IT Budget Woes: CIOs Plug Fiscal Gap with Consolidation, Innovation

Photo: Steve Ferguson, CIO, Sacramento, Calif.

An IT authorization committee usually meets once a month in Arizona to review all state government IT projects valued more than $1 million. But with legislators still grappling with the housing crisis's impact on next year's budget, planning for major IT projects has been postponed.

"The last several months, we have canceled all those meetings," said Arizona CIO Chris Cummiskey. "We had a $1 billion shortfall in the current fiscal year, and it just froze most activity. There is trepidation in the agencies about doing any large-scale projects now."

Arizona may be facing the most serious budget reductions of any state government. With a $10.6 billion budget, it's looking at a $2 billion hole to fill for its next fiscal year - an 18 percent gap between revenue and expenses.

State, county and local governments nationwide are feeling the pinch from the economic downturn tied to the housing industry slump. State sales tax revenues in the first quarter of 2008 were the weakest in six years, according to a recent report by the Rockefeller Institute of Government, which also found growth in overall state tax revenues continued to deteriorate.

Overall, 23 states have reported a collective total of more than $26 billion in shortfalls for their 2009 budgets, according to a survey by the National Conference of State Legislatures. California, Arizona, Nevada and Florida have been hit especially hard.

In those states, CIOs at all levels, including at public universities, are facing across-the-board budget cuts. Many are dealing with hiring freezes and unfilled positions.

"They may have enhancements to data centers they won't be able to do, and special projects may get cut," said Chris Dixon, manager of state and local government industry analysis for Input, a market research firm in Reston, Va.

How deep the freeze is on new projects may depend on how a state legislature feels about IT. "If there's trust built up there, they may see slashing IT spending as cutting off their nose to spite their face," said Dixon.
"States know they can't balance their budgets on the back of IT. You can only keep deferring capital IT expenditures for so long."

In response to budget challenges, most CIOs say they are putting additional focus on efficiency gains. In a Forrester Research survey of government IT leaders conducted in 2007's fourth quarter, 74 percent said improving IT efficiency was either a critical or high priority for 2008. Their top technology priority was consolidating IT infrastructure, with 58 percent calling it a high or critical priority.

As for reducing IT services spending, 28 percent said it was a priority. In Arizona, Cummiskey said, "We are going to want to see agencies be very cautious about consultant spending; that will be scrutinized much more closely."

Cutting in Sacramento
There's a Chinese proverb that states: "A crisis is an opportunity riding the dangerous wind."

Some CIOs are treating the current fiscal downturn as an opportunity to make changes they couldn't previously accomplish due to bureaucratic resistance.

Steve Ferguson has noticed much inefficiency in his three and a half years as CIO of Sacramento, Calif., but his ideas about consolidation never got traction in the organization. "There's been a culture of departmental IT that has evolved over 20 years and has been very hard to change," he said. "But with the budget crisis, the city manager's office is definitely more interested. When I showed them an e-mail consolidation idea, they jumped all over it."

With the city facing serious revenue shortfalls, the IT department is preparing to cope with reduced funding.
Ferguson has penciled out a combination of staff reductions and program eliminations that will meet the 20 percent cuts required of all the city's non-public-safety agencies. He