For the first time in several years, states are getting some good financial news. But that uptick may not make life much easier for CIOs, since there will be tough competition for any extra state budget dollars for the foreseeable future.

After two years of shrinking state spending, budgets actually began to grow in fiscal 2011 and will continue to inch up in fiscal 2012, according to Scott Pattison, executive director of the National Association of State Budget Officers. “I predict a majority of states will have a revenue surplus at the end of this fiscal year,” Pattison told attendees at the National Association of State Chief Information Officers (NASCIO) Midyear Conference last month. “But there will still be cutting.”

That’s because Medicaid and pension costs are increasing. Federal stimulus dollars that have been pumped into states and localities for the past few years are drying up. And even though state spending is on the rise, that growth likely will remain slower than normal for quite awhile.

All of those factors will make it tough for states to invest in new technologies and programs.

“You’ll be in competition with all kinds of other folks who want that funding. That’s the reality,” Pattison said. “You can’t just come with your hand out. You need strategic plans to talk about why spending is important.”

CIOs probably also will need to find savings in order to offset the cost of new deployments. One way to do that is to look critically at the value of the systems they operate — and be ready to pull the plug on those that deserve it, he said. “You have to defund the losers.” Other targets for savings are government procurement and contracting practices, where outdated rules and regulations continue to hinder innovations that could cut costs and boost efficiency, Pattison added.

And that brings us to this month’s cover story, which looks at how some local CIOs are pushing innovative changes to licensing agreements in a move to cut software costs. For instance, Phil Bertolini, CIO of Oakland County, Mich., wants to become a hosting partner with his software vendors. Vendors would sell software to local governments with the intent of hosting those products on the county’s cloud as part of the deal. The move could generate revenue for Oakland County, while reducing IT costs for other governments in the region. And at least one of the county’s software vendors — Microsoft — seems open to the idea.

It’s an example of the type of innovation that IT professionals at all levels may need to look at as they struggle to make ends meet. As Pattison reminded NASCIO attendees in May, “We have to all get used to long-term lower growth in our budgets. That’s the new normal.”

Steve Towns, Editor Steve Towns  |  Editor

Steve Towns is editor of Government Technology, and executive editor for e.Republic Inc., publisher of GOVERNING, Government Technology,Public CIO and Emergency Management magazines. He has more than 20 years of writing and editing experience at newspapers and magazines, including more than 15 years of covering technology in the state and local government market.