Turning the Economic Crisis to your Advantage: Selling to State Governments

1. Turning the Economic Crisis to your Advantage: Selling to State Governments Jason Sajko jsajko@input.com Senior Analyst@jsajkoINPUT INPUT TiwttierHashtag: #INPUTgov April 22, 2010

2. INPUT Services INPUTprovides market intelligence, analysis, events and training • Market Intelligence – federal, state and local intelligence, web based opportunity tracker, contacts and organization charts • Industry Analysis – develop in-depth, holistic plans for federal, state, and local government markets • Events – INPUT Executive Breakfasts and Seminars offer insight and networking opportunities with top policy and decision makers • Training – provides you with the knowledge to effectively operate and pursue opportunities in the government market

3. Fundamentals

4. The S&L Market Fundamentals • Large, Fragmented, Diverse Market • Must focus efforts on high-potential targets • Budget Processes and Calendar Dictates Business Development Timeline • Unless you luck into year-end spending, you need to be patient – forecast accordingly • Federal grant programs can fund technology projects • Purchasing Rules and Regulations Vary • It’s critical to know and follow them

5. The S&L Market Fundamentals (2) • Power of CIOs Varies • Deputy CIOs are often more tenured • When you meet them, be prepared • Common Approach to Marketing is Ineffective • Build rapport • Focus or find your niche • Direct or indirect or both?

6. State Revenue Conditions

7. 2008-14 State & Local Revenue Scenarios Sources: INPUT

8. Rate of Decline in Year-over-Year (YOY) S&L Revenues Slows in Q3/2009 Down 3.5% YOY in Q3/2009 (versus down 7.9% YOY in Q2/2009) Up 3.3% YOY in Q3/2009 Collections down 8.9% YOY in Q3/2009 (versus down 8.8% YOY in Q2/2009) Personal income tax collections down 11.8% YOY in Q3/2009 (versus down 27.0% YOY in Q2/2009) Sources: U.S. Census Bureau and Rockefeller Institute of Government (as of 11/23/09)

9. State Unemployment Rates

10. Regions Doing Better Than Average • Great Plains and Upper Midwest • Lowest foreclosure rates • Sparse population prevented rampant price inflation • Energy resources: • Oil, natural gas, wind, water, and ethanol • They do better when fuel prices are up at the pump • Mid-Atlantic and Northeast • Impact of foreclosure crisis has been blunted • Diversified “megaplex” metro economies • Surging finance industry profits are spent here

11. Regions doing worse than average • Great Lakes and Southeast • Most dependent on manufacturing • Hit hard by downturn in consumer spending • Downturn leads to layoffs and off-shoring of labor • Lost jobs = lost homes • Florida and the Far West • Biggest run-up in housing prices • Most overbuilt commercial real-estate markets • Recreation-based economies slide with declining tourism • CA & FL depend on family entertainment attractions • NV depends on gambling attractions • CA tech/movie industries struggle with credit crisis

12. State unemployment rates, 12/2009 WA VT MT ME ND OR MN NH WI NY ID SD MA WY MI PA RI IA NV NE OH IN CT IL UT CO WV KS NJ VA MO CA KY DC DE NC TN OK AZ MD NM AR SC GA MS AL TX LA FL AK HI Source: U.S. Bureau of Labor Statistics (as of 01/22/10) Note: The unemployment rate in 12/2008 was 7.4%. This map shows the states that are doing better (green) or worse (brown) than that rate one year later.

13. Addressable S&L IT Market, 2009-2014 CAGR – 3.9% Source: INPUT

14. Federal Budget for FY 2011 • Grants-in-aid to S&L to peak in 2010 • 2009: $538.0 billion • 2010: $653.7 billion ($115.7 billion over 2009 level) • 2011: $645.7 billion ($8.0 billion below 2010 level) • Decline due to expiration of stimulus fiscal relief • Extends federal match of 67% of Medicaid to 06/11 • 49% of all aid is for health care ($317.6 billion) • 19% for income security (e.g., food stamps, housing) • 13% for education, training, and social services (incl. unemployment insurance trust fund) • 11% for transportation • 2011 includes $67 billion in unallocated funds for jobs

15. State Budget Conditions

16. States Face More Deficits for FY 2011 Source: Center for Budget and Policy Priorities (as of 12/23/09)

17. State actions for FY 2011 budgets NY FL CA

18. The Who of S&L

19. Who to pay attention to? • Governors • CIOs • Procurement • Citizens • Teaming partners • Large Players working in all 50 states • Local Players • Small and Disadvantaged Businesses • Technology/Application partners • Resellers

20. Gubernatorial Election Cycle Source: National Governors Association (NGA)

21. State CIO Priorities

22. State CIO Priority Technologies

23. Conclusions & Recommendations

24. Key Take Aways • You Can’t Be All Things to All Governments • Join Associations and Get Involved • Politics Matter • Align to Priorities • Look for Opportunities that Can be Replicated • Driven by federal mandates or funding • Functions all governments perform • Compelling “pain” • Be Committed to the Long Haul • Governments know which companies come and go

25. INPUT’s Take • The fiscal condition of the states and localities will slowly improve so long as… • The federal government continues to underwrite the housing market • The federal government provides direct fiscal relief via… • Increased benefits funding for Medicaid and UI • Build America Bonds (BAB) for infrastructure • K-12 education grants • Unlimited student loans for higher education • The unemployment rate begins to decline by mid-2011

26. Recommendations • IT spending has no where to go but up • CIO.com report (Sept. 2009): • 37% of CIOs anticipate increased spending • Up from low of 14% in May 2009 • Down from high of 49% in July 2008 • Good indicator that we’re at the O&M “bottom” • S&L layoffs will lead to IT-driven efficiency • Furloughs and IT consolidation are small fry savings • Remaining workers will be more burdened than ever • BI is needed for performance management • First wave of real business-process re-engineering

27. Questions? Q&A • Jason Sajko • jsajko@input.com • @jsajkoINPUT • Twitter Hashtag: #INPUTgov