Money-Saving Strategies for Coping with Shrinking Government IT Budgets

Stagnant revenue and rising costs are putting a stranglehold on many state and local government budgets, which poses a dilemma for government CIOs. Applied wisely, IT can increase efficiency across the enterprise.

"In many cases, we're actually seen as an enabler to help cut costs," said Randi Levin, chief technology officer (CTO) of Los Angeles and general manager of the city's Information Technology Agency (ITA). But in times like these, it's hard to pry loose enough dollars to maintain the status quo, much less make new technology investments.

Although tax revenues across the United States rose slightly in 2007, inflation actually left governments with less buying power, said Robert Ward, deputy director of the Nelson A. Rockefeller Institute of Government in Albany, N.Y., whose latest report on state tax revenues was released in March.

According to the U.S. Bureau of Economic Analysis price index for state and local governments, costs rose by 6.2 percent in 2007's fourth quarter - 3.6 percent more than the U.S. inflation rate. "That means states and localities have to spend significantly more just to provide the same level of services," Ward said.

Tough times demand creative responses. State and local governments are exploring various strategies to stretch IT dollars. Here are five that are finding success.

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When it's time to implement a software application, the software-as-a-service (SaaS) model offers a way to spread the costs over the solution's useful life and possibly reduce them. Under SaaS, instead of licensing software and installing and maintaining it in-house, the user pays a fee to access the application via the Internet. It's like paying the city to pump water to your home instead of drilling your own well.

SaaS is one of two models the North Central Texas Council of Governments (NCTCOG) is using to help small and medium-sized governments acquire software for basic business functions. NCTCOG signed a contract with Tectura of Redwood City, Calif., to provide three applications to interested government member. The applications are: Microsoft Dynamics GP for financials, StarGarden for human resources and payroll, and software from Cogsdale Corp. for functions including utility billing, permitting and work order management.

A government can opt to license one or more of these packages and host it internally. Or it can pay Tectura a subscription fee based on the number of users. Tectura arranges for a third party to host the system.

The latter approach builds an implementation fee into the subscription for the first three years. "And then the annual costs go down, of course," said Tim Barbee, director of research and information services for NCTCOG in Arlington, Texas.

Although the SaaS model eliminates making a major upfront investment, as the government continues paying the monthly fee, eventually the accumulated costs will exceed the one-time cost to buy the software outright. Where the two lines cross depends on which packages the government buys and how many people use it, Barbee said.

When weighing the benefits of SaaS versus licensing, governments also must consider the internal expenses they eliminate when a third party hosts the software, Barbee said. "You have the cost of your hardware. You have the cost of all the people who you have to run the system, the network administrators and those kinds of people," he said. "And you may have additional security measures you have to take, depending on what kind of software you have."

Keep It Open

Open source software offers another method to control IT costs. For tight budgets, the good news is that much of this software is available for free.

Ben Berry, CIO of Oregon's Department of Transportation (ODOT) and former chair of the CIO Council, has found that open source solutions can