“Since the recession began, states have had significant revenue declines and in order to balance their budgets, have made significant cuts and in some cases enacted tax and fee increases,” NGA Executive Director Raymond Scheppach said in a statement. “The end of Recovery Act funding in 2012, along with the growing pension liability and the rise of Medicaid enrollment could further exacerbate the already tight fiscal conditions.”

General funding spending for state government in fiscal 2008 was $687.3 billion, which was $74.7 billion greater than spending in fiscal 2010 and $42.2 billion greater than general fund expenditures in fiscal 2011, the report said. These cuts came most frequently from the areas of K-12 education, higher education, Medicaid and corrections the most frequent recipients of decreased funding. So far in FY 2011, 14 states have made $4 billion in mid-year cuts, largely to those same categories

“Strained state budgets will be the norm for the next several years as mandated expenditures such as Medicaid continue to grow,” Scott Pattison, NASBO Executive Director, said. “While states will continue to fund “core functions” from their general fund, they may fund other services such as parks or arts programs from different sources, including user fees.”

Recovery Act funds have increased the federal share of total state budgets to 34.7 percent in fiscal 2010 from 26.3 percent in 2008, the report noted. The removal of these funds, when combined with an extremely slow recovery in state revenue collections, could result in severe cuts to state programs and services. In fact, the report says a cliff of about $65 billion will need to be addressed in FY 2012.

This report also adds to a chorus of other surveys, finding many states are concerned about expanded Medicaid and health care reform. Medicaid spending for fiscal 2010 is estimated at $353.8 billion, an increase of 8.2 percent over fiscal 2009, which is 21.8 percent of total spending, the report said.

Mr. Scheppach said the potential impact of health care reform in 2014 is hard to know at this time, but due to a number of changes under national health care reform – from a new option to cover childless adults in Medicaid using the regular Medicaid match, to new long-term care options for community based care and the establishment of temporary high risk pools – states do not have time to stand idle while court cases determine the future of the Affordable Care Act.

In the report, State and Local Information Technology Market, 2010-2015, INPUT research indicates that IT spending will grow at a compound annual growth rate (CAGR) of 3.1 percent – adding $8.7 billion in new opportunities across the state and local landscape.

“While these estimates are not as high as the ones from three years ago, there is definitely growth in the market,” Chris Dixon, manager of State and Local Industry Analysis at INPUT, said in a statement. “Governments will continue to look to technology to help address their goals and overcome challenges, especially IT solutions that help cushion costs and increase productivity.”

A number of factors are expected to drive this growth, including perennial verticals like, justice and public safety, transportation, health, and education. But other segments like outsourcing and software are also expected to help boost opportunities, because governments are holding on to their hardware investments longer in the depressed economy, Dixon said.

Federal initiatives like health care reform and the Recovery Act will also have resonating effects on the marketplace due to an “increased reliance on federal funding for IT systems providing operational support to federally-funded/state-operated programs,” and “federal demands for compliance in the areas of contract performance, transparency, reporting and accountability,” the report indicated.

Mr. Dixon said that while many vendors seem tentative about the state and local market, they should be bold with innovative licensing and business models because, “State and local officials always remember which vendors helped them out when times were tough.”

“If contractors want to get the lion’s share of contracts when the economy improves, they should work with these agencies today,” he concluded.

While we are starting to see signs of overall recovery in the U.S. economy, this is one of the longest and deepest recessions since the Great Depression.

Unfortunately, just as states lag the commercial sectors going into a downturn, states clearly lag in the recovery as well. The reason for this is fairly obvious; the states’ budgeting process is prospective in nature and state revenue collections follow actual economic improvement.

Fiscal Year 2011 could be the states’ most challenging in recent years. The Center on Budget and Policy Priorities just reported that the states’ cumulative budget shortfall could reach $140 billion this year – and that’s after the various budget adjustments many states made over the last several years.

Why is this happening?

Unfortunately, a large number of states failed to use the economic downturn as an opportunity to fundamentally transform the operation of state government. In addition, funding from the American Recovery and Reinvestment Act (ARRA) made it easy for many state legislatures to use ARRA funds to temporarily plug budget gaps, rather than to change expenditure patterns. When ARRA funding dries up, those states that failed to act aggressively will be looking at deep shortfalls.

The growing federal debt and the likelihood of significant federal action to address it could have further negative consequences on state deficits.

As we all know, fiscal responsibility and constraint in good times make it easier to deal with economic downturns. A recent Deloitte analysis of annual expenditure trends across the 50 states found that states that spent beyond their peers earlier in the decade faced the deepest financial holes after the recession began in 2007.

In contrast, states that have been willing to act aggressively with promising transformational initiatives have done better. These include:

• States like Minnesota that used a commercially-proven shared services approach to drive down administrative costs while driving best practices across state enterprises.
• States like Texas and Michigan that continued to invest in technology to improve the integration of human service programs and save costs.
• States like Florida that adopted enterprise technologies to drive a single technology approach to tax collection and enforcement across the state.
• States like Texas that used commercially-available technology honed in the private sector to improve online access to government services.

The imperative for states to transform their governments’ structure and business processes, adopt advanced technology and challenge long established policies is clear. The forecast for Fiscal Year 2011 shortfalls will likely create additional urgency for states, especially those that have been hesitant to enact fundamental enterprise change.

Mr. Robert N. Campbell III is Vice Chairman, Principal, Deloitte LLP and is the U.S. State Government Leader, based in Austin.

Gov. Quinn said the Illinois Sunshine Portal is part of his administration’s continuing efforts to make Illinois more accountable.

“We’ve worked to make state government more transparent and responsive to the needs of everyday people,” said Governor Quinn. “With National Sunshine Week starting Monday, it is fitting that we launch the Illinois Sunshine Project to ensure that our state government takes all steps necessary to make information as accessible as possible.”

Other features of the Illinois Sunshine Portal include, campaign finances and campaign donation listings, consumer complaints, Child Care Center Inspections, and a list of registered lobbyist in the state.

According to Sunshine Review, a non-profit group that monitors state and local government transparency initiatives, less than 1 percent of the over 5,000 state and local websites meet transparency standards as laid out by the “10-point Transparency Checklist.” The Transparency Checklist has features that any citizen should be able to find on their government or school district website, including budgets, meeting times, names of elected officials, permit and zoning records, and taxes, among others.

To those less-than-one-percent state, county, and city websites that meet all of the transparency criteria, the Sunshine Review awards “Sunny Awards.” According to Mike Barnhart, President of Sunshine Review, the awards were created to spotlight the best government websites and underscore standards that all governments can and should meet.

“Access to information empowers every citizen to hold government officials accountable for the conduct of the publics’ business and the spending of taxpayers’ money. Official accountability is the corner stone of self government and liberty,” Mr. Barnhart says on the Sunny Awards website.

Out of the 50 states websites, more than 3,140 counties websites, 805 city websites, and 1,560 school districts the group monitors, only fourteen received perfect scores. Florida School Districts fared well, bringing home four awards, meanwhile Washington was the only state website to receive a perfect score.

For a complete list and to find how your state, city, county or school district compares, go to: http://sunshinereview.org/index.php/Main_Page

Recipients who made the first list of non-reporters ranged from state agencies, including departments of transportation and education, to city governments and private companies in all sectors of the economy. For the latest round, the Recovery Board identified “two-time losers” and created a .pdf file naming the over one thousand recipients who did not report their awards as mandated by the American Recovery and Reinvestment Act.

State-level agencies by and large were able to remove themselves from the original list of over 4,350, although private sector recipients and local governments remained a large part of the $583 million in undocumented receipts.

Some of them included:

• An asphalt paving and excavation company from Arkansas, who failed to report an award for $2.2 million
• Del Norte Clinics, Inc. of California who received over $3 million in June of 2009
• Louisiana’s Weeks Marine, Inc. won nearly $3.5 million yet failed to report it to the government
• $1.2 million went to the Lebanon, Missouri Police Department and was not reported

“The two-time losers—those who failed to file reports in the last quarter of 2009 and the earlier reporting period—should really be embarrassed,’’ said Earl E. Devaney, the Chairman of the Recovery board. “They took millions of dollars and then thumbed their noses at taxpayers.”

Devaney noted that the American Recovery and Reinvestment Act of 2009 does not assess penalties for recipients who fail to report. He has previously testified before Congress in support of establishing penalties in the law, stemming largely from federal agencies who could use their administrative powers to punish violators.

“Federal agencies now need to take whatever administrative action they can against those who flout the law so cavalierly,” Devaney said, “ including recovering money that the recipients have not yet spent.”

Are states prepared to compete for — and win — newly available federal grant funds? The $787 billion American Recovery and Reinvestment Act (ARRA) presents an unprecedented opportunity for states and their agencies, many facing current and projected financial shortfalls, to receive federal funding. But it also poses new challenges.

Accenture and the National Association of State Auditors, Comptrollers and Treasurers (NASACT) teamed up to conduct a nationwide survey exploring states’ current federal grants management practices. The survey yielded some important findings, painting a nationwide picture of inconsistency among states’ readiness to address ARRA’s opportunities and challenges. The survey results suggest that, without a centralized process for grants management, states may be leaving money on the table. At worst, they risk failing to recoup their administrative costs.

The message from the Accenture/NASACT survey is clear: the time has never been better for states to push for improvements to their grants management processes to tap more federal funds. The first step, understanding the administrative costs of managing grants, is crucial to actually managing those grants. Adopting a best practices model to centralize functions across the entire grants management life cycle can position states to receive optimal funding from all federal grants in the future, not just from ARRA.

The survey, which sought general background directly from state comptrollers, provided insight on the extent of decentralization within state agencies. The comptrollers were asked explicitly not to reach out to their state agencies in responding to the survey. Accenture and NASACT expected that, to some degree, comptrollers might not know the details of the grants management process. Asked how many applications their states had submitted in the last 12 months across all agencies, 76 percent of responding comptrollers said they did not know. Asked about the number of grants awarded during the same time period, 84 percent did not know. These responses could lead to the conclusion that the information is either being managed in a decentralized manner, or in a way that is not ultimately efficient.

The survey also wanted to determine how ARRA is causing state government practices to change. The hypothesis was that two factors could drive significant change: the influx of dollars (10 to 20 percent increases over current levels) and the attention and requirements ARRA demands. These factors did appear to be at work, but the impact of ARRA was inconsistent across states.

In terms of leading practices and potential areas for improvement, the findings reveal no uniform best practices among states for managing grants. They do, however, provide insight into the gaps that thwart states’ ability to adopt an end-to-end process for winning federal grant funds.

The survey contains a number of recommendations to improve states’ ability to adopt an end-to-end process for winning federal grant funds.

• First, states should centralize the front end. Most states lack central visibility at the front end of the grants management lifecycle. Such a fractured process creates waste, rework and redundancy.
• Next, centralize processes at the back end. Compared to the front end, there is relatively high visibility and control over the back-end — or post–award and financial management — phase. This simultaneously gives states more flexibility and tighter management over this area, and they would be better served by shifting their focus to improved outcomes and results throughout the grants management lifecycle.
• States should also adopt enabling technologies. Cost/benefit analysis should be used to assess the business case for further investments in software solutions.

States should take advantage of ARRA as a lever for lasting change against a backdrop of rising state fiscal challenges. There are abundant opportunities for states to make dramatic improvements in their approach to pursuing and managing federal grants. Understanding the administrative costs of managing grants is a crucial first step. States can accomplish this with modifications and additions to their accounting process. And, again, adopting a best practice model to centralize functions across the entire grants management life cycle is the best way to ensure receipt of optimal funding — not just from ARRA, but from all federal grants in the future.

Mark Howard is Accenture’s state and local government practice, budget and performance management lead.

Download a copy of the full report by clicking here.

From transparency measures to econometric forecasting, federal reporting mandates and increased grants competition has ushered a new era for state and local government management.

“ARRA is not a one-and-done event,” Mr. Howard, ARRA Practice Director for Accenture, said in an interview with CivSource. “We believe the use of ARRA funds has created expectations among citizens, elected officials, and media about how government should conduct business.”

The question, Mr. Howard says, is how best to apply federal requirements under the stimulus package more broadly to address organizational improvements and increased transparency.

According to a report based on conversations with state comptrollers, stimulus directors, and financial experts around the country, Accenture has outlined four areas of opportunity to move beyond ARRA reporting compliance and provide long-term value.

The distribution of and access to information about government projects, using Recovery.gov-type websites has already taken seed in all fifty states, with many of those websites making improvements in user interfaces. According to a report released last week, state transparency websites continue to increase the quality and quantity of stimulus projects information, utilizing geospatial tools to indicate project details like dollar amount, recipient name, status and the text of the contract or grant awarded.

Web-based reporting and project tracking is likely to be the most obvious continuing practice of state and local government after ARRA is done. But according to Howard, most states’ reporting processes have room for improvement. During the second round of quarterly reporting (Jan 1 – Jan 10), the Office of Management and Budget (OMB) extended the reporting deadline by ten days to address inconsistencies and formatting issues.

“Most officials are still trying to keep their heads above water,” Howard said. “In general the second time around was better than the first – people were more comfortable with the standards and expectations of how and where they were supposed to report. It was easier, but not across the board easy.”

Mr. Howard believes there is an opportunity for the private sector to help states maintain these transparency websites after the stimulus well has dried up. “Are states going to get into the business of gathering data, preparing, validating and publishing it to the web,” he asked, “Probably not.”

Most states just don’t have that job title and competency built in to their existing organizations, Howard said. Instead, states are likely to outsource the job to keep citizens and watchdogs happy, while vendors develop technologies and processes that make the task easier and cheaper for the taxpayers. Presently, there are a host of companies including Microsoft, Unisys, Actuate, IBM and others who have developed solutions meant to streamline the tracking, managing and reporting process for stimulus-related projects.

This continued surveillance of government projects via transparency websites, even after the last Recovery dollar has been spent will likely manifest itself in two other areas of related opportunities, Howard says, outcome reporting, or “scorecarding”, and economic forecasting.

“The amount of information created by ARRA is staggering. Right now, the only real value delivered metric that is required by the government is based on the number of jobs created or saved. We believe that is going to change.”

Soon governments will be able to track performance measurements to figure out improved traffic flow, improved public safety, increased educational opportunities and improved healthcare. “There’s going to be a growing emphasis on what we can actually accomplish by spending those dollars,” Howard said. At the same time, economic forecasting, used at the beginning of budget cycles to estimate the future condition of the economy, will become more accurate and inexpensive. Howard said this would be possible because specific projects and spending data is available at a granular level. In the past, most econometric models were dependent on statewide figures.

Not only will there be a greater number of economic impact reports, based on reports from the last few years, officials will be able to see where they are likely to get the biggest bang for their buck in next year’s spending, Howard indicated.

Last, but certainly not least, is the answer to a $250 billion dollar question. Under the Recovery Act, over $250 billion has been given to state and local organizations through federal competitive grants. And according to a joint survey between Accenture and the National Association of State Auditors, Comptrollers and Treasurers (NASACT), high-level competition for grants is here to stay. Being able to submit the most comprehensive grant application possible is something a lot of state and local governments have had practice doing with the stimulus package. Though no state has formally adopted a centralized grants management strategy, Howard said.

“Most states coordinate grants through luck and connections, not through conscious strategy.”

Still, there remains an incredible amount of opportunity – for government to improve accountability and service delivery – and for the private sector to tap newly formed revenue streams.

The Recovery Act money will stop flowing in 2012, but the business of government and its associated transparency challenges promise to stay far beyond that timeline.

“At a minimum, that level of transparency [created by ARRA] will be the norm,” Howard concluded.

The states of Maryland, Kentucky and Connecticut were the top three states for Recovery Act transparency, according to the national research group Good Jobs First. In their second report on the subject, Show Us the Stimulus (Again) indicates that most states have made headway in providing online tools to help show citizens details about stimulus funds in their areas.

“Some states are making great strides in fulfilling President Obama’s promise that the Recovery Act would be carried out with an unprecedented level of transparency and accountability,” said Good Jobs First executive director Greg LeRoy in a statement accompanying the report.

The Washington, D.C.-based non-profit gave the highest rankings to those states who not only provided detailed information on federal spending programs, such as grants and contracts, but they also put an emphasis on data relating to jobs and the geographic distribution of spending within states.

Maryland scored an B+ with an 87 out of a possible 100. And Kentucky was a ‘Cinderella’ state – due to their low ranking (47th) in July, when the first assessment was first published – receiving a score of 85. The two states were only part of a handful of states that juxtapose the geographic distribution of spending with patterns of economic need within the state. The study also found that a majority of states, 28, utilize geospatial tools to indicate project details like dollar amount, recipient name, status and the text of the contract or grant award. However, ten states lack any mention of jobs, despite the ready availability of such information, the report said.

Authors of the report recommend that those states lacking key information about ARRA spending move to provide general spending flows to the help users begin to understand what the Recovery Act is all about. They also recommend that more states provide greater detail on individual projects, while showing how overall stimulus amounts are being spent among counties around the state.

“At a time of intense public concern about the effectiveness of government spending designed to mitigate the economic crisis, states should be maximizing their use of online tools,” Philip Mattera, research director of Good Jobs First and principal author of both reports, concluded.

The survey of 138 counties from 34 states confirms what many city and state budget directors already know – it’s the worst budget crisis since the early 1990s, NACo executive director, Larry Naake, said in a statement. And with more unemployed workers in the private sector, county resources are thinning by the day.

“The great challenge for counties of all sizes in the months and years ahead is continuing to provide essential services to residents who are relying more on county services and programs,” Naake added, echoing the concerns of states and city governments that they cannot afford to meet the needs of the growing ranks of jobless residents.

Many counties across the country started their fiscal year with revenues dwindling. Fifty-six percent of county respondents said their fiscal year would end up south of $10 million in projected shortfall. Most counties blame the lack of revenue on property taxes (52%) and reductions in state or federal funding (50%), with sales taxes coming in a close third (46%).

To combat these revenue shortfalls, counties are taking a multi-pronged approach, with most delaying purchases and repairs and implementing pay freezes for county employees. Many counties are also using hiring freezes, delaying capital investments or dipping into their rainy day reserve funds. At least ten percent of counties have required employees to take unpaid leave, through furloughs.

According to NACo’s numbers, thirty-five percent of counties anticipating stimulus funds had yet to receive their cut of the $787 billion package. On November 1, the Recovery Accountability and Transparency Board released numbers from stimulus recipients at Recovery.gov, finding that 640,000 jobs were created or saved. The update also indicated that little more than one-fifth of the money awarded to state and local governments has been spent, according to data available on Recovery.gov.

Since the $787 billion American Recovery and Reinvestment Act was passed in February, just over $36.6 billion has actually made its way to state and local recipients in the form of loans, grants and contracts. Survey respondents said that most of that money, coming into counties, were for transportation projects (49%) or Community Development Block Grants (50%).

“Our grave concern is what happens to state and county budgets when the federal economic stimulus dollars end next year?” Naake said.

Since INPUT issued its first report card in June, which measured the first 100 days of ARRA implementation, the firm said Contracting Effectiveness, Transparency & Reporting and Speed of Spending improved. However, the category of Job Creation still has too many unknowns, issuing a grade of “incomplete”.

“The federal government has continued to dispense stimulus money at a record pace,” Timothy Dowd, CEO of INPUT, said in a statement. “However, questions still remain about how that spending is translating into new jobs.”

According to INPUT, the administration spend, on average, $3.6 billion per week, keeping pace with the June report card. At that pace, the administration will achieve 87% of its previously stated goal of $350 billion by September 2010, garnering the report’s highest grade of B+.

Contracting effectiveness also received relatively high marks, raising its grade from a C- to a B, INPUT said. This grade was awarded based on the increased percentage of contracts issued as fixed price and competitively bid contracts. Additionally, small businesses have been much more involved since the June report card, receiving 27 percent of the stimulus dollars.

The third category of measurement was on Transparency & Reporting. INPUT gave the administration the lowest rating on the report for transparency, C- , despite the rollout of a revamped Recovery.gov and the relatively successful integration of information from FederalReporting.gov. The key area of concern for INPUT remained from the June report, which centered on the lack of transparency surrounding applications for many of the grant programs funded by stimulus money.

Mr. Dowd encouraged the administration to rethink its approach to grant application publication, urging more citizen involvement before grants are awarded. “By allowing citizens access to grant applications before the awards are made and the opportunity to comment on those applications, federal agencies could truly be taking a proactive approach to combating fraud, waste and abuse.”

As with the June assessment, though, jobs creation remained somewhat of an unknowable. Due to the unverifiable calculations used to determine saved jobs, and the inordinate amount of public sector jobs that are dependent solely on stimulus money, INPUT gave the administration an Incomplete for Job Creation.

“While INPUT’s latest report card points to some noteworthy areas of improvement in the Administration’s execution on the stimulus, there is still much work to be done to address shortcomings across all key recovery areas,” Dowd concluded.

The Recovery Act of 2009 Report Card II: Recipient Reporting is available on INPUT’s Web site, by clicking here