B2G is moving!
Blogs posted after May 22, 2015 will be located on Deltek's central blog page at
Just select the "B2G Essentials" blog to continue to receive this valuable content.
State budget efficiency, business projections, and selling IT

In an article published last week, I illustrated how state budget efficiency can be used as a metric for future budget increases or decreases. The prevailing logic is that efficient state budgets could indicate if a particular state is positioned for future growth. On the contrary, states with inefficient budgets may be poised for future cuts to improve efficiency. However, the counter point to this line of reasoning is that efficient states may look to become more efficient, while inefficient states may continue down the same path of increasing budgets. Since that article, further analysis of Census and Deltek data indicates some surprising trends that should enrich the business utility of previous analysis.

When combining numbers for states’ overall budget efficiency and federal aid to states’ budget efficiency, a significant trend developed (see table 1, below - subscribers have access to data on all states, here). Comparing the FY 2010 state budget efficiency data with actual state FY 2012 budgets indicated that states with better combined budget efficiency (fewer dollars per capita) were more likely to cut budgets than states with weak budget efficiency (more dollars per capita). This significant difference existed when comparing across a two-year span.

Table 1: FY 2010 Budget Efficiency and FY 2012 Budget Comparison

Click on image, above for full-sized version.
Subscribers have access to date on all states in the article, here

Analyst’s Take

So, what exactly does this mean for the state and local government contracting community? Most importantly, state budget efficiency is a complicated metric. The best news from this analysis is that using budget efficiency numbers and looking ahead can give a clearer picture of whether a state will look to grow or cut its budget. Simply, states with more efficient budgets today are more likely to further reduce budgets two years out. The average combined federal and state budget efficiency for states increasing budgets looking two years out was $5,098 per capita, compared to an average of $3,869 per capita for states decreasing budgets. Those numbers offer a ballpark when looking ahead.

Is the logic presented in last week’s article flawed? No. The view that efficient states may be poised for future growth and inefficient states need to cut still holds merit. States that have done the hard work to cut today to balance budgets will be on more solid ground as any recovery gains steam. Many of the states with efficient budgets are also those with relatively strong economies and favorable business climates; this always bodes well for a state’s future prospects.

However, as complicated as this myriad of variables is, the best takeaway from all of this data may simply be the IT angle. No matter how balanced a budget or strong a state’s economy is, states with more efficient budgets today are more likely to cut their budget two years from now. State budget efficiency speaks to a states’ overall commitment to running efficient government. Making government more efficient is inextricably tied to IT solutions. This is the IT angle. Contractors should sell the efficiency their solutions create and support. More efficient governments will likely be looking for even more efficiency and reduced costs through IT solutions. On the other hand, while some of the less efficient governments may be a harder sell (convincing government not necessarily committed to efficiency to become more efficient may be challenging), they may have even more potential than the already efficient governments. In the end, no matter the future for a particular state’s budget, these efficiency numbers provide data to use as benchmarks, interstate comparisons, and selling points for IT contractors looking to do business with the states.

Stay tuned for further analysis of state budget efficiency looking to FY 2013 and beyond.

Follow all of the GovWin State and Local Top Opportunities, Reports, and Podcasts, here.

Follow Chris Cotner on Twitter, here.

Comments (Comment Moderation is enabled. Your comment will not appear until approved.)