Michigan IT shop faces cuts

Michigan faces nearly half a billion dollars in budget cuts, but the state’s information technology group does not anticipate a severe effect on high-profile projects. Kurt Weiss, a spokesman at Michigan’s IT department said the agency believes funding for major projects will remain intact, despite the budget situation.Weiss cited three projects in particular: a revamping of Michigan’s Medicaid system, an upgrade of systems that process driver’s licenses and tag renewals, and an overhaul of the state’s social services eligibility system. “We anticipate [the projects] will move forward,” he said.The Michigan legislature earlier this month reached a budget agreement that averted a government shutdown and massive layoffs, but the state must trim its budget by $440 million. State agencies are operating under a 30-day continuation budget that expires at the end of October. That extension is intended to give legislators time to enact the budget cuts.A complete IT funding picture will remain uncertain until the state’s departments decide on their budget cuts. Although the IT department is a centralized entity, its funding comes from the departments it serves. “We will know more at the end of the month,” Weiss said.Meanwhile, industry observers said an austere financial climate may affect state and local IT departments in several ways. In addition to cuts in its basic budget, the IT shop may also experience a downward pressure on chargeback rates, said Chris Dixon, manager of state and local industry analysis at market research firm Input.Enterprise IT groups that charge agency customers for services typically deposit the fees in a revolving fund to support operations. Dixon said budget pressures “could certainly cause agencies to be very resistant to any fee…increases.”A budget crisis can also lead to a headcount reduction, an option that Michigan officials raised. At the height of the budget impasse, the majority of the state’s employees were issued pink slips, including 1,700 IT workers. The legislature’s budget agreement, however, kept those employees on the job.From a workforce perspective, the department has already felt the effects of the state’s financial situation. The state earlier this year enacted a hiring freeze for positions in executive branch departments and autonomous agencies. And Weiss said the department continues to feel the staffing effect of an early retirement program that took effect five years ago.Anthony Treccapelli, managing director at Alvarez and Marsal Business Consulting, an affiliate of New York-based professional services firm Alvarez and Marsal, said IT departments forced to make cuts tend to focus on a few critical areas. On the capital budget side, an organization will prioritize among its major projects and initiatives, Treccapelli said.“If seven initiatives are under way, we may need to look at that to cut back on one or two or three projects,” he said.Treccapelli said an IT governance process is “invaluable to have in place when there are difficult situations where we have to make cutbacks.”Michigan has an IT Executive Committee, and every department in the state is represented on the committee at a deputy director level, Weiss said. “However, when it comes to budget cuts like the ones we are talking about in this most recent budget approval process, decisions about what is being cut really come from the lawmakers and then the various agencies will respond.”Weiss said the department has cut back substantially on contractor employees in the past two to three years. “We have transitioned more than 100 positions once held by contractors into positions now held by state employees” and saved about $11 million a year, he said. Some contractors who would have been laid off opted to become state employees.