Budget Overview: A Focus on Compliance, Infrastructure

Somewhere in between the press conferences, revisions, budget change proposals, votes and the governor’s signature, the state budget — and priorities — seems to muddy beyond recognition.

Last cycle, before all the fiscal gymnastics needed to balance the budget for the next 18 months, we reported that ugly rumblings about a recession and severe budget shortfalls would not translate into a complete stall for tech investments, especially where health and human services, education and corrections were concerned.

This cycle, priorities look to be holding steady on health and human services, thanks in large part to the compliance requirements outlined in House Resolution 1, also known as the One Big Beautiful Bill.

While this compliance work might not come through as line-item IT, increased compliance thresholds are forcing agencies and departments to look toward new tools and purchases, said e.Republic* Chief Innovation Officer Joe Morris.

“There's a tremendous amount of investment ... mentally, physically and monetarily, going into HR1 compliance,” he said during a briefing at the State of Technology** event in Sacramento.

Despite the attention to HR1 compliance, Morris said his bet on sales opportunities would be elsewhere, in the transportation and infrastructure and higher education spaces, specifically.

“I would prioritize the infrastructure space, particularly around critical infrastructure protection, and if there are individuals in the room focused on education, I would probably prioritize higher education first, just because they're an early and faster mover. Even though the spend is going to K-12, it's a market with a longer tail,” he added.

Scrubbing through the budget reveals around $840 million in project opportunities, both direct and indirect IT. While the project count might feel lower than prior briefings, the overall value is still representative of a target-rich environment.

“This is a more modest count from a volume perspective, but you can see that's a significant amount of spend,” Morris said.

The major funding buckets are federal compliance, legacy modernization, broadband and AI implementation. The work in that latter space is driving investments in data standardization and readiness so that AI tools can return accurate, useful results.

State, regional and local leaders have been talking anecdotally about the challenges in this arena, especially where their organization’s data is siloed and subject to state or federal restrictions.

“You all on the industry side created solutions that don't require big data scientists anymore, and now we're able to unlock more value,” Morris said. “The AI era, the intelligence era, is doing the same thing again. It's how do we make sure that the data that we have is in a usable format to make full, data-driven decisions around it in the AI era.”

Nothing should change these opportunity areas over the next six to 12 months as the impending administration handoff, so for now the focus on helping agencies navigate federal mandates and sustaining critical IT infrastructure should be the priority.

*e.Republic is the parent company of Government Technology and Industry Insider — California.

**The State of Technology event is hosted by Government Technology, Industry Insider — California's sister publication.