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The Economics of E-Government Services Are Far From Simple

Do citizens — and governments — benefit from e-government services?

When constituents serve themselves online, government agencies can offer more services at less expense  — at least that’s the theory. And it’s an appealing one in this budget-slashing era as governments impose furloughs, cut staff and reduce office hours.

The next logical step, it would seem, is to give citizens incentives to skip the service counters and use e-government portals instead. Some governments do. In Virginia, for example, renewing a one-year vehicle registration online costs $1 less than renewing in person or by mail.

In truth, however, the financial implications of e-government are far more complex than they appear. Online services may save a government money and can even create new revenue streams — but they also may generate new costs. And while some governments reward citizens for choosing the self-service option, others charge more for online payments.

Self-Service Equals Smaller Staff?

For some, there’s no doubt that online services save governments money by reducing the number of employees needed to interact with citizens. “We have hundreds of examples of that,” said Christopher Neff, vice president of marketing at NIC USA, which builds, hosts and operates Web portals and online e-government services primarily for states.

As an illustration, Neff points to Tennessee, whose statistics NIC has been tracking for 10 years. “They’ve saved more than $90 million in e-government,” he said, “and that’s just calculating the difference in costs between online and offline transactions.”

The wide range of transactions available through Utah’s e-government portal was an important factor in the state’s decision to implement a four-day workweek in August 2008. “It was a move to enable the state to save money,” said David Fletcher, Utah’s CTO. While making the change, Utah emphasized that citizens could still do business with the government on Fridays — or anytime — online.

Popular demand has convinced Utah to resume Friday service at some Division of Motor Vehicles and Driver License Division offices. But the portal remains an important way for residents and companies to do business with the state. And people are using the portal: Traffic increased after the four-day workweek took effect, Fletcher said.

“In 2007, we were averaging about 700,000 unique visitors a month to our website,,” he said. “In 2009 — the year after [the four-day workweek began] — we had our first year with 12 months in a row with at least 1 million unique visitors per month.”

Besides helping the state to economize, the portal has produced financial benefits. For one thing, it promotes economic development. In the past, a person starting a new business dealt with approximately 10 separate state agencies and local government, Fletcher said. Now, thanks to Utah’s OneStop Business Registration portal, owners can conduct all the transactions required to start a business through a single Web page.

“We’ve reduced the barriers to starting a new business,” Fletcher said. Greater convenience translates into more businesses, which has helped keep the state’s unemployment rate lower than the national average, he said. also helped the state earn more revenue from the value-added services it offers to businesses, Fletcher said. One example involves selling driver data to insurance companies.

“The Driver License Division is coming out ahead,” Fletcher said. “They’re selling more of that data to insurance companies than they were otherwise, because the insurance companies make those requests more frequently.” That’s because company personnel find it easier to purchase the data online than in person or by phone, he said.

Convenience Fees

Each time an insurance company in Utah makes a purchase online, part of the fee helps to offset the cost of paying NIC to operate the state’s e-government services. Many governments that outsource their portals underwrite the service by charging an extra dollar or two for fee-based transactions conducted online, Neff said. But they tend to add those “convenience fees” selectively.

“A limited number of services — primarily those that are business facing and support heavily regulated industries that are processing thousands or millions of transactions a year with various states — will have fees attached,” Neff said. “And those dollars are then used to support the entire build-out of these portals.”

It’s less common, he said, to attach convenience fees to transactions conducted by private citizens.

But some government websites and some agencies do charge slightly more for online transactions than for fees paid in person or through the mail. In Knox County, Tenn., for example, it costs $60 to renew the registration for a private passenger vehicle in person by cash or check, $61.50 by credit card, $62 by mail and $64.58 online.

The fee for online payment includes a 2.5 percent credit card processing fee and $2 to cover postage for the license plate and/or decal. Local law prohibits Knox County from absorbing those fees in order to charge the same amount for a service no matter the delivery method, said Jon Gustin, manager of e-government services with the county’s Office of Information Technology. But the online customer still comes out ahead, he said. “In most cases, it is cheaper and more convenient for the customer to pay the added minimal fees rather than drive, park and stand in line at a government location to complete the transaction in person.”

Nevertheless, Gustin said he still sees a significant number of people lining up for in-person government services. “I would say the online credit card strategy is one of convenience to the constituent that will grow to become more efficient and less costly as more of the population does their business online.”   

E-Government, but No Cuts

As local governments have started delivering services online, many have failed to save money because they don’t make associated cuts in administrative staff, said Brian Kelley, CIO of Portage County, Ohio. As a research affiliate with the Center for Public Administration and Public Policy at Kent State University, Kelley recently participated in a project that examined county and municipal e-government services in 13 Ohio counties. Survey responses from local government officials indicated that very few think e-government has reduced staff, counter service or overall costs, he said.

Governments don’t like to give up funds they’ve already obtained for ongoing activities, such as in-person customer service, Kelley said. And in general, governments don’t reduce head counts as they shift more transactions to the Web. “People have assumed some new responsibilities as we’ve automated,” he said. “But we’ve not seen the drastic reduction that one would expect would come with all the efficiency of information technology in the public sector.”

But that could change, Kelley added, as fiscal emergencies engender furloughs and staffing cutbacks. “E-government creates the opportunity to expand services even further,” he said. “The physical offices may be closed or understaffed, but with e-government there’s 24/7 access.”

E-government could save money for Gaston County, N.C., if only more citizens would apply for permits, pay taxes and conduct other business online. “Utilization is lower than we would like it to be,” said CIO Brandon Jackson, adding that Gaston County can’t use convenience fees to recoup the cost of offering services online or taking credit card payments. “In North Carolina, we’re not authorized to add any additional fees to transactions.”

Gaston County and its neighbors in North Carolina do gain financially, however, when it comes to the online GIS tools they offer for looking up property information. Though it’s not because the counties charge for this service. “There is no way we could charge a fee; people are accustomed to getting it for free,” Jackson said. But it costs much less to deliver this information online than across a service counter.

And since the Web service was launched, demand for the information has soared. “It’s probably up tenfold,” he said. So in Gaston County, Web delivery helps meet a growing demand while lowering costs.

But the popular GIS service also comes with a financial downside, Jackson said. “Businesses started to depend on it. Any interruption or outage we had became a political problem.” To satisfy those higher expectations, the county must now use more reliable — and therefore more expensive — servers to host the data, he said.

Although counties in North Carolina must charge the same fee for a transaction conducted online or in person, agencies could, at least in theory, realize savings by making online transactions the norm for certain services. For example, if Gaston County decided it would only accept tax payments online, a citizen who wanted to pay in person would require a special accommodation, Jackson said. Since that accommodation created an extra cost, the county could attach an extra fee to the transaction.

However, using fees to steer people away from service counters is an idea that’s time has not come. Floating the concept at a county meeting, Jackson asked agency officials if they had ever considered charging extra for face-to-face services. Not only had they not, but they probably would not. “Our county management said that culturally, that’s not possible.”