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What Should be the Role of State Governments?

State governments' fiscal health has always been more cyclical than the federal government's. States have experienced several recessions since World War II, but the Great Recession, though economists tell us is officially over, is different. It's different because of the length of time the fiscal crisis has lasted and the simultaneous negative impact it's had on states' largest revenue streams -- personal income, property and sales taxes. Rainy Day funds have been exhausted and almost all the budget gimmicks have been used. The unprecedented number of new governors that will take office after the November elections will be forced to make some hard decisions about the future viability of many state programs. That leads to a bigger question. What should be the role of state government?

GovManagement.com posted a link this week to a Denver Post article entitled, "DU Study Tackles State Governments' Roles in the Future" that got me thinking about the role of state government in our multi-tiered system of governance. Any state government watcher knows the balance of power between state governments and the federal government swung the feds way during the Bush Administration. Many called the then Republican-led Congress the Imperial Congress.

President Obama promised states a broader role in shaping local policy, but that hasn't turned out to be the case. A recent NewsWeek article said, "the administration has treated states not so much as incubators of federal policy but as agents of it." And that sums up the situation quite well. The current Administration's style might be less imperialistic but they are coaxing state government behavior using contests for federal funding or the strings attached to economic stimulus cash. Gone are the days when states had the flexibility and the financial wherewithal to be laboratories for policy innovation.

The loss of innovation is noted by GovWin each year when we analyze governors' state of the state addresses. A decade ago, these speeches were, to pardon the pun, all over the map in terms of priorities and policy. Now most of them are similar regardless of the governors' political affiliation.

In some cases, states are their own worst enemy, especially when their budgets are structurally unsound with no relationship between spending and incoming revenues. But no matter the reason, 2011 might be a unique time in history when we start a national conversation about the role of state government. If such a conversation gets started next year, it will certainly accelerate in 2012 during the presidential election season. What might be up for grabs? Should the current federal-state partnership for Medicaid change so that it is strictly a federal program like Medicare? Which level of government is best suited to successfully educate our children and adult learners so that the nation stays competitive in a global economy? Is it time to have a national police force instead of the patchwork of agencies we have today? Should licensing and regulation for certain professions be federalized to make it easier to catch those who skip from jurisdiction to jurisdiction to avoid punishment? The list of possibilities is almost endless.

GovWin's Take

The possibility of the federal government taking over state program wholesale may not be on the immediate horizon, but that doesn't mean federal government vendors shouldn't start paying attention to the opportunities such a takeover could present. On the shorter-term front, opportunities for state and local government vendors still exist. They're just not always in the usual places.

  • Between 1979 and 2007 state budgets grew at an average rate of 6.5% annually. Expect a new normal for average budget growth, perhaps only 3% to 4%. States will closely question vendors about the price of their products, services or solutions. The strongest justifications will be the ability to cut costs or make government workers more efficient. Review your marketing materials to ensure they provide messaging that will resonate with your buyers. What worked yesterday won't today.
  • States will still want to grow their economies and prepare citizens to compete globally. A skilled workforce is essential and is such a valuable asset that governors will look beyond traditional educational institutions. Can your company help? As an example Microsoft has worked with several states to offer Microsoft training as part of larger worker re-training programs.
  • Solutions that can support flexible tax and revenue systems will be in demand. The government's ability to quickly change tax codes and implement those changes will be seen as critical by many governors. How can your company play in this part of the market?
  • Cooperative purchasing contracts will become more popular as a way to aggregate purchasing and receive the best value for each dollar spent. Make sure your company stays up to date on likely changes to state procurement laws.
  • We're likely to see directives for state agencies to inventory programs and functions and look for ways to share services. Silo-ed activities duplicated across several agencies are no longer affordable. K-12 education is a prime area that could make significant cuts by sharing services across districts. Can your company provide the consulting or analytical services that will be needed during the review process?
  • Anti waste, fraud and abuse programs are becoming more important to state policy makers. GovWin's recent report analyzes several opportunity areas for vendors to gain anti WFA business.
  • Over 60% of states' general fund revenue is spent on education at all levels and Medicaid. Politicians will examine core services, looking to "bend the curve" on cost increases. These will be unpopular decisions so Wisconsin's model for cutting Medicaid may become popular. Does your company have a system in place to monitor the upcoming changes to programs for which they provide solutions? Will those changes affect your business?
  • Expect incoming governors to create panels and commissions to look at streamlining government and evaluating government programs. The best groups will include members from industry. Consider getting your company involved to shape the debate.
  • Other than Medicaid, correctional costs are the fastest growing category in state budgets and 75% to 80% of those costs are personnel. Reducing prison populations and closing facilities without jeopardizing citizens is of great interest to policy makers. Does your company provide solutions that can effectively monitor offenders who may be released into the community? Or do you provide services that assist prisoners successfully re-enter society?
  • In higher education states are looking at several areas to cut costs. One of interest to technology vendors is greater use of technology to deliver course content.

Don't miss GovWin's upcoming State & Local MarketView 2011 webinar, featuring Doug Robinson, Executive Director, National Association of State Chief Information Officers (NASCIO); Alan Shark, Executive Director, Public Technology Institute (PTI); and Chris Dixon, Manager, State & Local Industry Analysis, GovWin.

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