IT Budgets Shrink, Workers Prevail

CIOs are cutting everything but their work forces -- so far.

by / May 21, 2003
CIO Alisoun Moore has cut the budget for the Montgomery County, Md., Department of Information Systems and Telecommunications twice. The one thing she won't tamper with, however, is her work force. "I've not had to let anybody go," she said with relief.

It looks like things will stay that way. Although there was a 6 percent across-the-board cut for fiscal 2004 (on top of a 5 percent cut last year), the county government, located in suburban Washington, D.C., already made adjustments for the new budget reality and avoided IT staff layoffs.

The experience in Montgomery County appears to be the general trend across the country as state and local governments deal with the deepening fiscal crisis. CIOs are cutting back on everything but their work forces. Although some jurisdictions resort to layoffs when no other choice remains, it's clear IT workers are receiving some protection from management. In fact, CIOs told Government Technology they are carefully scrutinizing consulting contracts and removing highly paid consultants to free up funds for in-house positions.

Avoiding Layoffs in Turbulent Times
Like a perfect storm, the slumping economy aligned with rising health-care costs and an archaic tax structure to trigger a hurricane of red ink, creating a budget gap between $80 billion and $100 billion for states alone. For nearly half the states, deficits as a percent of spending range from 10 percent in Idaho to 46 percent in Alaska. These numbers are unprecedented, according to the National Governors Association (NGA), and the political and economic impact of the cuts necessary to keep budgets balanced are still being weighed.

Local governments, which rely heavily on states for aid, also are hurting badly. Three of four cities report they are less able to meet their financial needs compared to the previous year, according to the National League of Cities (NLC). As if to compound their situation, 26 states have made cuts to local aid, according to the NGA. In addition, the NLC reports that rising public safety spending, driven by homeland security needs, has exacerbated the problem.

So far, government layoffs appear modest in number, according to statistics from the U.S. Department of Labor. That doesn't mean states and localities aren't handing out pink slips to balance the books, however. Connecticut's fiscal situation made national headlines when it laid off 3,000 state workers to help reduce the budget gap. California, Colorado, Massachusetts, Oregon, South Carolina, Utah, Virginia and Maine also laid off employees, or plan to do so, according to Cities and counties -- from Fremont, Calif., and Hennepin County, Minn., to Des Moines, Iowa and Worcester, Mass. -- are laying off teachers, firefighters and street cleaners to stave off an unbalanced budget.

But so far, IT workers have made it through the worst of the layoffs largely unscathed. In New Mexico, agencies were forced to take a 5 percent budget cut, with operational areas having to reduce their budgets by 10 percent, but work force reductions are off the table. "Nobody is being let go," said CIO Moira Gerety. "But we're not filling any positions either."

Instead, Gerety's Information Technology Management Office is combing through projects and contracts, looking for ways to eliminate what's not absolutely necessary while keeping worthwhile projects alive. Already, her office is pulling the plug on a $5 million IT project. She also is re-evaluating consulting contracts to identify where consultants are manning operational positions and to replace them, where necessary, with in-house staff. "We're looking to bring in and seed our IT work force with new skills, instead of farming that out," Gerety said.

In Phoenix, Ariz., CIO Danny Murphy is looking at the consulting situation as part of an overall effort to balance any possible internal layoffs with "external layoffs." Last fiscal year, the city had to make $20 million in budget cuts and is looking at an additional $50 million in reductions over the next 20 months. Still the Department of Information Technology has avoided layoffs. However, Murphy had to give up five vacant full-time positions he had been husbanding for future use. "We're working cuts around the edges, getting rid of what's nonessential," he said.

Ample Labor Pool
Employees who can work with state-of-the-art technology tools -- including enterprise software programs, such as SAP and PeopleSoft -- are considered essential. "Those people are hard to get," Murphy said.

Ironically, if Murphy could hire now, he would have the pick of the crop. CIOs report they are receiving resumes and job applications from skilled IT workers who can't find jobs in the private sector. "I've had a plethora of excellent applicants," said Carolyn Purcell, executive director of the Texas Department of Information Resources.

Purcell hasn't done any wholesale hiring, given the across-the-board 7 percent cut Texas agencies incurred this year on programs paid for by general revenues. But she noticed an increase in competitiveness among private-sector IT firms as they lower their prices in pursuit of service and consulting contracts. That's good news for a state like Texas, which relies heavily on outsourcing. Murphy reported a similar trend in Phoenix, resulting in his department negotiating better pricing deals from private-sector contractors and consultants.

Where state and local governments offered early retirement incentives as a means to reduce labor costs, most of the impact has occurred at senior-level management ranks, which are filled with older workers. Gerety reported that New Mexico currently is trying to fill three agency CIO positions left vacant by executives that retired or resigned.

Layoffs in the Future?
How long IT departments can stave off layoffs remains to be seen. Should the economy slip back into a recession, state governments could see income, sales and capital gains tax revenue shrink further. That could force additional reductions in fiscal budgets and could curtail the amount of aid available to cities and counties. Already, Texas faces another 12.5 percent budget reduction in its 2004-2005 biennial budget.

At the same time, government executives recognize that technology and the work forces that operate and maintain systems are essential to government productivity and service delivery. "My city manager values IT for its productivity," Murphy said. "That's why IT budgets have been spared large cuts."

Other CIOs continue to keep a close eye on investments and spending in hopes they can weather one of the worst fiscal storms of the century. "The key is to manage smartly," Moore said. "You have to hire wisely and watch dollars closely.
Tod Newcombe Features Editor