As the economy takes a downturn and the demand for human services goes up, states are experiencing larger volumes of paperwork with tighter deadlines, fewer staff, and decreasing budgets. Thus, the modernization of human services will continue to be front and centered in 2009 as states are going to continue to look at increased efficiencies and cost savings with staff reductions in the upcoming year. Yet, the current fiscal conditions appear to be deteriorating the objective to improve human services by cutting millions, in some cases billions, from state-funded programs, which include reductions in social services programs.

Earlier this month, the Treasury Department reported an additional $164.4 billion to the federal budget deficit, bringing the total deficit to $401.6 billion for the first two months of the fiscal year, which began October 1st. Furthermore, it is projected that our nation will be faced with a record budget deficit of $1 trillion or more for the 2009 fiscal year. As a result of what is said to be the worst recession in history, most states are unable to cover expenses and it can take years for them to recover from the current financial crisis. As indicated by the Center on Budget and Policy Priorities, 43 states are facing budget shortfalls for this year and/or next year with virtually all states' deficits anticipated to end up totaling over $100 billion in fiscal year 2010. In fact, some states are facing their biggest deficits in history. The state of California for example, is facing an additional $11 billion shortfall and may be unable to pay its bills come spring 2009. The District of Columbia's Chief Financial Officer is anticipating nearly half a billion budget shortfall for FY 2010 and double-digit unemployment. According to a recent survey conducted by the National Association of State Budget Officers (NASBO), since budget enactment, economic conditions have further deteriorated with more than half of the states reporting budget gaps of $29.7 billion as of December 2008. Additionally, states will experience the first spending decrease since 1983 with a projected 0.1 percent decrease in Fiscal 2009.

Sadly, the biggest cuts are being made to social services programs. On December 1st, the Kansas Department of Social and Rehabilitation Services (DSRS) announced that it was immediately freezing access to a program that provides home- and community-based services for low-income Kansans with disabilities, which could affect hundreds of people. The freeze will be in effect through July 1, 2009. Additionally, the Association of Community Mental Health Centers of Kansas is looking at a $1.8 million cut in grants from DSRS. In a two-year budget proposed by Oregon Governor Ted Kulongoski at the beginning of the month, "children and education were the apparent winners, and human services the loser," with cuts affecting virtually all human-services programs, including in-home care for 6,500 older and disabled people, cash and job assistance for 2,745 low-income households with children, and child-care subsidies for 3,500 low-income families with employed adults. As indicated by Senate President Peter Courtney, "We need to explore every option and we absolutely must protect those who can't protect themselves - our children, our elderly and those with multiple disabilities." Several other states are also facing similar cuts to their human services programs.

In the upcoming year, the legislative leaders who are championing these efforts will be faced with some tough decisions revolving around resource allocations and prioritization, while state agencies' program and IT staff will have to build a strong business case to justify their IT projects. Moreover, the magnitude of the economic downturn is pushing governors to make decisions between cutting services or raising taxes. Some governors are demanding hiring freezes and some states have already implemented hiring and spending freezes resulting in project delays. Based on conversations with several states' human services program and IT staff, some projects are getting cancelled as departments have decided to build their own solutions in-house, while other projects are put on hold or further delayed due to a lack of funding. Lately, GovWin has been hearing the same comments from human services program offices, such as "this project was frozen due to an expected deficit" or "everyone in the state is scrambling to hold on to what they currently have, let alone ask for additional funds for future initiatives." Looking ahead to 2009, GovWin expects this trend in project "freezes" to continue with greater frequency, especially with governors in several states asking departments to slash their budgets.

Also, with the upswing in unemployment, some states are finding their unemployment insurance funds running dry. In Ohio for example, where the unemployment rate is more than seven percent, the state may need a federal loan for the first time in 26 years to cover unemployment costs. As per GovWin's recent communication with the Chief Information Officer (CIO) from the Virginia Department of Social Services (VDSS), Division of Information Systems (DIS), the state is likely to face a shortfall of $3 billion in the upcoming year and the drastic spending cuts will affect IT projects. According to the CIO, VDSS has already reduced their IT staff by 35 people and had to let go of 32 contractors. Although the CIO is currently pushing to hire more state FTEs since they are cheaper than contractors, he is fully anticipating more budget cuts in 2009 as well as cuts in program spending or even getting rid of some social services programs altogether.

Yet, despite the fiscal conditions, major child support and child welfare IT system projects, whether it's a replacement or an enhancement, are still in the pipeline, but just being prolonged. As these systems are becoming obsolete, their faulty design and architecture make them difficult to maintain and enhance. Additionally, maintenance complexities inhibit the ability to be responsive to changing requirements. Thus, many states have been planning their modernization efforts for over a year and although some ongoing budget commitments have already been secured to protect projects currently underway, some projects initially planned for 2008 are getting pushed to 2009 or even 2010 and beyond as states are taking their time, utilizing a step-by-step planning approach. Consequently, projects are being phased out into multiple solicitations versus the initial plan for one large Request for Proposal (RFP), which is a trend that GovWin expects to be continued in 2009 and beyond. While a part of the multi-faceted/multi-phased planning approach has to do with budget uncertainties, a major part of it has to do with assuring that risks are manageable and to also avoid project failures or system glitches.

A lot is going to happen in 2009 as the new administration will have to make a lot of momentous decisions. Not only will President-elect Barack Obama inherit the huge state budget deficits faced by our nation, but the tax cuts for example, will be a huge issue that is going to shape the rest of the landscape as his plan for the highly anticipated economic stimulus package, that is yet to be determined, will rely on tax cuts. Even though IT funding has always been an issue for large and risky IT modernization projects, with a new administration in 2009, states have high hopes of replacing their legacy systems and can only remain hopeful for federal dollars to be pushed down to these programs to support IT. The commonwealth of Pennsylvania currently has two feasibility studies underway, one with Symbiosys Solutions, Inc., (GovWin Opp ID 45820) to determine the future technology approach for their child support system, and the other with Public Consulting Group (GovWin Opp ID 46234) to determine how to best move forward with an automated child welfare solution that will meet federal, state and county business needs. Both Symbiosys and PCG will also be responsible for drafting the RFPs for the design and implementation phases (GovWin Opp ID 46191 and GovWin Opp ID 46206). Beyond their high dollar values, both projects represent good opportunities to demonstrate competence in modernizing the legacy systems. For more details on similar opportunities coming down the pipeline, keep an eye for the upcoming GovWin/Output report on the Top 10 Social Services Opportunities of 2009.