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During Pandemic, Tough Times Likely for State IT Projects, Former Officials Agree

Two former California chief information officers and two former agency IT leaders joined an e.Republic research expert in discussing a state Budget Letter warning officials of “significant economic impacts from the novel coronavirus (COVID-19) pandemic.”

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State government IT will face very tough times in coming months and years, former state officials agree.

In responses to Techwire via email, two former California chief information officers and two former state department IT leaders considered the direction of the April 30 Budget Letter from H.D. Palmer, Department of Finance deputy director for external affairs, to agency secretaries, department directors, departmental budget and accounting officers and others.

Palmer didn’t mince words, calling on all agencies and departments under Gov. Gavin Newsom’s direct executive authority to take action immediately to cut 2019-2020 Fiscal Year expenditures “regardless of funding source.” The state, he said, anticipates “significant economic impacts from the (novel coronavirus) COVID-19 pandemic.”

“The severe drop in economic activity is expected to result in a recession, significant decreases in state revenues, and significant increases in safety net programs. The revenue decrease is expected to be immediate,” Palmer wrote — and decreased revenue and increased costs are expected to last several years. And simultaneously, he pointed out, the state’s response to the pandemic has been costly — and federal funding support won’t be sufficient to address “the magnitude of the fiscal crisis resulting from COVID-19.”

In an interview with Sacramento NBC affiliate KCRA-TV, Palmer called it the “worst economic conditions” the state has seen since the Great Recession 2009 and said, “We know it’s going to be a very big hole that we’re going to have to fill.” The exact size of that void is unclear; Newsom isn’t expected to bring forth the May Revision of his proposed FY 2020-2021 state budget until May 14. But, as the former CIOs and executives told Techwire, the pandemic is a game-changer for IT. Among the takeaways:

• This recession is different, sources told Techwire. Its swift arrival makes it different from the Great Recession of 2007-2009, former California state CIOs Carlos Ramos and Teri Takai said. Takai, now co-director of the Center for Digital Government* (CDG), was CIO from November 2007 through November 2010. Ramos, now principal consultant with Maestro Consulting, was CIO from 2011 to 2016.

The “current situation” will not be more severe, Takai said, but the implementation of reductions may seem greater. A longer runway to the Great Recession meant some IT projects never got funded at all, whereas this time, more projects may need to slow down and stop — and state IT resources needed for the COVID-19 response may not be available to initiatives already underway.

“It will be interesting to see how the recognition of the role that technology has played in dealing with the crisis plays against the need to save money,” Takai said.

Ramos said this recession is already having a much broader impact, on a “larger cross-section of the populace. Economists can’t rely on traditional indicators to predict its trajectory, and its effect on staffing and hiring may also be harder to predict.”

Joe Morris, e.Republic* vice president of research, said given the prohibition on new purchase orders for non-COVID-19 goods or services, it’s reasonable to expect a slowdown of general IT-related spending.

“However, given that agencies are still permitted to make investments in time-sensitive, critical areas, it would be wise for our industry partners to be in good communication with their CIOs to roadmaps and what projects may hit that criteria,” Morris said. He said that similarly to the Great Recession, a prolonged spending freeze will create “pent-up demand and modernization needs,” with agencies seeking creative funding solutions such as grants to offset shortfalls; and recommended industry partners “‘follow the money,’ which in this case means helping your customer identify funding streams to move their projects forward.”

Shell Culp, senior adviser with Public Consulting Group and former CDG senior fellow, said that with technology as valuable and pervasive as water and power, she doesn’t see any indication this recession will be worse for IT — and coming just 12 years after the last economic downturn, veteran government leaders still in place may have a few good plays available that they didn’t run in the Great Recession.

• Telework is one strategy that could have legs. In the Budget Letter, Palmer mentions “purchase that directly support teleworking strategies” as an exception to the edict against departments entering into new goods or services contracts. Highlighting this, Takai said it’s possible there may be a need to shift tech spending to a focus on modernizing citizen-facing services — another distinction from the 2009 recession, when tech didn’t have the emphasis it does today. If he were making IT spending decisions in government today, Ramos said, he’d “definitely prioritize initiatives” that would let his agency continue to serve residents during the pandemic and keep the workforce operational. Remote working and teleworking, he said, “would rise to the top of the priority list.” Culp agreed that “tools for telework and security should move to the front of the line” and said tech projects around automating laborious processes should also see some interest.

• What types of IT projects could face scrutiny, in accordance with the terms of this Budget Letter? Joe Panora, CEO of Panora Associates Inc. and a CDG senior fellow, said all IT will need to be reviewed, and he likened the process to a “zero-base budgeting exercise” that may involve reviewing whether service levels can be lowered, and applications or systems can have enhancements delayed and current efforts halted. Departments have different missions, maturity levels and laws, regulations and court orders that could affect the priority of their project portfolios, he said.

“So, it really will need to be on a case-by-case basis, and the prioritization will definitely change. Having a strong IT governance process in place will ensure that everyone is aware and understands the impact on all decisions made — approved, denied, delayed, canceled, etc., and will have the supporting justification behind it,” said Panora, former agency CIO with the California Department of Corrections and Rehabilitation.

Projects typically don’t achieve return on investment until full adoption, Culp said, indicating she’d expect those near ROI to continue and those with longer lead times to be delayed, with projects that don’t have encumbered funds potentially headed for the “’delay’ bucket.” Culp, who is former interim director and chief deputy director in the California Health and Human Services Agency’s Office of Systems Integration, said that during the Great Recession, “we looked at price tags” to determine which initiatives could or should be delayed, and that may be happening now.

Takai said the state will likely review all existing contracts “to determine if cost savings can be achieved to help with short-term cash flow issues” — including discussions around reductions in rates and overall contract value, and a review of deliverables. Few ongoing projects will be canceled, so that the state doesn’t lose its investment, but new initiatives that don’t address immediate concerns or crisis issues may face stiff headwinds. The rest of this budget year should be “short-term cuts to reduce cash flow,” she said, whereas in FY 2020-2021, “it will be interesting to see if the focus shifts” to IT projects that support remote work and citizen services like unemployment insurance — places where tech can truly support residents during crises. Ramos pointed out that tech companies and tech purchases will factor into spending decisions, “along with other providers of goods and services to the public sector.”

• Do the pandemic and ongoing belt-tightening hold any other exceptions or opportunities for IT projects? Panora called tech a “common denominator” that eventually gets leveraged when government needs to reduce expenditures or seek permanent reductions. It can, he said, provide the underpinning for the transition to a new business model for services, business or interaction. Not all tech is viewed as equal, so companies will need to be creative in evolving their offerings. But this, he said, will create opportunities to forge new pricing and finance models, automate workflows, form public-private partnerships and wield other strategies.

Exemptions for tech projects by agency secretaries and cabinet-level directors “will have their proper place,” he and others agreed. Ramos said exemptions are “an opportunity and obligation” to reconsider spending priorities during the pandemic. Culp said longer-term IT projects without clear metrics may see delay or postponement — but shorter-term projects focused on immediate needs with quantifiable efficiency “should enjoy exemption.”

The pandemic, said Morris, will accelerate the adoption of digital government and innovative technologies, and the CIO role will continue to be critical “as they move from reacting (telework) to reinventing for the new normal.” He predicted, as have others, that greater adoptions of digital services, automation, telemedicine, and even emerging tech like drones and robots lie ahead, to create “a more resilient, digital government.”

*The Center for Digital Government is part of e.Republic, parent company of Techwire.

Theo Douglas is Assistant Managing Editor of Industry Insider — California.