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Budget Cuts: Challenge or Opportunity for State IT?

Budget cuts are coming, but uncertainty surrounds them. So now experts are weighing in on how much money states might lose, what it will mean for technology work and what we can learn from the Great Recession.

From quick transitions to telework to rapidly scaling up unemployment insurance systems to handle surging claims, technology has played a big part in the government’s response to the coronavirus pandemic.

But the economic devastation following the outbreak of COVID-19 in the U.S. will do serious harm to government finances. There’s still a lot of uncertainty, largely based around how quickly the economy can recover, but someday soon, the ax will fall.

When it will happen, who it will hit and how hard — those are the questions.

"Early analyses suggest potential revenue losses could be double what states experienced during the great recession,” said Kathryn White, director of budget process studies for the National Association of State Budget Officers during a recent webinar. “During the Great Recession, states saw ... more than an 11 percent decline in revenues over two years, from 2008 to 2010. A number of states have already come out to announce multi-billion-dollar shortfalls, and we expect others to be releasing updated projections in the coming weeks and months ahead as new data is available."

However, those projections are all early. And it’s possible, if the economy recovers quickly, that the budget shortfalls will be more severe than those experienced during the last recession but will linger for less time.

The Center on Budget and Policy Priorities has been gathering early estimates of how much general fund revenue states are expecting to lose, and the numbers — displayed in the graph above — vary widely from each other. Overall, it projects a 15 percent loss of revenue in the current fiscal year and a more than 25 percent drop in FY2021.

So how will it impact government IT?

State technology leaders see a mixed bag. On one hand, new technology could help cut costs in order to balance budgets, or even help cope with the pandemic by allowing more government work to be done remotely. On the other, budget cuts and shifting priorities could mean delayed projects such as the replacement of old systems that do things like support citizen services or protect against cyberthreats.

Greg Zickau, Idaho’s CIO and the only state CIO who has been in that role since the start of the Great Recession, said the last time around, his organization had a bevy of furloughs and more difficulty getting funding for projects. Since then, the department has consolidated IT staff from other agencies and more than quadrupled its staff size from 28 to about 135.

“We were in the process of hiring quite a few people as part of the modernization efforts so that we could take on services for the agencies that we’re absorbing, but as we’re doing that, we’re considering very carefully, ‘Is this a position that we need right now, or is this something that we can delay?’” Zickau said. “Because if ... we can delay filling this position even six months, that might allow us to build up a bit of personnel-dollar surplus, if you will, that might help mitigate the impact of cutting [to meet] revenue shortfalls.”

He’s also preparing for the possibility of needing to hold off on work he’d been eyeing, though he’s hoping that grant money such as the funding provided in the CARES Act will help keep things moving.

“I think this could have serious repercussions on capital investments that you need to make. We’ll have key network and cybersecurity equipment that might need to serve beyond its planned life cycle, if we don’t get capital [investment] in the public sector,” he said.

In Maryland, CIO Michael Leahy is expecting to have to delay some major projects that were proposed for the next few years while performing cost-benefit analyses to drive decisions on smaller projects. He’s using the old lean-year mantra — doing more with less.

But that could be a good thing for the IT department, he argues.

“A great deal of what is going on in state government requires a better ability to utilize and analyze data, and the possibility of doing more with less lends itself to the idea of automation and creating workflows that allow agencies to be more in tune with their subject-matter expertise than worrying about what kind of computer they have on their desk or how fast their network is,” he said.

One version of “less” Leahy is looking at is physical office space. Like lots of government offices, the Maryland IT department has been doing a lot of remote work lately, and he thinks that could continue. In fact, there’s a big state-owned plaza in Baltimore — 30 miles away from the capitol in Annapolis — full of old buildings where he thinks many of the employees could be transitioned to permanent remote work rather than spending money to renovate the office space.

Putting more remote work policies in place could save people time and money that they spend on transportation as well as open up the state government to workers in other states.

“There are lots of places where the salaries we pay here would be considered very fine salaries compared to the general economy,” Leahy said.

Doug Robinson, executive director of the National Association of State Chief Information Officers, said that during the Great Recession, many governors turned to IT departments and asked them how to save money across the government. If that happens again, it could push forward a lot of ideas gathering dust on the shelf.

“Some will be cost savings, and … the CIOs may get pushed and directed by the governor’s office and the budget office to seek cost savings as much as possible — as the other agencies will do; they’re not gonna be immune from that — but there may be opportunities to think, ‘Well, we now have demonstrated that enterprise consolidation is a better path than what we’ve been doing,’” Robinson said. “So it could spur on a number of things that had been CIO priorities for a number of years that maybe didn’t get the attention, things like expanded cloud services and SaaS deployment.”

NASCIO has already seen examples of some work that state IT departments stood up very quickly in response to the pandemic. Aside from telework solutions, they included AI-powered chatbots to help handle increased demand on services and electronic signatures.

Some other technologies will likely get a more serious look in the future — Robinson thinks data-center-as-a-service and mainframe-as-a-service are both options. Another is digital drivers' licenses, which could help reduce human contact and prevent infection.

“That’s the perfect use case: You’re not handing your driver’s license to someone at TSA, you’re not handing your driver’s license to someone at a restaurant for an age check or you’re not using your driver’s license as an identity credential to do transaction of some business — your driver’s license is on your phone, and it’s a mobile driver’s license that’s electronic and you simply scan it, so it’s contactless service,” he said.

Delayed Impact on State IT

Government is already likely to see some delay from the economic havoc of the pandemic simply because of budget cycles — it will take some time for reduced revenue from taxes and fees to be realized on balance sheets, and for the government to react.

But tech departments, and state IT in particular, might have an additional layer of delay because of the way they do business. Most of their funding comes from them charging other agencies for services.

“The overwhelming majority of the state [IT departments] are cost-recovery,” Robinson said. “It’s called the charge-back model … many of them, in fact, are 100 percent cost-recovery. So they don’t have a budget from an appropriation, their budget is the revenue they forecast and collect from agencies.”

That could mean that IT has more lead time to react, even if it feels as much pain as everyone else.

“My organization is about 90 percent funded through dedicated funds, so we bill agencies for services and that’s what generates our funds,” Zickau said. “If their revenue falls in the next fiscal year, then projects that we have appropriation for in the next fiscal year, I might come short on cash to execute those projects. So we haven’t yet, but it’s possible.”

But again, much is uncertain. The last recession was very different in circumstance, scale and timing from what’s happening right now. Elected leaders will also have a big say in where the ax falls.

“I don’t know how long the impact is going to be … that creates uncertainty and maybe some fear or anxiety for managers who are trying to plan long-term what they do with personnel, what they do with projects,” Zickau said.

Ben Miller is the associate editor of data and business for Government Technology. His reporting experience includes breaking news, business, community features and technical subjects. He holds a Bachelor’s degree in journalism from the Reynolds School of Journalism at the University of Nevada, Reno, and lives in Sacramento, Calif.