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California budget crisis to hit IT

The state's chief information officer delivers a gloomy assessment to a gathering of about 150 representatives of leading IT companies.

SACRAMENTO, Calif.--Clark Kelso has a message for companies that sell information technology to California: "Go back, sharpen your pencils, and get ready to do some negotiating."

That was the warning Kelso, the state's chief information officer, delivered Wednesday to a gathering of about 150 representatives of leading IT companies. Sponsored by the Information Technology Association of America (ITAA), the meeting gave attendees from Accenture, Hewlett-Packard, Microsoft, Network Associates, Northrop Grumman, Oracle and numerous other high-tech companies little to cheer about.

Kelso's comments generally painted a gloomy scenario for selling technology to the state, which is facing a massive $38 billion budget deficit. Along with all large expenses, officials are scrutinizing the IT spending, which runs about $3 billion annually.

California's fiscal woes, which are far from over, are forcing the state to scale back and reprioritize its IT agenda. "Our CIOs have to go back to their department directors and say, 'We have a problem here; we can't do all this,'" Kelso said.

Although the amount of money allocated for IT projects in the state's new budget is unclear, the cuts are likely to be "significant," said Kevin Terpstra, a spokesman for Kelso. Some IT projects may be delayed or canceled, he said. Staff cuts may lessen the need for new equipment, infrastructure and support services, he added.

The state's new priority list is topped by critical business systems, such as payroll and accounting, Kelso said. Sliding down the list are projects such as e-government portals. E-government--the concept of using technology to make government more open and accessible--remains a long-term goal, but the state "needs to get back to the basics," he said.

In many ways, Kelso's comments echo what chief information officers from the corporate world have been saying for more than two years. The weak economy and IT spending binge during the late 1990s has forced many to slash their budgets. While California may be an extreme case given the size of its shortfall and its importance to IT vendors, its new priorities may be echoed in other cash-strapped states.

Part of what "back to basics" entails, Kelso said, is playing hardball with IT suppliers at the negotiating table. That means technology vendors will have to prove how their products and services can help the state with its goal of shaving $100 million off its IT contracts, he said. If they don't, the state's departments of finance and general services may not approve any deals.

That kind of tough talk is fairly new for California, which became embroiled last year in a contract debacle with software maker Oracle. A series of high-profile legislative hearings and a state audit of the $95 million no-bid contract uncovered an embarrassing failure among state officials to take a tough negotiating stance.

The dispute led the state to undertake major procurement reforms, some of which are still in progress. The state also brought in Kelso to replace the state's former technology chief, who resigned during the tempest. One attendee at Wednesday's meeting said the fallout from the Oracle contract has done more to curb the state's appetite for IT than the budget crisis has, at least up until now.

Some attendees managed to find a silver lining in Kelso's generally gloomy outlook, however. Harris Miller, president of the ITAA, said the state budget crunch presents a challenge and an opportunity to the IT industry.

"California will have to do more with less; that's what a $38 billion budget deficit forces you to do," Miller said. "The corporate sector has learned to use information technology to do just that. Now there's a huge opportunity for the industry to help the government learn to do the same."