State and local governments are facing pressure from four directions at once — retiring workforces, rising service demand, new cyber and reporting mandates, and an estimated $125 billion information technology (IT) spending wave they cannot afford to mismanage.
At the same time, many agencies are balancing workforce shortages, aging infrastructure, and increasing expectations from constituents. How finance and operations leaders respond before the next budget cycle may shape public service delivery for years to come.
Employees Leave, Knowledge Goes, Liabilities Grow
In a recent CBIZ case study, one pension plan uncovered more than $850,000 in payments still flowing to members who had passed away. A single reconciliation and death audit caught it. That kind of money does not slip through because anyone was careless. It slips through because the employees who knew the system are retiring, and the institutional knowledge behind those controls is leaving with them.
Public sector retirements are accelerating, and they are taking decades of institutional knowledge out the door in the process. The remaining staff inherit plans, processes, and obligations they did not build, often without the documentation, training, or institutional knowledge needed to support them effectively.
Meanwhile, pension and other post-employment benefits (OPEB) liabilities keep climbing. Funding ratios, actuarial assumptions, and Governmental Accounting Standards Board (GASB) reporting requirements continue to receive heightened scrutiny from auditors, elected officials, and rating agencies. At the same time, actuarial assumptions are becoming increasingly difficult to defend amid economic and demographic uncertainty. The same finance team being asked to close the books is also being asked to govern benefit plans, answer auditor questions, and explain long-term obligations to elected officials focused on near-term budget and policy decisions.
The fix is not hiring faster. It is tightening the work that already exists. Plan governance reviews, payment audits, beneficiary data cleanups, and clear handoff documentation protect dollars and reputation at the same time. Every overlooked control increases financial, operational, and reputational risk.
Demand Climbs Amid Revenue Uncertainty
Economic slowdowns reduce tax revenues and other government receipts, but demand for services like Medicaid and education often remains steady or continues to increase. Finance and operations leaders are stuck closing a widening gap between what comes in and what communities need, with no relief on either side.
Addressing the challenge requires more than traditional cost-cutting measures. Agencies need greater visibility into operations, better use of technology, and access to specialized support when internal resources are stretched.
AI-enabled process optimization and analytics give leaders a clearer view of where dollars are going and where they are leaking. Outsourced accounting and financial management services bring capacity without adding headcount agencies cannot afford. Modern enterprise resource planning (ERP) systems connect finance, payroll, procurement, and operational data, giving leaders greater visibility for decision-making.
Compliance and Cyber Risk Are Closing In
Cybersecurity is no longer solely an IT issue. A cyber incident can disrupt payroll, procurement, financial reporting, constituent services, and public trust. Federal oversight, compliance requirements, and audit scrutiny continue to increase for agencies that receive federal funding. Cybersecurity expectations, grant requirements, and guidance from organizations such as the Cybersecurity and Infrastructure Security Agency (CISA) and the National Institute of Standards and Technology (NIST) continue to expand. Procurement reform and transparency requirements are adding new layers on top of the rules agencies already struggle to keep up with.
Staying ahead takes more than buying cyber insurance. It takes controlling the risk before transferring it. That means pairing risk advisory work with the right insurance coverage, including cyber, fiduciary, employment practices liability (EPLI), employee benefits liability, and property, so exposure is reduced first and then transferred where it makes sense.
The IT Wave Is Reshaping Public Agencies
Industry analysts estimate that state and local government IT spending will exceed $125 billion and continue to grow. As agencies modernize operations, enterprise resource planning (ERP) systems, cloud platforms, AI tools, and data analytics are no longer side projects — they are becoming the foundation for finance, payroll, procurement, and service delivery.
The challenge is not simply adopting new technology. It is ensuring modernization initiatives align with business objectives, governance requirements, workforce readiness, and long-term operating models. Without proper planning and oversight, technology investments can introduce new risks instead of solving existing problems. Data quality issues migrate into new systems, governance gaps create additional exposure, and poorly scoped implementations often cost significantly more to correct after deployment.
Getting modernization right requires a deliberate and structured approach. Transformation planning, organizational change management, enterprise system selection, AI assessments and roadmap development, and strong governance all play critical roles in ensuring investments deliver their intended value and long-term benefits.
Start Building Your Plan With CBIZ
While these pressures may seem unrelated, they are deeply interconnected. Workforce turnover affects internal controls, technology modernization impacts cybersecurity risk, and fiscal constraints influence an agency’s ability to address both. The agencies that succeed will take an integrated approach to governance, finance, technology, and risk management rather than addressing each challenge separately.
As these forces continue to reshape state and local government finance, agencies will need strategies that balance fiscal responsibility, operational efficiency, and long-term resilience while maintaining public trust and service delivery.
Reach out to a CBIZ government advisor today to build a plan that protects your agency, your budget, and your team.
Frequently Asked Questions
Funding modernization does not always mean finding new money. It often means using current dollars smarter. Agencies are stretching budgets by phasing projects, prioritizing high-impact systems first, and combining federal grant programs with general fund dollars. Cooperative purchasing agreements and shared services across departments also help cut costs. The key is starting with a clear roadmap so every dollar spent moves the agency closer to a connected, secure, and scalable system.
Agencies should track federal frameworks from CISA and NIST, state-level cybersecurity legislation and executive directives being passed across the country, and any grant-specific requirements tied to programs like the State and Local Cybersecurity Grant Program. An increasing number of states are requiring formal cybersecurity programs, incident reporting timelines, and rules around ransomware payments. Staying compliant means assigning ownership, documenting controls, and reviewing the program at least once a year.
Managing pension and OPEB liabilities starts with knowing exactly what is owed. That means regular actuarial valuations, clean beneficiary data, and tight controls on benefit payments to prevent overpayments. From there, agencies can compare pay-as-you-go funding against prefunding through a trust to find the right long-term strategy. Strong governance, accurate reporting under GASB rules, and proactive plan reviews protect funding ratios and credit ratings at the same time.
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