Moreover, states and localities will develop an increasing number of revenue-maximization initiatives. For example, in an effort to minimize fragmentation and duplication of responsibilities among states, cities and municipal agencies, California plans to incorporate cost-effective managed health care delivery approaches into its Medi-Cal program.

IT RAMIFICATION

Information technology will be a critical tool for agencies adjusting to the changing environment, both in terms of freeing up existing resources and supporting new processes. Information technology's strategic importance will become even more apparent as states and localities attempt to manage without raising taxes. Government executives and legislators will need to create new solutions to survive this new environment. Such solutions are highlighted by the following:

Once legislators have established new policy directions for public-sector programs -- such as welfare or education and training -- state and local executives will be responsible for executing changes in order to operate in a new environment and achieve new goals with less federal direction or financial assistance. Reducing redundancies inherent in government will be one of the primary objectives. As a result of reevaluation efforts, business process reengineering (BPR) will grow to a degree not yet experienced in state and local government.

Once policy decisions have been made and BPR initiatives are under way, many state and local governments will embark on large-scale systems reengineering projects. While many agencies will decide to develop entirely new information systems to support their new programs and agency environments, many other governments will attempt to leverage their previous investments in information systems. For instance, a state health department could leverage its existing claims processing system and databases of Medicaid providers and benefit recipients while improving its accessibility to HMOs, primary care physicians and home health care organizations.

Agencies will have to upgrade to deliver more services through more networks and client/server environments. If states believe that an outsourcing firm can better control the cost of doing business, they may choose to outsource IT operations or an entire program (like employment or human services). Establishing outsourcing contracts at the outset will be facilitated because federal funds are fixed beforehand. In addition, because large-scale systems implementation will not come without risk, agencies will undoubtedly look to other innovative ways to "share" risk with IT services providers.

In total, block grants will no doubt create fewer redundancies for states; however, the end result will be a need for larger, more flexible, complex systems to support the new environment. Despite the time frame, state and local government agencies will face looming federal budget cuts while simultaneously receiving increased responsibilities, ultimately changing the definition of state and local government agency operations and challenging the traditional relationships between federal, state and local governments.

For more information contact Heidi Stayn at G2 Research Inc. at 415/964-2400.

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