State of the States

There's a lot of money growing in vars' own backyards it seems, with state and local IT spending expected to increase from $48 billion in 2005 to $70 billion in 2010, according to a market forecast released by Input, a Chantilly, Va.-based research firm.

GovernmentVAR's annual State of the States coverage starts with an overview of state spending and a look at how state contracting is evolving, with states slowly moving to procure technology through the GSA Schedule. In addition, we have compiled a state-by-state listing of CIOs and their IT budgets for the year and talked to five state CIOs about their IT spending priorities, their biggest challenges and their greatest accomplishments.

So, where are state IT opportunities? Major state IT efforts are focused on upgrading legacy systems, installing networks for communications among law-enforcement and homeland-security agencies and a trend toward outsourced services--which mirrors what's being done in the federal government. The result? Input projects the state and local IT market will grow 4 percent in 2006, 9 percent in 2007 and accelerate to a dramatic 15 percent growth rate in 2008.

The ubiquitous connectivity that states are striving for inevitably brings about vulnerabilities, and state CIOs are still in the mode of spending their IT dollars to stop bad things from happening.

"It's frustrating, because they'd like to spend more to support the missions of the agencies and on direct citizen services," says Doug Robinson, executive director of the National Association of State Chief Information Officers (NASCIO). "When you look at data-mining technology, enterprise e-authentication or identity and access management, there are only a handful of states that have deployed solutions enterprisewide."

But other states could have a hard time following their lead, as focus reverts to health care, education, public safety, and health and human services. Collectively, such verticals are both the biggest opportunities and the biggest threats for VARs seeking state contracts, says Michael Kerr, director of enterprise solutions at the Information Technology Association of America (ITAA). "State's budgets are being poured into health care," with the cost of Medicaid double what it was eight years ago. "Unless states find ways to manage that increasing cost, there will be more and more chunks of their discretionary IT budgets swallowed up by health care."

VARs able to contribute to associated processes--migrating to electronic medical-records management, for example--will reap rewards. But first states must be convinced that IT is an investment, not a cost. "We still haven't turned the corner to seeing that IT can transform the way states do business," Robinson says. "CIOs are going to continue to be challenged, unless they can explain the value of cutting costs in how services are delivered."

To better see the big picture, states need to spend fewer dollars and be more efficient in their procurement management. There have been a number of high-profile project failures recently, due largely to a lack of procurement expertise and management abilities at the agency level.

"By establishing larger deals at the state level that enable more integration across agencies, an array of contractors can team on a project to diminish the amount of risk and bring best-of-breed, best-of-skill to the states," Kerr says. Similarly, many contract terms and conditions make doing business with a given state difficult--unlimited liability, broad warranty deification, consequential damages, etc.

But VARs will need to meet expectations if they want to get paid. Performance-based contracting is a trend that's seeing interest at the state and local levels, which dovetails with a growing trend toward outsourcing, says James Krouse, manager of state and local market analysis at Input. "Government officers are handing work to contractors and saying, 'Go ahead; develop a solution. You're the experts. But be wary up front. We're telling you that if this is not done and done correctly by a certain date, you are not getting paid. Period.'"

Perhaps helpful for VARs in that sense is a trend for CIOs to gain some clout as they garner high profiles in government. "The role of the CIO is strategic in most states," Kerr says. "That's been a change in the past few years that's started to bear fruit for the state and for the contractors in the private sector."

* Central IT Department spending only. In many states, individual departments also have discretionary funds to spend on IT projects and services.

**Estimate