I.T.--big investment, bigger returns: in many cases, information technology can reduce the costs of government operations, as well as capture additional revenue.

This may not seem the ideal time to expand government investments in technology, but states can do it without tapping the general fund and in the long run save a bundle.

Information technology (IT) makes government more productive by automating routine tasks, cutting the costs of processing mail and checks, and storing and retrieving data. And Internet applications, which permit citizens to renew licenses, apply for benefits and access information online, make government more convenient while reducing the need for staff.

One resource for state lawmakers is Paul W. Taylor's white paper "Pay IT Forward: Doing the Public's Business with Digital Technologies While Reducing Pressure on the General Fund." Taylor is chief strategy officer at the Center for Digital Government in Folsom, Calif. He outlines ways information technology can increase revenue, reduce expenditures, spur innovation and work with even greater efficiency. And he gives ideas on how to pay for the equipment and people needed to launch new systems.

Over the last four decades, information technology has brought efficiency to government agencies and allowed them to do more with fewer people, says Cathilea Robinett, the center's executive director. The strategies governments used to achieve this growth are still working well, she says, and more states could take advantage of them.

California, Hawaii, Kansas and Virginia used "revenue recovery" IT systems to collect a combined total of $1.5 billion for their treasuries in unpaid taxes. But there are billions of dollars more owed to state and local governments. Unfortunately, Taylor says, many states don't have an accurate tally of uncollected money. The software needed to help track down delinquent accounts, he argues, could, in fact, be financed by what was collected.

FIGHTING FRAUD

Sophisticated software systems can spot and stop fraud and misuse of benefits. Since Texas began an automated detection system, it has recovered almost $30 million that would have been lost through Medicaid fraud, abuse and waste. Good software can highlight inaccuracies that show where overpayments have occurred, as well as winnow out false claims and other abuse, Taylor says.

Applicants can be prequalified for public assistance through online eligibility systems, which verify identity and income, cross check with other benefit programs and examine data for any patterns of potential abuse. Automated auditing checks provider and supplier records for errors, double payments, overpayments of potential abuse.

SAVING TOGETHER

State and local governments can team up to save money. Virginia's new consolidated Information Technology Agency, which allows state and local agencies to share technology with each other, is expected to save $100 million over three years.

Combining purchasing power also is a cost saver. A ballpoint pen company in Virginia, for instance, has to register just once to apply to become a vendor to state and local agencies. The registration site publicizes all the business opportunities available and allows companies to submit bids online. The system created a centralized, online marketplace that also standardized government orders. Registration and transaction fees help pay for the technology.

Some states and municipalities have experimented in a limited way with selling ads and sponsorships on Web sites, cell towers, public access channels and information kiosks to help pay for new or updated technology. Taylor says states should look at these ideas, too.

TECHNOLOGY CAN PAY FOR ITSELF

Governments can reduce of even eliminate up-front general fund costs for information technology projects by arranging financing with a third party, Taylor says. For instance, a private company will launch a Web site for a state agency to collect fees, disburse benefits or renew driver's licenses, to name a few, in exchange for a share of the lees of collections. The government gets a Web presence without the cost of funding it. In Maine, no general funds were used to develop the state's award-winning Web portal, which supports vehicle registration, annual report filings, license renewal, the governor's budget balancing tool and much more. Revenues from more than 300 online services provide funding for the system. The Legislature mandated that online services could not cost citizens more than traditional service. So, portal developer InfoME, a subsidiary of NIC which provides portal service in 18 states, relies on volume to make it work.

The Virginia Department of Taxation updated its computer system by forming a partnership with American Management Systems (AMS) and paying them out of the increased revenues collected. The partnership brought in $159 million in additional tax revenues in less than five years without raising tax rates. AMS was paid from the increased revenues it helped bring in.

New technology generated $7 million more over two years for Virginia's online driver's license renewal system by drawing in more users. Another tactic is to levy a user fee for specific benefits. Indiana's new online system generated a 75 percent jump in the number of drivers renewing online and brought in $3 million more over a six-year period. Users pay a 50-cent processing fee.

In the early '90s when the economic downturn resulted in shrinking funds for technology projects, the Massachusetts legislature turned to bond financing to fund IT initiatives. Since then, the state has used general obligation bonds to fund more than $700 million in IT projects, according to Innovative Funding for Innovative State IT by the National Association of State Chief Information Officers (NASCIO). Projects included the development of a statewide Web portal, a data center, a centralized state e-mail system and a wireless communications network.

States also shouldn't overlook grants, charitable gifts and endowments to help support IT investments, Taylor says. This can mean vendor donations, often focused on research and development. Grants.gov provides access to 600 agencies offering grants worth more than $300 million. The National Science Foundation annually awards 10 to 20 grants worth $8 million to support agency and department collaboration in digital government. And the U.S. Department of Commerce Technology Opportunity Program awards 25 grants every year, each averaging $500,000.

A DIGITAL MAJORITY

With nearly three-quarters of American households online, there's a big demand for electronic ease in dealing with government. This could be a good time to rethink how governments operate.

Taylor says reducing inefficiency is critical. Many governments are replacing traditional, over-the-counter services--offered 8 a.m. to 5 p.m., Monday through Friday--with 24/7 Web-based assistance. And they are finding it dramatically reduces costs. The Washington State Department of Social and Health Services converted its entire 6,000-plus paper forms to electronic formats that customers can get online. Savings in printing and administrative costs total nearly $750,000 annually.

The seriousness of difficult budget times creates an opportunity for government to rethink traditional ways of funding its operations. The methods Taylor outlines, some of which have been employed for decades, are intended to help government look for where the money is--not where it was.

HIGH TECH/HIGH SAVINGS

$1.5 billion The total amount collected from tax cheats by California, Hawaii, Kansas and Virginia with new "revenue recovery" technology.

$30 million What Texas saved after using new technology to spot Medicaid fraud, abuse and waste.

$100 million The amount Virginia's new consolidated Information Technology Agency is expected to save the state and local governments over three years.

$159 million Additional money the Virginia Department of Taxation collected in less than five years after updating its computer system in partnership with American Management Systems.

$3 million The increase Indiana's new online driver's license renewal system generated in six years.

$750,000 The annual amount saved by the Washington State Department of Social and Health Services after converting 6,000 paper forms to electronic formats.

$300 million The amount Grants.gov gives out to 600 agencies willing to start research and development projects.

$500,000 The average award given to 25 states, agencies or locals each year from the U.S. Department of Commerce Technology Opportunity Program.

For a copy of the Pay IT Forward report call Rhonda Wilson at [phone].

CREATIVE WAYS TO FUND TECHNOLOGY

Tight budgets, limited general funds and the need to pay for large, multiyear projects crossing agency lines provide the impetus for developing new IT funding strategies.

A new publication by the National Association of State Chief Information Officers (NASCIO) identifies innovative ways to fund state information technology (IT) projects without tapping the general fund.

1 Bond sales can fund a wide range of technology projects and encourage use of existing systems by multiple state agencies.

2 Performance-based contracting defines a state's IT system or performance objectives. A vendor then comes up with the best solution. The system features rewards and penalties, as necessary, for the project vendor.

3 Investment funds are pools of money established by the state that can be used to pay for pilot programs, new technologies or supporting projects. A legislature can provide the initial seed money. Savings generated by the projects funded are used to replenish the investment fund. Money also can be used as grants to other agencies for their IT projects or paid in the form of loans that have to be repaid.

4 Leasing and financing involves lease-purchase agreements or loans to buy IT systems or services. This spreads out costs over time.

5 Certificates of participation are a form of borrowing in which investors provide up-front money for a state IT system by buying certificates of participation. The vendor receives payment up front while the state pays the investors over time. These certificates don't count against a state's debt ceiling.

6 Benefits funding allows a state to pay for technology with the money saved from the project or improvement. This is usually the additional revenue collected as a result of the project.

7 Budgeting and appropriations give states additional money for IT projects by retaining technology funds that are unspent at the end of the budget year (instead of allowing them to revert back to the general fund). New technology projects can also be funded with the savings from earlier IT projects.

The NASCIO report can be ordered at www.nascio.org/publications/index.

Jo Anne Bourquard manages NCSL's Information Tech-nology program.