Shortfalls pinch states' IT funds

'We're having conversations that in good times we weren't able to have.'

'Washington CIO Stuart McKee

Can state governments make lemonade out of this lemon of an economy? And will they still buy IT?

Input of Chantilly, Va., is cautious in a report released in September titled Assessing the Impact of State Budget Shortfalls on IT Vendors.

At the end of fiscal 2002, Input estimates, states will report a combined budget shortfall of $22 billion.

The reversal of fortunes in the states results from three factors, the report said:
  • Reduced revenue because of tax cuts, rising unemployment and the downturn in the economy

  • Increased spending on public safety for homeland security needs

  • Increases in health care costs and funding requirements for Medicaid.

So will cash-strapped states cut back on IT spending?

The answer varies. Virginia, according to the study, reports a fiscal 2002 shortfall of $1.6 billion. But technology spending is slated to be reduced by a total of $4.8 million over the next two years, a small amount compared with the scheduled reductions in education spending of $815 million during the same period.

New Jersey expects the biggest shortfall of $4.5 billion for fiscal 2002. The state Office of IT's operating budget of $102 million was cut to $98 million, said CIO Judith Teller. 'But there's not enough money for new nonpriority initiatives,' she said. The programs the state is forging ahead with are the ones directly tied to Gov. James E. McGreevey's agenda, Teller said, such as education and fixing problems at the Motor Vehicles Department.

Minnesota is in a particularly difficult situation, said Laura Bishop, a state spokeswoman. With a deficit of $3.2 billion estimated for the next two years, a new governor coming in January and 50 new seats opening up in the legislature, everything is up in the air, Bishop said.

The state's Finance Department has asked all agencies to assemble budget reductions of 10 percent with no new budget requests, she said.

'Our spending is below flat,' said Reggie David, Minnesota's assistant commissioner for the Office of Technology. 'We've got a 25 percent turnover in our House and Senate,' she said. 'It has added to our anxiety. A lot will depend on what kind of governor we get in January.'

Down one-quarter

Minnesota's Office of Technology's budget was cut by 27 percent, David said. One of the office's main tasks is to support other agencies. As the other agencies' budgets were reduced, it created a ripple effect, David said. 'We're down to the bone,' she said. 'This affects our ability to hire contractors, buy equipment and provide new services.' Minnesota had to push back its new state Web portal by six months, David said.

'The budget constraints have required us to be more creative,' she said. 'We're hoping the new decision-makers will recognize the value of technology, but it's a delicate balance.'

Washington, the unofficial digital state, falls somewhere in the middle, said CIO Stuart McKee. Input reports the state's fiscal 2002 shortfall as $190 million. 'Twenty years ago, people argued about whether technology was important,' he said. 'Now they know it's important, but they still argue about how to pay for it.'

A critical part of getting through this tough economic period is collaboration, McKee said. 'We are having conversations that in good times we weren't able to have.' People are more willing to collaborate on common platforms, infrastructures and business practices, he said. 'And we're not going to rest on our laurels.'

About the Author

Trudy Walsh is a senior writer for GCN.

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