With the COVID pandemic painfully revealing the soft underbelly of legacy state IT programs, much speculation has arisen about just how an enterprise IT modernization program for states could take place.

Epitomized by the failure of state unemployment insurance (UI) systems throughout the country – many of which virtually collapsed under the surge of new claimants due to the pandemic – many states are still reeling, and will continue to be for many months as the public health crisis continues to play out.

California’s 40-year-old system not only caused the unemployed to have to wait months for their benefits, but it also allowed as much as $30 billion in fraudulent claims. And California has not been alone as reports have filtered in from many other states about their creaky-old UI systems’ failures.

In addition to the UI systems, states are operating with many health and human service, and enterprise administrative systems that are also entering their end of useful life phases after previous modernization efforts a generation ago. These include many case management systems for welfare, Medicaid, child support, and child protective services, plus statewide financial and payroll/HR applications – altogether representing half to two-thirds of state IT investments.

How might the states address their modernization challenges?

Federal Models

Certainly, the Federal government’s IT modernization effort over the last several years is one model. To the extent that large-scale modernization has taken hold at Federal agencies, it has happened mostly through the regular annual appropriations process, and the hard work of agency secretary-level and CIO leadership that has made the most of that funding.

One of the best hopes to further spur Federal-level IT modernization is a potentially fruitful vehicle that has not quite made it past the budding stage. That’s the General Services Administration’s (GSA) Technology Modernization Fund (TMF) which began with an initial $100 million annual budget in 2017, but never had more than $25 million appropriated in subsequent years.

Within an overall annual $91 billion Federal IT budget, TMF represents just an intriguing deckchair on the Titanic. Plus, the its fine print stipulates that departments using the fund for their modernization efforts have to “replenish” the TMF with savings generated from the cost efficiencies of those efforts – which holds down demand for borrowing.

As part of a new COVID-19 relief package, the Biden administration in a “go big or go home” move, proposed to inject $9 billion into the TMF and possibly loosen repayment terms. Unfortunately, that potentially game-changing TMF package was dropped last week due to Senate opposition, and a TMF funding boost at this time – and particularly at that level – is uncertain.

Finally, Federal agencies under the Modernizing Government Technology (MGT) Act are allowed to establish agency working capital funds to fund IT modernization projects, but uptake on that opportunity has been uneven among agencies, and its impact has been limited.

State Bond Funding

However, these developments at the Federal level should not discourage state government efforts.

After all, while facing the same budget challenges as the Federal government, states with their extensive citizen-facing programs and mission critical IT systems are supporting our most vulnerable citizens. Disruptions are not just a public relations nightmare, they are a potential human tragedy.

Perhaps states could replicate the strategy in my old stomping grounds in the Bay State. As CIO in the early 1990s, Massachusetts became the first state to create an IT bond which consolidated all-new state IT funding for the subsequent five years. Originally totaling some $200 million, the revenue bond has been re-enacted several times since then and has grown substantially. The latest rendition signed by my old boss, now Massachusetts Governor Charlie Baker, this past summer allocates $600 million to state IT modernization and related efforts.

While the Massachusetts IT bond approach attracted much attention from other states during my tenure as CIO, to my knowledge it never saw actual replication in other jurisdictions. Due to labyrinthian legislative hurdles, significant multi-year funding considerations and other challenges, it just didn’t catch on.

That’s a shame because it really did force the state to focus its IT direction on an enterprise approach to state funding and prioritization. When all the projects are consolidated into one funding package, it’s also easy to eliminate duplicative initiatives.

As current Massachusetts CIO Curt Wood explained, “The IT Bond is alive and well in the Commonwealth. The $600 million in authorizations in the legislation will support IT infrastructure needs throughout the Commonwealth, strengthening cybersecurity and improving how state agencies serve their constituents.”

Pressure on State Leadership

Whichever model works for a state-level modernization fund, the real effort boils down to a commitment from leadership. In government both at the Federal and state level that means executive and legislative support for creating, AND funding the model in the first place. It’s no slam dunk by any means.

Just look to recent events in Congress where a TMF budget of $9 billion proposed in January seemingly vaporized just a few weeks later.

While hopes are still alive in many quarters that the Federal TMF funding will be revisited – with a more positive outcome – the circumstances to date reveal the always tenuous nature of funding modernization efforts. However, given the situation in states around the country, where governors have faced citizens’ wrath particularly over collapsing legacy unemployment systems, perhaps state IT modernization funds will get a closer look. This is perhaps doubly so in California, where Governor Gavin Newsom is facing a citizen recall effort which has a very good chance of gathering the 1.49 million valid signatures required to go to a ballot.

While there are several reasons for this development – most notably, dissatisfaction with Newsom’s COVID-related policies – the constant, almost daily barrage in the media over the last year about the state’s unemployment system has also taken a significant toll on the governor’s popularity. And don’t think other state chief executives haven’t taken notice.

Many ancient state IT systems across the country are dependent on chewing gum and baling wire to function. Their failure – as with UI systems – would have catastrophic implications. Plus, there’s a new administration in Washington more attendant to states’ COVID-related funding shortfalls.

Perhaps a critical mass has been reached – creating the right conditions for a huge increase in the Federal TMF and a state/Federal investment partnership in state IT modernization efforts.

Stirrings in Congress for State Assistance

The idea of Federal assistance for states to shore up critical IT systems appeared to get new life in D.C., this month, with introduction by Sen. Ron Wyden, D-Ore., of a bill that would provide $500 million of Federal funding to help states deploy new technologies to improve performance of their unemployment insurance systems.

The Unemployment Insurance Technology Modernization Act would require developing a “modular” set of technology capabilities to modernize delivery of unemployment compensation, with specific requirements for security and privacy, among others.

Introduction of the bill is a hopeful – and perhaps even helpful – start, but remember that all the usual caveats apply with Federal legislation. Thousands of bills are introduced in each session of congress, and very few of them ever make it to the President’s desk. Perhaps the magnitude of state problems in providing citizens with vital assistance will tip the scales in favor of the state-support effort.

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John Thomas Flynn
John Thomas Flynn
John Thomas Flynn serves as a senior advisor for government programs at MeriTalk. He was the first CIO for the both the State of California and the Commonwealth of Massachusetts, and was president of NASCIO.