct funding are having trouble setting priorities,' Lichtliter said. 'It gets to the point where you delay projects, or you let people go. So far agencies are doing hiring freezes and freezing capital equipment expenditures.'

Lichtliter's IT budget, like Parsons', is based on charge-back revenue from other agencies. Mississippi state agencies 'are squeezed very tightly,' Lichtliter said. They are cutting travel and training spending and not buying equipment unless it is 'absolutely necessary,' he said. But many agencies have deferred IT projects, he said.

'Then, they get into not filling vacant positions,' Lichtliter added. 'In the worst case, they RIF employees.'

On the bright side, oil- and gas-rich Oklahoma is being buoyed by higher energy tax revenue because of higher fuel prices, said Jerry Stillwell, data processing administrator in the State Finance Office. He does not anticipate any budget cuts that would affect services, he said.
'Revenue has been doing fine, and we have had budget increases each year for the last three years,' Stillwell said. 'We have a larger revenue stream this year than we did last year.'

In fiscal 2000, Oklahoma spent about $148 million on IT, Stillwell said. That increased to $186 million this year and likely will rise another 5 percent to 7 percent next year, he said.

Gov. Jim Geringer of Wyoming said his state also had benefited from higher energy prices and the resulting tax revenue. 'I don't see an economic recession coming,' he said last month while at the National Governors' Association meeting in Washington. 'I see more of an adjustment. Things were too excessive, exuberant before, and now there is going to be an economic adjustment.'

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