Hello and welcome to Governing’s Future of Finance newsletter. Twice a month, we will take a look what’s making the news in the field of financial technology, or fintech, as it intersects with state and local government fiscal policies, regulations and management strategies. So, let’s get started:

The modernization of state and local financial systems has been an ongoing process, ever since mainframe computers began to replace paper processes back in the 1960s and ‘70s. But those advances have taken on a new urgency as technology becomes more intelligent and nimble (think mobile), driving up expectations.

Those expectations are forcing governments to quicken the pace of modernization. The state of New Hampshire decided to toss in the towel on its 30-year old COBOL tax system last year. The new system, known as Granite Tax Connect, will include a number of critical upgrades that improve not only how taxes can be filed online, but will open up more information to taxpayers than they can currently access. The $30 million system does away with some early tech features, such as Tele-file, and improves e-filing technology. Given its complexity, the new system will be launched in phases over the new year.

Fintech is complex stuff. It’s impossible to talk about tech-based finance systems without mentioning their complexity. Not surprisingly, just about every state runs their finances differently from others, which means there is no single software system that can be bought off the shelf to do the job. Each one is custom designed to deal with the built-in complexity.

Complexity continues to bedevil state and local finance projects. California has found that out the hard way. FI$Cal was created in 2007 as a $1.6 billion project that would centralize, manage and streamline state finances. In December, the state auditor issued a report, stating the financial system “costs too much, delivers less than promised, lacks essential oversight and could be imperiling the state’s creditworthiness,” according to TechWire, our sister news organization.

Here’s what’s at stake: “Because FI$Cal is so essential to state finances, any flaws or shortcomings in the system have ramifications beyond California’s boundaries: Late or incomplete financial reporting done through FI$Cal can affect investors’ perceptions about the state’s finances, which can harm its credit rating and increase the cost of borrowing money,” reports Dennis Noone, Techwire’s editor. 

The good news: California’s budget is running a surplus in the billions of dollars, so any negative fallout from the problems facing FI$Cal could be addressed in the short term, until the system is fixed.  The bad news: the state’s new financial system was originally launched 10 years ago, so getting it right could take a lot more time and money.

Other Finance News:

The city of Chicago’s auditor issued a report in December criticizing the city’s IT operations as they related to best practices, according to Government Technology. Inconsistencies in project selection and other management procedures allowed several tech projects to go over budget. The report singled out one project in particular: Yes, a new budget system. That project lost $4.2 million after an unsuccessful implementation in 2017. The Office of Budget and Management (OBM) pulled the plug after finding the software would result in an incomplete, inaccurate or unbalanced budget. The new budget system "did not live up to expectations," according to OBM, and the city will continue to use its legacy budget application, which is no longer supported and has limited reporting functionality. 

For FY 2020, states are investing significantly in education, Medicaid and other core government services while bolstering their rainy-day funds. The big number: “General fund spending is forecast to grow 4.8 percent in fiscal 2020, totaling $913.2 billion, according to enacted budgets.” These findings are from the Fall 2019 Fiscal Survey of States released in December by the National Association of Budget Officers.

The cyberattack that crippled New Orleans government's computer network for more than two weeks last year has impacted the city’s tax collection capabilities. Unless the systems are restored soon, property owners won't be able to pay their taxes online reports the Times-Picayune. “The city normally accepts property tax payments through its website, through the mail or in person at City Hall. But the online functions have been hobbled by a ransomware attack since Dec. 13.”

Government Technology and Techwire are sister sites to Governing. All are divisions of e.Republic.