Partners Concerned, But Find Opportunity, In California Budget

California legislators signed off Friday on a new budget that contains $15 billion in cuts to public services, but many California partners say there's still opportunity in an economic climate that promises to get tougher in the year ahead.

The California budget deal, which the state Senate approved Friday morning, covered a more than $24 billion shortfall with $15 billion in cuts to services, as well as $1.7 billion in new revenue, plus billions more in accounting maneuvers.

Specifically, the newly approved budget contains a $6.1 billion cut to K-12 education, which includes community colleges, out of its $58 billion financial base. In addition, the newly ratified budget included a $2 billion hit to higher education.

In addition, lawmakers agreed to approve an indefinite suspension of automatic cost-of-living raises for university, court and prison system employees.

Health care also took similar hits after Medicaid received a $1.4 billion reduction, including a $129 million cut in aid that insured children whose parents made too much money to receive Medicaid.

The budget, which was approved in the Senate by a 17-13 vote, was passed along to the State Assembly, and is expected to be approved there Friday afternoon.

California solution providers anticipate that the newly approved budget will inevitably have a negative impact on them and their customers.

However, partners say that the massive cuts to education will only be a continuation of an already turbulent year in which public-sector customers routinely postponed, reduced or altogether eliminated numerous IT projects. And they anticipate that numerous current projects will likely be abruptly short-circuited as customers continue to encounter financial challenges due to cash-flow shortfalls and dwindling lines of credit.

"A lot of it we've already felt, especially through education over the past six months, so it's kind of hard to say that [the budget] is going to make things worse," said Koji Mori, director of network services for Los Angeles-based Calsoft Systems. "How much worse could it get?"

If anything, Mori said, the new budget would put a damper on K-12 education and other public organizations waiting to see if they could rely on adequate state funding in order to resume or begin an IT project, Mori said. "I can't see [the budget] helping the situation. A lot of people were waiting for that to see if they were able to spend the money. This might get them to say 'we're not going to have the money' and they might shuffle our projects because of that," he said.

Meanwhile, many California partners say that opportunity still exists, despite a budget that promises to cripple numerous customers' ability to pay for IT and other necessary projects.

For one, partners said that budget woes suffered by customers during the economic recession have turned into opportunities for resellers as companies have laid off internal full-time IT staff and, in turn, relied on IT contractors in the channel.

"The VAR community is pretty adept at identifying where dollars are available and how they can take advantage of them," said David Sockol, CEO of Santa Clara, Calif.-based Emagined Security. "For security VARs, we will be the ones, when they let the internal individual go, to help that networking manager pick up the slack."

Sockol said that instead of compelling customers to eliminate IT projects, the newly passed California budget might instead force public- sector organizations to make smarter and more calculated decisions regarding their IT spending. As such, IT channel partners will be required to adjust their sales strategy to accommodate evolving customer needs.

For example, Sockol said that since the beginning of the year, he has seen a spike in sales of assessment services, which allow customers to identify absolutely mission-critical projects that can't be ignored. He has also incorporated more cost-cutting measures and tangible returns into his sales presentations and overall strategy.

"I'm going to make an assumption that they'll find the money," Sockol said. "I don't' know for a fact that they would cut the project that I'm working on. As a businessperson, I have to assume everything is fine until I hear otherwise."

And other partners maintained a positive outlook going forward. Mori acknowledged that he has had to quickly adapt to a longer and more difficult sales cycle, which often includes approvals by both the CEO and CFO. And like Sockol, he has had to change his sales strategy to delineate in detail the hard returns on a customer's IT investment.

But, echoing Sockol, Mori asserted that the challenging economy and California's depleted budget will continue to require that partners compete aggressively and force them to adapt, even if they're not making as much money as they did before.

"We have to learn how to deal with this moving forward," he said. "The business is still there. It's just not getting spread around as much. I firmly believe it's a process of evolution. For the partners that are able to evolve, they're the ones that are going to survive. If you're able to do that, you're going to be around next year."

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