Budgeting in the Age of Cloud Computing
By Paul-Matthew Zamsky, Head of Strategic Partnerships at Waycare
The federal government tends to be a slow adopter when it comes to implementing new technology and modern business trends. Let’s look at cloud-computing for example. Cloud infrastructure has proven to increase effectiveness, team performance, and productivity in the workplace. A 2017 survey of 200 federal government IT executives found that 54% of respondents were running 25% or less of their infrastructure in the cloud.
State and local governments are also falling behind. Take for instance capital spending in New York City. The City of New York spends $88.66 billion (in fiscal 2019) on its operations, or current expenses. It has a separate capital budget of $16 billion (and $80 billion for 2018-2022). Of that $80 billion, 90% will be city-financed (largely through bond issues) and the rest comes from state and federal governments.
Have you been to New York City lately? Have you seen the potholes, crumbling infrastructure, traffic jams, ancient public housing? Why? Partly – because of the budget ‘hot potato’. Other cities are the same.
The US federal government has a massive deficit (owing to the recent tax cut), now reaching $1 trillion — so it cuts its grants to the states, which cut their grants to the cities… and cities confer potholes and medieval infrastructure on their citizens.
Can cities take a note or two from businesses?
For years, businesses have shifted hard-to-finance capital spending into their operating budgets. How? It is called “SaaS” or “software as a service”. We used to buy shrink-wrapped software, in a box, for a one-time fee or price. Today – software is sold by yearly subscription, and delivered through the cloud, on an as-needed basis. No longer do businesses have to purchase on-premises data centers. This business model saves businesses from incurring debt while allowing them to have the most modern technology.
We are on the eve of 5G, the newest mobile technology. This will be a game-changer for cities, as it will enable rapid massive transfer of data, for traffic management, for example. But in the wake of 5G cities will need to acquire a whole new set of costly technologies, to enable them to process, analyze and utilize traffic data, and then use it to guide responders (police, ambulances, etc.). Where will they find the money? As things stand now, and the way budgets are built, this urgently-needed modernization will take many years.
Bond issues can be justified, to pay for toll bridges; the revenue is immediate and tangible. But for traffic infrastructure? The rate of return on investment is enormous, but indirect, in terms of saving time and frustration for the cities’ motorists. There is no revenue stream to pay for funding the bond interest and principal. There is only a ‘happiness stream’ of motorists and bus riders.
Let city budget officers shift (at least in part) to a subscription-based business model, be it SaaS, Maas, or Iaas. Rent the hardware and software on a subscription basis. Let businesses fund the capital spending – they often have a far easier time to raise the money than city governments do, especially when their borrowing is backed by a long-term contract with the city. (Capital markets justifiably think cities are less fiscally competent than large businesses).
It is win-win. Cities get up-to-date modern technology, without the roadblock of raising huge capital expenditures. Businesses can provide state-of-the-art technology to governments, in the manner in which they are accustomed, as cash-flow subscription payments. And we citizens? We get to drive to work without hours and hours of traffic jams.
Bill de Blasio, Mayor of New York City, are you listening?
 The State of the Federal IT, Accenture Federal Services, 2018. https://www.accenture.com/t20181210t024327z__w__/us-en/_acnmedia/pdf-90/accenture-810090-the-state-of-federal-it-pov-final.pdf
August 20, 2019