These days, state and local governments are resorting to all kinds of innovative funding arrangements to fuel electronic government initiatives. In most jurisdictions, however, the traditional funding model continues to dominate. Jon Gearhardt, public sector industry director at PeopleSoft, estimates that as much as 80 percent of government technology funding is still handled this way. "Traditionally funded projects are justified as a strategic investment," he said. "IT spending is compared to savings over five or 10 years to demonstrate the return on investment."
While this budgeting method may have worked well for systems that functioned in isolation, it is less suited to the citizen-centric concept of electronic government. When it comes to delivering more information to citizens, it is not always possible to justify spending in terms of potential savings alone.
"Citizens are demanding more services from their governments -- especially in the area of electronic government services, such as the ability to file taxes or acquire simple building permits online," said Geoffrey Segal, an analyst at the Reason Public Policy Institute in Los Angeles.
This drive to empower citizens through easy access to government databases has come at a time when IT budgets are competing for resource allocation with high priority infrastructure projects such as deteriorating school buildings. And the water and wastewater management infrastructure that took root between the 1930s and 1950s is now in serious need of repair in many areas.
Further, internal politics and unwillingness to take risks can sometimes mean that vitally needed electronic government projects mark time while yet another feasibility study is conducted. According to Segal, "What this boils down to is an unwillingness to take a chance." When you add all this up, it's easy to see why government has had to become far more creative when it comes to funding electronic government.
Commercial Partnerships
The state of Arizona has evolved several innovative partnership arrangements with private sector companies for a number of related projects. The state intends to establish a telecommunications backbone to connect all educational facilities, facilitate a statewide Web portal, stimulate rural economic development and expand market opportunities for its smaller communities. Known as the Telecommunications Open Partnership for Arizona (TOPAZ), Arizona is funding this expensive undertaking by leveraging the use of Interstate rights of way by fiber providers.
"Usage of the right of way is offered in exchange for build-out of extra fiber and 'off ramps' to communities throughout Arizona," said CIO Art Ranney.
He noted that TOPAZ will result in $100 million in savings over the next five years through consolidation of state government buying power and another $100 million through federal e-rate and school connectivity funding. Further, this project is actively assisting the state in accomplishing an important electronic government goal -- the consolidation of voice, data and video.
Outsourcing
In the commercial sector, outsourcing has risen to new heights. Dun & Bradstreet's most recent barometer of global outsourcing pegs outsourcing expenditures at over $1 trillion worldwide for 2000. That represents a doubling in value in only three years. The most frequent reasons for outsourcing are to focus on core competencies, reduce operating costs, improve quality and information, make better use of capital, and fuel revenue. Many of these same reasons apply in government, where outsourcing is also on the rise.
"We feel it is better to buy technology as a service, not as a product subject to budget predictions," said Donald Upson, secretary of technology for the state of Virginia, and a proponent of outsourcing. "We are the only state in the nation to roll out a statewide low-cost, high-speed ATM network (Virginia Link) in concert with WorldCom, Verizon and Sprint. The commercial companies put the network in place, but we brought them together."
Increasingly, outsourcing also involves some revenue-sharing arrangement with the government body. In a sense, outsourcing is evolving into the commercial partnership model.
Orange County, Calif., for example, has a $260 million deal with Lockheed Martin IMS, a Washington, D.C.-based provider of technology services to state and local governments. LMIMS will provide Orange County with 10 years of IT services, including voice, LAN, WAN, legacy and Web programming, and data center operations. Orange County will supply the hardware, facilities and software. Though this inventive funding method, Lockheed will use the county's data center to support other customers and use that revenue stream to help the county reduce the cost of providing services to its various departments and agencies. Lockheed also guarantees Orange County revenues of at least $21 million over the term of the contract.
According to Leo Crawford, assistant CEO for Information and Technology for Orange County, "The contract gives us a significant revenue stream that otherwise wouldn't have been possible."
Bonds
Local and state governments are beginning to realize that IT infrastructure is as important as any road network or sewer system. As traditional infrastructure items are frequently funded through bond issues, some areas are using this approach for IT infrastructure. The state of Texas, the commonwealth of Massachusetts, and Colorado Springs School District, to name a few, are funding electronic government projects through the use of bonds.
"While bonds give governments some flexibility by removing technology infrastructure funding from annual budgeting," said Segal, "bonds essentially are a tax hike. Relying on bonds could be a mistake."
Advertising
One of the more controversial funding instruments for electronic government is advertising. In the commercial world, advertisers and sponsors have given rise to such hybrids as free Internet service and even free telephone service. In return, however, the user accepts the fact that he/she will be subjected to advertising. Clearly, this is a powerful method of funding, but can it work in government?
PeopleSoft's Gearhardt points to the City of Honolulu, Hawaii, as an example of a jurisdiction that is using advertising wisely. This city uses Website advertising to pay Website bills. Some argue that a precedent has already been set, in that most cities allow ads to appear on buses and park benches. Others, however, believe that online ads may be viewed as an "official" government endorsement. Clearly, this is an area where policy must be set carefully.
Los Angeles County, for instance, has suspended advertising on all county-run Websites until a formal policy is created. "With this potential for improved service, however, there is a growing potential for abuse, ranging from misleading and deceptive advertising to conflicts of interest and intolerable invasions of privacy for unsuspecting citizens," said LA County Supervisor Zev Yaroslavsky.
Philanthropy
There comes a point in electronic government funding, though, when financial models must be thrown out the window. How is it possible to economically justify the establishment of a high-speed network to a remote region that produces a tiny fraction of overall state revenue? And what about an agency that is not a direct income producer? What about a project that involves no revenue generation such as pollution prevention? In such circumstances, the good of the people and quality of life issues must take precedence over monetary concerns.
In the state of Arizona, for example, CIO Ranney has adopted a pragmatic approach to electronic government funding. When agencies want a given application developed "that we think will make money for the state, we'll build it," he said. "If it won't make money, we'll take the profits from the applications that are making money and use them to fund the ones that are not, but are, nevertheless, necessary."
Similarly, Virginia is working hard to make electronic government pay on the one hand, while making sure that the every jurisdiction benefits. A good example is My Virginia, a portal that leads to all state, county and local agencies. Funded by the state, My Virginia allows local communities to 'plug in for free'.
"We are helping local areas start community portals," said Upson. "It's all about bringing people together."
These are just a few of the many examples where IT pros inside and outside government are working to give each community a way to enter the Information Age. Clearly, it is going to take such a certain amount of philanthropy to bring electronic government to those areas suffering from either a lack of technological savvy or without the funding to establish it on their own.
Drew Robb is a Los Angeles-based writer specializing in business and technology issues. He can be contacted at
