Recommendations for Money-Crunched CIOs

When the private sector’s engines of growth began to sputter in 2000, and the traders, speculators, investors and entrepreneurs began downshifting their spending, the public sector never skipped a beat. States, which cycle behind the private sector when it comes to sensing economic changes, continued to shovel tax revenue into their coffers and reap the benefits of the boom years for a good year and a half after the markets tanked.

But all that has changed. States are now doing the same budget cuts, hiring freezes and layoffs that the private sector initiated nearly three years ago. In the aftermath of Sept. 11, in the wake of war with Iraq, and with the prospect of the Bush administration’s tax proposals producing a $1.8 trillion federal deficit during the next five years (according to the Congressional Budget Office), states are confronting their worst fiscal crisis in half a century. Indeed, the National Conference of State Legislatures reports that states are facing at a minimum a $68.5 billion budget shortfall for FY04.

James Kane, president and CEO of Federal Sources, a public-sector IT market research company, tracks the impact of these shortfalls on IT. When his company researched 42 state budgets last year, only six showed a deficit greater than 10 percent. This year, of the 37 state budgets his company analyzed, nearly half (18) showed deficits greater than 10 percent. Of the 520 state technology projects that Federal Sources is tracking, two-thirds are now on hold awaiting funding. If the cash doesn’t come through, they could be canceled, says Kane.

“In an economic downturn, the demand for state services actually goes up,” says Kentucky CIO Aldona Valicenti, identifying a troubling paradox. “More people file for unemployment. More people file for benefits, which means that our systems experience growth. Keeping the infrastructure running becomes critical.” But a lack of funding for maintaining basic IT infrastructure or for scaling systems to meet demand could lead to lower service levels for citizens and agencies. Valicenti’s IT budget is taking a 2.6 percent hit this year.

“We’re starting to realize more and more how dependent governmental operations have become on information technology,” says Gerry Wethington, Missouri’s CIO and president of the National Association of State CIOs. “Now you have to begin to really rationalize: What’s this particular cut or cost-containment measure going to mean to my infrastructure, and more importantly, to my ability to deliver services to citizens?” For example, he says, if budget cuts result in a CIO having to scale back data center operations from 24/7 to business hours, that means citizens can’t access services at their convenience. Wethington adds it could also put their personal safety in jeopardy if a law enforcement officer can’t process an inquiry for a wanted person in a timely manner.

Given those cold calculations, prioritizing IT initiatives has become a critical exercise. State CIOs are under great duress to identify places to cut without sacrificing services to citizens, while ensuring their states have a solid IT foundation to support economic stimulus plans and future growth. Most state CIOs have processes for navigating through these difficult decisions about which IT projects and services should be cut and which should receive funding. They’re finding ways to separate the luxuries from the necessities, using interagency advisory councils to help identify the most important projects, and they’re milking their vendors for better deals. These methodologies help state CIOs pinpoint the critical issues (security and disaster recovery, consolidation and e-government) and thus help prevent the deterioration of critical services on which citizens depend. (To see Iowa’s model program for evaluating IT investments, see “R.O.Iowa,” Page 99.)

In this story, the CIOs of Texas, Florida, California and Michigan offer a candid look at their strategic decision-making processes during these difficult times. They share their best practices for making tough budgetary choices, for getting the most out of their vendors, and for bringing together disparate and often competing units of their government organizations.