Study: shared IT services key strategy for cash-strapped local governments

Federal Reserve Chairman Ben Bernanke testified the other day that one of the challenges to sustained economic recovery are the precarious finances of state and local governments. They can’t print their own money, and are struggling with budget shortfalls. California is the most visible example, attempting to manage a $6 billion shortfall between revenue and expenditures that could rise to more than $14 billion.

California State Capitol: State faces a $14-billion mess.

Bernanke urged state governments to maintain their funding levels for education, as this represents an investment in future economic growth. Overall, state and local governments cut their spending in the first three months of this year at a 3.8 percent pace, the biggest cutback since the second quarter of 1981. Spending rose in the second quarter.

The money isn’t there to advance new initiatives, but state governments may have other tools at their disposal to drive new innovations — through information technology. Along these lines, a new study released by the National Association of State Chief Information Officers (NASCIO), TechAmerica and Grant Thornton, says well-managed and focused IT initiatives may help pick up the slack where spending is being cut back. (PDF Executive Summary available from NASCIO.)

Researchers spoke with the CIOs of 40 states and territories. As the study finds, two-thirds expect lower IT budgets in 2011 through 2013. Some are turning to staff reductions, IT consolidation, shared services and other solutions to lower costs. "However, they say that tight budgets stimulate creative solutions for increasing IT efficiency and effectiveness."

There appears to be a movement to service oriented architecture, or arrangements that can benefit from service orientation. In the next three years, the study finds, 76 percent of CIOs plan to expand IT shared services and managed services. New customers most likely to participate in IT shared services include state executive branch agencies and public educational institutions at all levels.

The study also observes that almost all the CIOs interviewed say that their state executive branch agencies use IT managed services, but that legislative and judicial agencies use them much less. "One reason for this, says a CIO, is the constitutional separation of powers." But even so, that CIO expects to see more use of executive branch IT services by the other two branches of his government.

The study also finds that IT shared services arrangements exist among state agencies or between state agencies (including executive, legislative and judicial agencies) and local governments or special districts, colleges and universities or school districts. "At least two-thirds of local governments, special districts and colleges and universities use IT shared services. About two-thirds of CIOs say that their state has at least some multijurisdictional or multiagency IT shared services models."

Cloud computing and social networking are also seen as options for increasing efficiency and delivery new innovation to beleaguered state governments. Many CIOs say that cloud computing is nothing new, but half are investigating it and one-third are running active or pilot cloud projects.

Cloud computing is not as simple as it may seem, and the study quotes an insightful comment from one state CIO, who appears to make a case for a solid enterprise architectural approach:

"The biggest issue is making sure that a state has a cloud computing strategy and framework. You don’t want to open a cloud to the world without a framework. You need to know when it makes sense to have a special secure cloud, such as for Health IT, or one for nonmission things that is more open, such as for e-Recruitment. You need to consider what you need to do for consistent, long-term sustainability and what you need to have in place before you start. Cloud computing makes a lot of sense, but it needs to be done right. If you don’t manage it, it will manage you.”

Two-thirds report that state agencies use social media (e.g., YouTube, Twitter, Facebook) and almost half use it themselves. Three out of five CIOs say their states are preparing social media policies for state agencies.

Effective governance is the key to IT's ability to help state governments get through this crunch time. What state governments need to do, the CIOs say, is concentrate on upgrading IT governance and strengthening central IT organizations to meet the new challenges of tight state budgets, the report concludes.

The CIOs report imbalances between accountability and authority, IT portfolio management, and procurement processes. In the 60 percent of states which have an active portfolio management methodology in place, CIOs gave those processes a middling “C” grade. Likewise, procurement processes were found wanting, as most State CIOs see the need for reforms that will align state IT procurement with commercially-oriented contracting practices.The report notes a “silver lining” to the cutbacks that state agencies must endure, and that is impetus to look at managing state programs and services in new and innovative ways. As one CIO put it:

“We are doing things better, like using shared services, renegotiating contracts and exploiting the state government’s economies of scale when purchasing. We are making better decisions by looking at total cost of ownership. We are now looking at having agencies share applications across boundaries, instead of building them multiple times.”