Cities, counties and states combine IT with business practices to generate revenue.
Share the Wealth
“We believe there’s a huge opportunity to sell to other municipalities that have needs similar to ours,” says Jacksonville, Fla., CIO Dave Lauer.
When Illinois Gov. Rod Blagojevich mandated that the state’s government run more like a business, Central Management Services took the directive literally — by opening its own online store.
CMS, which runs the Illinois IT department and sale of surplus property, among its many duties, took its cue from eBay and launched an online auction site to sell off old property that the state no longer needs, including computers, cars, collectibles such as paintings and even oddball items such as boa constrictor cages. Although Illinois runs a live auction every two months in a warehouse, the state places select items online for auction every week.
With 11,000 registered online bidders worldwide, online auctions increase the number of potential buyers, which generates competition for items and boosts income for the state, says Illinois CMS Director Paul Campbell. In four years, the online auction has raked in $1 million in sales, money that goes into the general fund.
“We’re putting that innovative, entrepreneurial spirit to work,” Campbell says.
Illinois is among a growing number of state and local governments that have turned to IT to help generate income. For these organizations, it’s not enough to consolidate the IT infrastructure and offer e-government services to run more efficiently and cut costs. They are combining the use of technology and business practices from the private sector to help government bolster the bottom line.
Some governments resell custom-made applications to other public-sector agencies; others are coming up with new services that they sell to citizens and businesses. The IT Department for Sarasota County, Fla., for example, rents out data center space and has developed Web applications that it resells and hosts for 13 other counties and cities. In nearby Georgia, the state’s Georgia Technology Authority (GTA) is selling an online service that helps financial institutions combat identity theft and the use of fake identification.
Most states have also turned to the Web to generate income. Besides online auctions, states earn extra revenue by offering new, fee-based services that let people and businesses access state data online. Kansas’ Web portal, for example, offers a service to check criminal histories online. Georgia’s GTA is exploring a similar service to raise revenue.
“If you look at the last 15 years, it’s been about cost cutting and efficiencies. But once you’ve cut to a certain amount, the next step is to become innovative,” says Ivan Sumter, GTA’s business development director.
Online surplus auctions generate more revenue:
A University of Illinois football locker sold for $205 at a live auction.
A similar locker sold for $496 in an online auction.
Last September, Illinois became the first state to hold a live, onsite auction that was also broadcast live on the Web, allowing online buyers to bid against those attending the auction. During the auction, the state sold about 1,000 items, but made 100 items that had mass appeal, such as vehicles, available to online bidders as well.
On the day of the auction, at 11 a.m., 165 online buyers joined 167 onsite buyers to bid on those items. With the auctioneer’s voice broadcast live on the Web, online buyers bid by clicking a link on the Web site. A state employee on a notebook computer watched for incoming Internet bids and alerted the auctioneer.
Online auctions typically increase the sale price of items by three to four times — and this joint onsite and online auction was no exception, says Curt Howard, Illinois’ manager of federal and state surplus property. About 40 percent of the items sold went to online bidders that day.
“The competition drove up the prices,” Howard says.
In all, about 16 states sell surplus goods through online auctions, with half of them posting items on eBay. Howard advises states to have their auctions hosted on a Web site dedicated to their state. While eBay is a good service, it’s too easy for buyers to click out of a state’s eBay page and shop elsewhere on the large site, he says.
CMS hired an outside vendor to build and host its site in exchange for a small percentage of gross sales. “By creating your own unique system, you have a captive audience that just looks at your property,” Howard says.
Florida’s Sarasota County, which spends $500,000 a year to operate some of its custom applications, earns $380,000 a year by reselling them.
Sarasota County’s IT Department doesn’t just manage technology services for the county’s agencies; it’s become a software company and hosting provider for other cities and counties. County CIO Bob Hanson came up with the idea in 2003 after his IT shop developed GovMax, a group of Web applications for financial planning, strategic planning and performance management.
His goal is not to make a profit but to offset the cost of the county’s IT services by sharing resources and collaborating with other governments.
In 2003, Sarasota signed its first customer, Leon County in Florida, and through word of mouth, has increased its customer base to 13 cities and counties, including Tallahassee, Fla., and Bellevue, Wash. Sarasota, which charges $20,000 to $65,000 a year depending on the customer locality’s population, earns $380,000 annually from its subscribers.
With GovMax costing $500,000 a year to operate, Sarasota now only has to pay $120,000 a year, a major cost savings.
“We operate GovMax like a business, but it’s a cost-sharing model,” Hanson says. “With 13 other communities using it, we now pay significantly less.” The county pays a larger chunk because it needs to maintain extra data center capacity to meet future demand, he says.
GovMax runs on eight servers in Sarasota’s data center. The county has four full-time employees who train customers to use GovMax programs and offer 24 × 7 customer support.
This year, the county is building a new version of the software. Although county employees have handled the functional design of the applications, the county has hired outside developers to handle the technical design and construction of the software. The outside developers also customize the GovMax apps for each customer and convert existing data to work with GovMax, Hanson says.
Sarasota County has also launched GovSpace, a hosting service for government and nonprofit organizations. The county currently earns less than $50,000 from external hosting subscribers.
Having to provide IT services to employees of other cities and counties puts added pressure on Sarasota’s IT staff, but it’s a positive experience and an exciting challenge, Hanson says.
“Our increased focus on performance benefits the county and all our partners, but it also helps us attract and retain employees who truly want to execute our profession at its highest levels,” he says.
The Opposite Coast
The city of Jacksonville, Fla., hopes to emulate Sarasota’s success.
Dave Lauer has spent his first three years as Jacksonville’s CIO improving efficiency by centralizing IT, increasing e-government services and converting contractor positions to full-time in-house jobs, saving $1.5 million in annual personnel costs.
Lauer also phased out the city’s 150 mainframe applications, which were difficult to enhance and costly to maintain and operate. He directed the city’s developers to rewrite all the apps in Microsoft .NET, resulting in an additional savings of $1.5 million annually.
With cost-controlling measures in place, Lauer is exploring the possibility of reselling some of the apps to other cities to generate revenue. The programs include a citizen call-tracking system that displays citywide issues on a map and mobile software for code enforcement workers, building inspectors and parking enforcement officers.
The city’s IT Department is gauging demand. “We’re fleshing this out, but we believe there’s a huge opportunity to sell to other municipalities that have needs similar to ours,” Lauer says.
GTA, which handles IT planning and policies and runs Georgia’s data center and wide area network, doesn’t want to rely solely on tax dollars to pay for the state’s IT operations. So it’s begun looking for unique ways to generate revenue. This January, the agency began selling an online tool that combats fraud by letting financial institutions ensure that customers are using legitimate Georgia driver’s licenses and identification cards.
The goal of the service is to prevent thieves from using fake or stolen IDs to cash checks, initiate wire transfers, gain entry to safe deposit boxes or obtain account information, GTA’s Sumter says.
Through a Web app, a bank teller can type in data from a person’s driver’s license or state ID, and the software will compare the information with Georgia’s database to let the teller know if there’s a match. If the teller gets a “no match” response, there’s an inconsistency between the ID data and the state’s records.
“It’s an added step to help financial institutions verify that the customer is using a legitimate driver’s license,” Sumter says.
GTA expects the service will earn $250,000 in its first year. All proceeds will help the agency pay for IT activities, Sumter says. To further boost revenue, the state plans to sell the service to other businesses in the future, such as check-cashing businesses and pawnshops, he says.
Neil Woerman of Kansas’ Insurance Department and Tracy Smith of the Kansas Information Consortium say the
e-government portal not only generates funds through fees but also creates more efficient work processes.
In Kansas, the state IT team outsourced Web portal operations. Now, a vendor designs all the Web pages and delivers e-government services, such as driver’s license renewals. The portal requires no tax dollars to operate. Instead, the portal is funded through a fee assessed for each service, says Tracy Smith, general manager for the Kansas.gov portal.
The private Kansas Information Consortium, where Smith works, keeps a portion of the fee but also reinvests a large percentage to pay for ongoing maintenance, customer support and development of new services.
“It’s a self-funded model,” Smith says. “The state wins because it has to pay nothing up front and out of pocket. We collect revenue on their behalf, give the state their portion, and we receive a small portion to sustain and grow the portal.”
Kansas, like many states, generates income by selling state records, such as driving records, to insurance companies. From the $6.50 the state charges for a driving record, a $1.05 transaction fee goes to the portal, $1 is pocketed by the Highway Patrol and the rest goes to the Department of Motor Vehicles, Smith says.
In some cases, state agencies pay the $1 transaction fee rather than passing it on to customers. The Department of Revenue pays the $1 transaction fee for taxes filed online because e-filing is more efficient and saves the department money, she says.
For state agencies, the biggest benefit of a portal is cost savings because it makes government operations more efficient. For example, the Kansas Insurance Commissioner’s Office is a relatively small agency that annually collects over $100 million in insurance taxes from companies, in addition to regulatory fees from both companies and agents.
“We will receive approximately 2,000 payments this year from companies through the Kansas.gov payment engine,” says Neil Woerman, IT director for the Kansas Insurance Department in the Office of Insurance Commissioner. “That means we have 2,000 fewer envelopes to open and log, checks to endorse and deposit, and receipts to manually key into our accounting system.”
But Kansas.gov offers additional services that help the state generate more revenue. Some are innovative services, such as the ability for special interest groups to track bills in the Legislature. Others are state services, such as criminal history checks, that people can buy online rather than having to drive to state offices to retrieve information.
“It’s a new avenue to gain more revenue,” Smith says. “It’s easier to gain access to the information, so they may use it more frequently.”
Whether it’s reselling applications or offering new fee-based services to citizens and businesses, the move by the public sector to find ways to generate revenue will continue as government leaders warm up to the idea of running government more like a business, Sarasota County’s Hanson says.
“It’s taking private sector best practices and bringing it to the public sector,” he says.
Tips on Selling Your Custom Software
Bob Hanson, CIO of Sarasota County, Florida, shares six pointers for selling and sharing the cost of applications with other public-sector agencies.
LOOK BEYOND UNIQUE APPLICATIONS. Opportunities to collaborate abound, even with traditional applications such as e-mail.
PAINT A VISION FOR YOUR STAFF, PEERS AND LEADERSHIP. Everyone needs to know the “elevator speech” and believe in the possibilities. You can’t build walls internally and then expect to break them down between organizations.
FOCUS ON PERFORMANCE. Benchmark your agency against world-class organizations. Set a high bar and exceed it. Controlled processes are a must. Sarasota has adopted IT Infrastructure Library (ITIL), a best practice for managing IT services and quality of service.
KNOW YOUR COSTS IN DETAIL BEFORE AIMING TO SHARE COSTS. “In Sarasota, we understand every aspect of the costs of our services, from management overhead to the cost of data-center space occupied by equipment.”
TEST THE CONCEPT WITH ONE CUSTOMER FIRST. After hashing out the issues, slowly bring in more customers.
BE PERSISTENT. Expect resistance but stay the course. Momentum builds slowly in the public sector, but it does build.