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Local CIOs Cope With Budget Pressure



Photo courtesy of iStockphoto.

October 1, 2010 By

The effects of economic recession are taking their toll on local governments, resulting in a significant decrease in revenue from sales and property taxes, licenses, fees, permits and state shared revenue. As these critical components of a local government’s financial foundation have shrunk, so too has government’s ability to deliver the services communities rely upon daily. There is no longer any “business as usual” in the nation’s cities and counties.

Members of the Digital Communities CIO Leadership Task Force report budget cuts that span a wide range. Phil Bertolini, deputy county executive and CIO of Oakland County, Mich., said his county is struggling to compensate for unemployment rates significantly higher than the national average. One in 56 properties in the county is in foreclosure due largely to the ripple effects of the auto industry’s decline. The county relies on property taxes for approximately 60 percent of its revenue. Oakland County already has made significant budget cuts and is planning for an additional 20 percent reduction in revenue over the next three years.

Seattle faces a budget shortfall of approximately 5 percent. Like many of his peers, Seattle CTO Bill Schrier believes that budget deficits are a long-term issue. “It will possibly be several years before local government revenue returns to its former levels,” Schrier said. In response, he believes government needs to shrink -- and as it does, it unfortunately may become less efficient and responsive.

Severing Staff  

Every person interviewed for this article reported being asked to reduce their departmental budgets. Needless to say, staff eliminations are a reality for nearly all agencies. However, the specifics of how those are being implemented vary by community.

Los Angeles and other cities are offering early retirement plans. Elimination of vacant positions is a unanimous strategy, and requiring employees to take unpaid furlough days is common. The number of furlough days varies from four per year in Milwaukee to a proposal from Los Angeles Mayor Antonio Villaraigosa for nonessential services like libraries, parks and senior centers to shut down two days a week. In Chicago, as an expression of solidarity, information and communication technology support contractors have agreed to take an equal number of nonpaid days as the city employees with whom they work.

Approximately half of the jurisdictions interviewed have been forced to initiate employee layoffs. No place has unequivocally ruled them out, but Palm Beach County, Fla., has placed a high priority on maintaining current employment levels except for positions lost through normal attrition. The degree to which employees are unionized -- and the political and legal strength of those unions -- is a factor for some when looking to implement layoffs. Seven of the 10 jurisdictions interviewed have seen cuts in direct public services. Building and development services, parks and recreation, and administrative positions in many departments were the commonest first cuts made. But several jurisdictions are now contemplating cuts to public safety; long considered a measure of last resort in most communities.

Seattle Mayor Mike McGinn took Schrier and the rest of his executive team through a forced ranking process for departments and the services they offer. The idea is that once a prioritized list of services is identified and agreed to by the team, services will be funded from highest priority to lowest until the city runs out of funds.

Getting Closer to the Cloud

Staff cuts are forcing more interest in cloud computing, according to many on the leadership task force. Cloud computing is a fee-for-service method for using shared or pooled resources to provide computing and communication infrastructure, software applications and end-user or customer services. Cloud computing users avoid buying or maintaining the underlying hardware or software layers. Los Angeles CIO Randi Levin’s hard-fought switch of city e-mail to Google is the most dramatic example of that. Nevertheless, even as task force members speak more enthusiastically about cloud computing, certain obstacles remain.  For instance, Phoenix CIO Charles Thompson is a vocal proponent of cloud computing, but he insists agencies still need a well defined and understood exit strategy for service agreements.

Bertolini doesn’t believe the public cloud is ready to accommodate government, citing security and privacy issues and the uncertain viability of potential cloud service providers. Schrier, too, is concerned about the ultimate responsibility for data in an uncertain and still-developing legal and regulatory environment. Most task force members believe it will be quite some time before local government is ready to move critical systems and data like law enforcement and utility Supervisory Control and Data Acquisition systems into a public cloud.

Governments coming together to share a resource pool is seen as a way for participants to benefit from the efficiencies of a cloud-type infrastructure and alleviate some of the concerns about data security, privacy protection, and provider viability and stability since in most examples the cloud would be hosted and managed by one of the public-sector participants.    

Consolidating and Eliminating Agencies

Agency and department consolidations, mergers or outright eliminations are enterprise strategies that most CIO task force members are pursuing. For instance, Thompson participates in an Innovation and Efficiency Task Force (IETF) composed of business executives from Phoenix departments. The IETF charter aims to identify opportunities for enterprise efficiencies in IT, enhancements to business processes, opportunities for service consolidation, and improvements to the contracting and procurement process. Thompson won’t predict a specific outcome of the IETF process, but sees the new number of city departments in Phoenix falling somewhere between the original seven and current 26. Chicago, Orange County, Fla., and Seattle already have accomplished numerous consolidations while Los Angeles and Palm Beach County are still viewing it as an option.

Managing Equipment More Cheaply

Eagerness to find ways of saving that don’t involve layoffs is driving local governments to wring any costs possible from existing equipment. That typically involves changes in purchasing strategy.

Corpus Christi, Texas, saved money by changing the way it manages cell phone usage. Historically the city provided employees cell phones for official use and then required employees to reimburse the city for any private use of the phone. Now the city simply reimburses employees when they use their private phones for official city business.

Palm Beach County recently adopted a stipend approach for business use of personal phones rather than issuing county-owned cell phones as it previously did. This saves Palm Beach approximately $120,000 annually.

Other common strategies among CIOs include extending technology refresh cycles. Desktop computer replacement schedules that previously called for replacement every three or four years are now being extended to five years or even longer. In some jurisdictions, desktop transition plans allow “superusers” to receive regular upgrades and employees who primarily use e-mail and word processing now receive 2- or 3-year-old retired superuser machines. Equipment leasing also has become more common because it serves as a way to operationalize hardware expense and effectively spread payments over a number of years.

Pushing Sacrifice to Vendors

The most controversial issue confronting the CIO Leadership Task Force is the degree to which vendors should sacrifice to help governments survive their economic crises. Several governments are seeking maintenance fee reductions and in some cases, complete eliminations of these services. This alarms vendors, partially because doing so can increase expenses for governments down the road, they say. 

Software maintenance is a common target for maintenance reductions among local government IT departments. The spectrum of approaches varies by the degree of financial difficulty. Some want to downgrade support from the common, all-inclusive “platinum” 24/7 package that’s currently standard in government. Agencies are veering toward service plans they think better reflect a calculated acceptable level of risk.

“If you bought a good product and are any good at using and managing it, you shouldn’t need a lot of help,” said Michael Armstrong, CIO of Corpus Christi. 

However, calculating an acceptable level of risk can be difficult and complicated, and renegotiating contracts already in effect can have ramifications that go beyond the balancing of an annual or even biennial budget. Several jurisdictions are considering dropping some software maintenance and support agreements altogether, leaving themselves without vendor support.

“Vendors are being pressured for concessions after the fact,” said Paul Christman, vice president of sales at Quest Software. While this may look like a good business strategy to government, Christman and other software executives point out that granting such concessions after a contract has been signed is essentially impossible for them because of the legal requirements their corporate accounting practices are subject to under the Financial Accounting Standards Board and Sarbanes-Oxley Act. 

Sometimes it’s tempting for government to think that private companies are somehow immune to economic challenges and better able to weather the current storm. Private industry, however, is suffering along with its customers.

“Maintenance payments are closely tied to the production readiness of the software. Today’s maintenance payments fund tomorrow’s new releases and increased functionality,” said Mike Bilardo, director of government solutions for Hyland Software.

When government moves toward consuming just what it needs today in an unbundled, pay-as-you-go approach, it makes it very hard for vendors to budget and plan customer support. Christman contends that when governments stop making regular maintenance payments, vendors have a harder time sustaining their usual quality of service.

“Bugs will take longer to get fixed. Expansion to new platforms will be delayed,” Christman said. “We are just like our government customers. We are trying to figure out how we can best maintain a high-level support capability when government is facing difficult decisions about how much maintenance it can afford. Government and industry are in it together. Our success is closely linked.”

Rusty Rhodes, regional vice president of AT&T, cautions against the “just-do-it-ourselves” approach to critical infrastructure support. “That doesn’t look to maintenance or upgrade or long-term total cost of ownership,” Rhodes said. “You have to go in with your eyes open and make sure you understand the total opportunity cost.” 

Eliminating maintenance and support may seem like an opportunity now, but there likely will be some cost associated with that decision when it is time to re-establish the service.

“Letting contracts lapse is very dangerous and if you want to go month-to-month, prices will go up,” Christman said. “Customers that stop paying now will have to negotiate and work with their vendors in the future to re-establish support.” Each company will establish their own policies for dealing with such things, but some vendors may require past due maintenance payments or even charge additional reinstatement penalties as a disincentive to leaving in the first place.

Ultimately it’s a priority for governments and vendors to maintain strong partnerships and good relationships. Bertolini captured the view of government when he said, “The relationship with the private sector has changed in the past few years. It used to just be vendor and customer. Now I need someone who understands our problems and comes with solutions.”

Bilardo summed up the private-sector view when he said, “Everyone just needs to be completely open and honest and focused on making it work during these difficult times. The best solutions come when both parties make their needs known and take the approach of working together.”

Local governments will continue to face difficult choices and significant challenges for some time yet. A commitment by all to openness and honesty is vital as government and industry work together to identify and establish a “new normal” that provides transparency into the public process, furthers trust in government, improves efficiency and affordability, and provides the vital services upon which communities depend.


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