It's no secret that the Internet forced society to change as the general public discovered the new electronic medium's many conveniences. Businesses scrambled to whip up Web sites to meet the sudden demand, and those sites evolved rapidly from simplistic to sophisticated, able to handle a variety of transactions directly with consumers or through third parties such as PayPal.

Public-sector leaders also recognized the benefits of various Web-based transactions with the range of constituents that different agencies serve. Government Web sites popped up on the Internet soon after the public's fascination with all things online proved permanent.

The problem is that once an agency went beyond a simple online brochure, nobody had a clear idea of how to proceed. Surprise, surprise -- the biggest unknown was devising a way to pay for electronic government.

Governments had three choices: build and manage their own Web sites; pay somebody else significant money to build and manage them; or sign a self-funding contract, which unlike the first two options, doesn't cost the government a dime.

The self-funding model clearly holds a certain attraction. Who doesn't like something for nothing? A significant number of states have deployed portals that pay for themselves through convenience fees for certain e-government transactions, known as self-funding portals.

There are strings attached to the approach, it's just that they're attached to somebody else. Still, the self-funding model seems to make sense with today's ultra-tight government budgets, and supporters argue they made more progress on e-government than they would have otherwise because they adopted a self-funding approach.

South Carolina Wades In

In April, South Carolina signed with Kansas-based e-government provider NIC to build and manage the state's e-government portal, making the state the 17th to contract with the company.

The state went to bid November 2003 and chose NIC from among 11 competitors, including BearingPoint, IBM and Official Payments Corp. State officials said the first new service launched this summer, and NIC representatives worked with state agencies and the E-Government Oversight Committee to identify and prioritize new applications.

South Carolina, like other states, sought the best product at the best value, said Ruth Kirkland, director of strategic communications for the Division of the State CIO.

"Cost and funding was a critical component," Kirkland said. "Also, managing the project from beginning to end, all the way to making the citizen aware of what services are available."

Doing all this at no cost to the state played a big part in NIC's eventual success in winning the bid, Kirkland continued, as did the company's familiarity with operating self-funding portals for various states.

As part of the contract, the state's existing portal will get a makeover, slated to include customization and personalization features, and more than 30 existing e-government services with online payment functionality will be moved to NIC's payment engine.

"Our current portal is somewhat dated," said Barbara Teusink, South Carolina's deputy CIO. "We've had a difficult time finding adequate time and resources to keep it as current and fresh as we would like internally, so we're looking to NIC to give it a fresh face, bring in updated information and give it a little more current perspective."

The portal's current design is vintage 2000, Kirkland added, and the state would like the portal to reflect advances in Internet-related technologies. Though the state is happy to turn over the portal maintenance to somebody else, doing so doesn't completely absolve state officials of duty.

"The biggest headache is working with all the agencies to find out what their needs are, what services they have that we need to make available to the citizens, how we're going to get those services online and going through all the technical gyrations to make them available," Kirkland said. "Then, once it's there, letting citizens know it's there and how to use it. From that aspect, it relieves a big headache for us. Obviously it creates a minor headache in that we have to manage NIC to make sure they're doing what they're supposed to be doing."

In some ways, South Carolina's experience mirrors that of Texas.

In 1999, the Texas Legislature approved a pilot for creating an "eGovernment Framework" -- an infrastructure for state agencies and local governments to provide online services to citizens and businesses. The Legislature also stipulated that there would be no state funding for it, and no requirement for state agencies or local governments to develop applications to use on the framework.

Texas eventually awarded a contract to BearingPoint, which built the infrastructure behind TexasOnline -- the super-portal that would serve as Texas' e-government face. The portal's business model relies heavily on self-funding -- TexasOnline services generate revenue through user, subscription and hosting fees.

The company receives a convenience fee for each transaction, and a 15-citizen governing board, established by the Legislature, determines services provided and establishes associated fees.

Up to Speed

South Carolina's portal platform was slated to go online June 1, Teusink said, followed by conversion of legacy Web applications to the new platform. The next steps are the portal's new look and feel, and adding more applications, she said. South Carolina is targeting the end of this year for completing the transition to the new portal environment.

Teusink said reactions to the new portal include excitement, cautious optimism and unenthusiastic.

"There are a few agencies out there that are somewhat reluctant to consider becoming involved," she explained. "But I think the design and model behind what we're trying to do will win them over."

Still, Kirkland and Teusink expressed surprise at the amount of what they called "pent-up demand" for Web applications in certain agencies.

"The small- to medium-size agencies that have these needs but have not had the funds to even consider such offerings are excited about the possibilities," Kirkland said. "The lists are growing."

Officials believed that interest was out there, but the magnitude is nearly overwhelming, Teusink said.

"We knew there was going to be demand," she said. "We just didn't expect such volume right off the bat."

Long Time Online

Utah's self-funding portal has been live since May 1999, said Al Sherwood, the state's deputy CIO, adding that Utah is happy with the use of the portal services by both businesses and the public.

"The self-funded model, by the way, has been very successful in Utah," Sherwood said. "I can't imagine being this far along in e-government without it. We were so pleased with the results over the first four years that we simultaneously executed two renewals at the same time."

The "self-funding" part of the portal is the fee charged to certain users for access to premium services. Most consumer services, such as registering a pet or checking availability of vanity license plates, are accessible for free, but businesses often pay "convenience fees" for corporate services on the portal.

Still, a self-funding portal creates kinks that need working out, Sherwood said.

The complaint about self-funding portals is that convenience fees will drive adoption down because people won't pay the fee to do something they can do for free at a physical office.

"If you're talking about motor vehicle registration renewal, why should somebody that goes online pay extra? And somebody who walks into an office gets a better deal?" Sherwood said. "That's essentially the question we had to address here. Even though we needed this model to work in Utah, philosophically we knew that if agencies can't drive toward 35 percent adoption, their internal efficiencies aren't going to be that great because they're going to have to manage multiple channels."

The state wanted a funding mechanism for its portal but had to balance that against the reality that a convenience fee would drive consumers to physical offices instead of using the portal.

Sherwood said Utah passed legislation in 2003 to let state agencies modify the fees they collected for services so those fees would cover the cost of providing that service.

"We opened it up so the portal provider could still charge a fee, but it wouldn't be charged directly to just the people using the Internet service," he said. "There was a registration service, and it was charged to everybody. You paid the same thing at the door as you did on the Internet."

Because of the legislative change, Utah gradually eliminated convenience fees for most online citizen services, Sherwood said, though the motor vehicle registration renewal service does include a small convenience fee built into the overall renewal fee.

Corporate customers, however, pay convenience fees on many business-oriented services. In part, Sherwood said, businesses don't mind the fees because the application software on the portal is designed to work seamlessly with corporate IT systems.

"They don't have a problem paying the convenience fee because they save money," he said. "People don't typically gripe about those fees. The bulk of the fee area in the self-support model comes from those business services."

Changing Structure

Utah is moving to a centralized IT environment, a move that will complicate the state's self-funding portal contract, Sherwood said.

One aspect of NIC's relationship with the state is that, despite the current decentralized IT environment, the portal gives the CIO an arena to develop enterprise applications, he said. On the flip side, NIC can market directly to agencies for work on agency-specific applications -- since NIC signed a statewide contract, smaller agencies don't have to go through the procurement process to use NIC.

"That doesn't mean an agency has to use NIC," he said. "It also doesn't mean an agency doesn't have a right to do an RFP if they wanted to see what the state of the market is at any particular time. They've got an option to do that."

That flexibility to use the contract for either enterprise or agency-specific purposes might be constricted by the emergence of a central IT shop, which was created by HB 109. The bill passed the Utah Legislature in early May, and consolidates IT services and governance in the executive branch of state government into one department. Utah will now have a consolidated IT department reporting to the CIO. The transition, which began after the bill's passage, is scheduled for a 16-month period.

Small agencies without IT resources have used that contract to work with NIC on Web applications, Sherwood explained.

"The question then becomes, 'If everybody is one operation or organization, then who's going to do the work?'" he continued. "Are you going to do it internally? Are you going to outsource part of it? How are you going to coordinate that so it's efficient? To some extent, it changes the rules of the game."

Bringing existing, separate contracts and the outsourcing relationships created by smaller agencies into the newly created central IT shop creates an unknown, Sherwood said, and it's not certain whether the results will be more outsourcing, less outsourcing or closer coordination of outsourcing.

"It will be an interesting area to keep an eye on," he said. "There will be some have-not agencies that will now have internal resources they haven't had in the past. There will be some options where, in the past, there haven't really been options. Things are going to change, and it may be that some of that work will be done internally because the capability is there to do it internally."

Change of Heart?

Massachusetts put together its Mass.gov portal in late 2001 and early 2002 with an official launch in May 2002. The state contracted with a vendor to build and implement the portal, said Susan Parker, director of Mass.gov, though the state's IT staff developed all portal content.

State officials considered the self-funding model for portals, Parker said, but Massachusetts opted not to pursue such an approach.

"When we developed the portal and our e-gov strategy back in 2000 and 2001, the self-funding model was relatively new and unproven," she recalled. "There were states doing it, but we didn't necessarily know how sustainable it was. There was also a perception that there would be a heavy reliance on charging fees to citizens.

"I think that perception may have been slightly off, because now it's clear that NIC is relying more on things like fees for motor vehicle records that citizens never or rarely end up paying," she said. "Those fees are charged to insurance companies or other large entities that collect and sell that data."

What's catching officials' eyes now is self-funded application development, and Massachusetts would like to explore opportunities in that vein, Parker said, because even though Mass.gov is successful and has built up a community of users, IT staff struggles with how long it takes to develop applications.

"We think the self-funding model could help us jump-start some application development," she explained. "We're not philosophically or morally opposed to the whole model, but a decision was made a few years ago not to pursue the portal that way."

Massachusetts has hit the point where the applications to handle the obvious and easy transactions online have been written. The remaining work is in developing difficult applications that handle transactions that cross lines between agencies and branches of government, she continued, applications that require a higher level of collaboration.

As with any state, Massachusetts is certainly not averse to having somebody else do that work, she said, and the self-funding model is clearly attractive.

Shane Peterson  |  Associate Editor