State and local IT market forecasting — pre-coronavirus: Part 2

Listen to the first part of this interview here.

Although this interview with Kevin Plexico, senior vice president of information solutions at Deltek, who runs their market intelligence business, occurred prior to the full impact of the coronavirus pandemic, it set the stage for the significant budget revisions leading up to the new fiscal year on July 1, just 10 weeks from now.

While we focused previously on national budgeting and spending trends, Plexico narrowed his perspective to New York and Texas. He sees a pattern of state and local governments creating innovation officer positions, focusing on citizen services, and all the while increasing spending on cybersecurity.

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“In Texas and New York, the idea of driving digital services and citizen access is crucial. And, of course, cybersecurity is something that’s on the front of the mind of every [chief information officer], trying to drive risk reduction,” Plexico said.

There are so many vulnerabilities that are being exposed, people trying to get in through malware, and employees not paying sufficient attention to phishing activity.

“Consequently, there’s a lot of investment that’s really counting on state budgets to really devote more and more to the protection of their resources from an IT point of view,” he said.

Plexico emphasized the fact that Texas is a leader in terms of governance, with ownership of IT centralized in one organization: the Department of Information Resources (DIR).

“Their DIR is a much more command and control model than what you’re seeing in California. They went through an effort a few years ago to really consolidate their data centers down to two main data centers, but now they’re realizing these data standards are so big, they need more than one vendor to help them out,” he said.

Read more: Ask the CIO: SLED Edition

Consequently, they’re now in the process of multiple procurements to break out the work into separate pieces. Unsurprisingly, IT vendors in Austin are very excited about the prospects according to Plexico.

In New York’s case, things are a bit more complicated. State CIO Bob Samson, our friend and former guest on Ask the CIO: SLED Edition, resigned last August and a permanent successor has not been appointed. Jeremy Goldberg was named acting CIO by Gov. Andrew Cuomo back in December. In any event, one of the developments Plexico has observed in New York is a budget constraint even before the coronavirus.

“We’re seeing that it is one of the few states that seems to be having a bit more of a budget challenge despite the healthy economic environment. Their Medicaid costs have been growing pretty dramatically and now represent an outsized portion versus the rest of their budget,” he said.

This is the first year in five years that they’ve had a shortfall. As a result Cuomo put in place a budget request to reduce the amount of state IT investment that was going into operating expenses, keeping it to 2% year over year.

“So they’re a bit more challenged than some of the other states that we looked at,” Plexico said.

One-third of SLED IT budgets are federal dollars

Finally, he raised the issue that’s one of the largest and most misunderstood components of state and local government IT spending: The impact of federal funding on IT investment. Up to one-third or more of total state spending is composed of federal government funds, particularly budgets for health care and social services. The portions of IT budgets represented by federal dollars are similar. With Deltek’s total state and local IT spending estimated at $130 billion annually, that’s a portion of money that IT vendors can’t ignore. As a result, Deltek investigates the effect of grants that flow down from the federal level into state and local governments.

“It does have a huge impact on things like investment in school technology. Vendors must pay attention to grants that come down from the federal government to get access to some of those funds to help a state agency or an educational institution shore up their technology,” Plexico said.

In fact, many of state and local governments’ largest and most complex IT project are funded 80%-90% as the result of federal legislation and the accompanying budget dollars. The federal funds support virtually all of the major eligibility and case management IT projects involving welfare, Medicaid, child support, child welfare and so on, plus billions more in public safety, transportation, and environment IT as well.

Read more: Technology News

“If you think about things like Medicaid, the federal government has a huge role in supporting and paying for that. For K-12, the Department of Education provides a huge amount of money,” Plexico said.

At the federal level for agencies like the Homeland Security or Defense departments, most of the money they spend is spent with contractors.

“However, if you look at an agency like the Department of Education or Department of Housing and Urban Development, they’re much more redirecting money that they get from the federal level down to state and local governments where it gets executed,” he said.

If all this was not complicated enough, there is no universal way that state and local governments account for, track and report their grant funding receipts and spending. Thus making the identification of related IT budget plans all the more difficult.

I’ll close by repeating the sage advice from Doug Robinson, National Association of State Chief Information Officers executive director and long-time friend: “If you know one state, well, you know one state.”