Governing Magazine/November 1994

TECHNOLOGY COLUMN

FINDING FUNDS FOR TECHNOLOGY

By Jerry Mechling

Jerry Mechling is director of the Program on Strategic Computing and
Telecommunications in the Public Sector at Harvard University's
Kennedy School of Government. To reach him, call 617-495-3036 or send
e-mail to jerrym@ksgrsch.harvard.edu.

It's a Catch-22 situation for governments: At a time when citizens are
demanding an increasing array of services, many of which can be
enhanced by the use of modern data and telecommunications systems,
taxpayers are also growing more cynical. Their complaints about
government inefficiencies and flagrant waste are manifested by tax
revolts and refusals to pay for anything governmental. Budget deficits
and serious cutbacks in discretionary public spending follow.
 While many of us believe that these are precisely the times that
political leadership must step forward and invest in technologies that
can transform the way government does its work, the reality is that
taxpayer "refusals" are serious obstacles to information technology
spending. So how can we fund the IT investments required for more
productive work in government?
 Here are four groups who might pay for IT projects when taxpayers are
reluctant to buy:
 Users. Even when tax levies are maxed out, direct users of
governmental services can sometimes be tapped as new sources of
funding. This is fair to the extent that users capture the benefits of
a given service, such as title searches, and especially when users
have viable options to take their business elsewhere, as is the case
with some educational services. Many jurisdictions are imposing user
fees for information-based services, with charges for reports and
analysis from land and real estate records, birth and employment
records, geographic databases and the like. As an overall share of
state and local revenues, user fees have more than tripled over the
past 20 years, to 27 percent.
 Bond buyers. Governments could use bond vehicles far more than they
do today for IT projects. Bonds are a logical source for creating
long-term assets such as information infrastructure. However, both the
private and public sectors have tended to expense IT initiatives,
especially software developments, against a single budget year. This
makes it unnecessarily difficult to undertake such investments.
Recently, governments such as Santa Clara County, California, and the
Commonwealth of Massachusetts have proceeded with major IT bond
offerings. The financial community seems to accept the view that IT-
based productivity will improve the strength of government in the long
run; they are therefore making funds available under reasonable terms
and conditions.
 Public partners. Computer networks offer significant economies of
scope (greater services variety) and scale (greater services volume).
This makes it attractive for governments to share networking across
many agencies. While the rise of microcomputers encouraged many
agencies and individuals to go off on their own, we are now in the
midst of a long-term trend to network all of this newly distributed
power. As a result, issues of standardization and sharing are now
being pushed to the fore.
 The large initial costs of geographical information systems, for
example, lead many agencies to seek public partners for cost sharing.
Transfer prices are often used to bring about such sharing. In fact,
while many IT services in government are already funded by internal
charge-backs, many more could and probably should be. Agencies
planning to computerize should explore whether they would be better
off buying all or part of the data they need from other public or
private sources rather than collecting it anew for themselves.
 Private partners. By this, I don't merely mean "contractor," but
rather someone who invests risk capital in return for ownership rights
to downstream revenues and other benefits. Private partners may offer
not only sufficiently deep pockets to get a project off the ground but
also the best systems development and integration skills, and the best
marketing and maintenance capacity for sharing the system widely over
time.
 One such example is the Info Texas kiosk network, where the private
sector built the information infrastructure since the state was
reluctant to absorb the upfront costs and risks. When a citizen
accesses the network, the state is charged a transaction fee. In the
long term, ownership of public-private initiatives might or might not
be shifted back to the public sector, as is happening with airports,
subways and other transportation projects funded and built by private
enterprise for later sale to the public sector.
 None of these funding sources is a panacea. Sometimes they may even
be inappropriate. If they are perceived as an end-run around the
budget, the procurement system or other oversight and authorization
procedures, they will fail and their advocates will be worse off
politically. Nevertheless, governments face an imperative to fund IT
investments as a core infrastructure for innovation. And if you
haven't checked out some of these funding sources, you should.

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