The California Department of Technology (CDT) and Department of General Services (DGS) hosted their annual IT Vendor Forum last week, with the state’s week-old announcement of an IT spending freeze casting a considerable pall over the 300 or so interested virtual attendees from the state IT vendor community.

The California Department of Finance (DOF) issued the spending freeze in Budget Letter 23-27 just days after the non-partisan Legislative Analyst Office sent shock waves from Sacramento across the Golden State by estimating a $68 billion budget deficit for this fiscal year and the next – marking the largest in state history.

The deficit is attributed to months of low tax revenues, though the drunken sailor analogy – due to the state’s spending spree through stimuli, infrastructure, and related Federal programs – would also not be a wild assessment. That spending freeze news came just 18 months after state Gov. Gavin Newsom unveiled to great fanfare an historic $97.5 billion budget surplus!

Back to vendor forum and IT spending news: BL 23-27 has devastated plans for legacy IT modernization, improved citizen digital services, critical cybersecurity defenses, and workforce attraction, hiring and retention, just to name a few planned initiatives.

And it’s not just new spending being curtailed – state agencies are being charged with re-evaluating expenses related to current IT projects as well. They must review existing IT maintenance and operations contracts to validate current services, including equipment and software licenses still in use and necessary, and terminating those that no longer make the cut.

Agencies must also review pending procurements to determine if the effort can be paused, delayed, or abandoned. This will also apply to any IT projects in the project approval stage. And if the project is considered to be critical, agencies must determine whether costs can be spread over several years or if financing is a viable option.

Agency secretaries and cabinet-level directors are authorized to make exemptions from these prohibitions only in the following limited instances:

  • Addressing a declared emergency;
  • Providing 24-hour medical care;
  • Avoiding a significant revenue loss; and
  • Achieving significant net cost savings.

Not a lot of wiggle room there.

And perhaps most significantly, agency secretaries and cabinet-level directors will be required to report monthly to the DOF and the governor’s office on all approved exemptions from the BL’s restrictions, as well as achieved savings.

The Vendor Forum’s leaders from CDT and DGS emphasized that they and their colleagues and bosses would be meeting intensively to develop appropriate plans and strategies for this major IT budget disruption. And when the specifics of the freeze are identified, the next Forum event may be a devastating one.

Gov. Newsom will unveil his new budget for FY 2023-2024 very soon, traditionally in his State of the State speech early next month. It will be of significant interest to many of us, especially the state’s IT vendor community.

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John Thomas Flynn
John Thomas Flynn
John Thomas Flynn serves as a senior advisor for government programs at MeriTalk. He was the first CIO for the both the State of California and the Commonwealth of Massachusetts, and was president of NASCIO.