Agentic AI,
Artificial Intelligence & Machine Learning,
Next-Generation Technologies & Secure Development
AI Emerges as a Key Focus in Efforts to Mitigate Budget and Staffing Challenges
State CIOs are facing significant challenges as they approach the year 2026. These leaders in technology must navigate the competing demands of public service and the operational needs of their agencies, all while attempting rapid digital transformation against a backdrop of limited funding, increased cybersecurity threats, and stagnant workforce growth. Consequently, CIOs are increasingly investing in artificial intelligence (AI) and generative AI to advance government IT initiatives and foster innovation.
The National Association of State CIOs (NASCIO) has identified AI technology—encompassing generative and agentic AI—as the foremost strategic initiative for state CIOs in the current year, signaling an “unprecedented” transition in IT priorities, according to NASCIO Executive Director Doug Robinson. Notably, AI first appeared on the organization’s annual survey for state CIOs just three years ago, highlighting the rapid evolution in focus.
This swift shift in strategic direction indicates that CIOs are reevaluating service delivery methods, leveraging AI and modernization projects to alleviate the pressures arising from constrained budgets, demands for increased efficiency, and the necessity for digital transformation. The financial landscape for state CIOs in 2026 is stark; as reported by Gartner, IT budgets for U.S. state and local government entities are forecasted to grow by a mere 2%, with the number of technology personnel remaining static. This compels CIOs to adapt proactively to ongoing changes.
Notably, Gartner’s findings reveal that 94% of state and local government CIOs and technology leaders altered their project priorities on the fly throughout 2025. The shift away from conventional calendar-based budgeting cycles toward a more dynamic decision-making process reflects the reality that CIOs are now prioritizing resource optimization and AI deployment throughout the year. Cybersecurity ranks as the second most critical strategic priority, closely followed by budget management, reinforcing the increasing financial pressures as federal responsibilities are devolved to state governments, intensifying these issues further in 2026 and 2027.
Internal AI Projects and Potential ROI
While the long-term advantages of AI for citizen services—including enhanced DMV experiences and more efficient websites—are promising, many states are beginning to see immediate internal benefits from AI. “Currently, the primary applications of AI and generative AI are geared towards document generation and policy analysis,” Robinson noted, emphasizing a focus on improving internal processes and productivity.
Minnesota’s State CIO Tarek Tomes perceives AI as a force multiplier rather than a replacement for public servants. “We’re scaling secure AI responsibly so that our teams can work more efficiently and deliver enhanced services,” he stated. “These tools complement our expertise and allow us to concentrate more on what’s essential: human interaction, empathy, and quality governance.” Minnesota is also projecting a return on investment through its AI initiatives, such as the AI-enabled Legislative Tracker within the Department of Revenue, which automates the review of extensive tax legislation documentation, enabling staff to focus on more in-depth analyses and providing quicker guidance to policymakers.
Similarly, North Carolina’s State CIO Teena Piccione views AI as a means of enhancing state employees’ effectiveness, aimed at simplifying processes and allowing staff to dedicate more time to human-centric work. To address public concerns and facilitate safe AI adoption, North Carolina has established an AI Leadership Council and appointed its first Deputy Secretary for AI and Policy.
Modernization and Compliance Efforts
Modernization ranks fourth on NASCIO’s strategic priorities list, with state leaders shifting their focus towards enabling mission-driven operations instead of merely managing technological overhead. “With modest growth forecasts, we must approach modernization with intention rather than delay,” Tomes remarked. Minnesota is directing resources through the Technology Modernization Fund to prioritize high-impact systems instead of diluting funding across smaller initiatives.
North Carolina applies a similar rigor in its project evaluation, ensuring that initiatives are assessed through multiple lenses—impact, risk, security, and return on modernization investment. “Our project sequencing is designed to prioritize effective modernization efforts rather than hastily launching projects for the sake of appearing progressive,” Piccione elaborated, underscoring a commitment to initiatives that deliver substantial value for the state.
Addressing Cybersecurity and Compliance Challenges
Alongside investments in emerging AI technologies, both cybersecurity and risk management have emerged as critical priorities, with many expecting AI to play a crucial role in cyber defense strategies. “Almost all states are currently leveraging generative AI for cybersecurity protective measures,” Robinson revealed. However, malicious actors are also employing AI to enhance their strategies, leading to more sophisticated phishing and social engineering attacks.
For instance, Minnesota is utilizing AI to improve cyber readiness by enabling quicker responses, earlier identification of vulnerabilities, and stronger protection of systems and sensitive data. Furthermore, as states modernize legacy systems and integrate AI, they face impending regulatory requirements, including compliance with the U.S. Department of Justice’s Title II ADA final rule, which mandates accessibility in web content and mobile applications for individuals with disabilities by April 2026. North Carolina is working to align its digital services in compliance with this deadline.
With the deadline approaching, accessibility has surged in priority on NASCIO’s agenda, which raises concerns for states managing extensive digital content that requires compliance. “Some states may have delayed action on this front, potentially leading to anxiety over their readiness,” Robinson observed, emphasizing the urgency of these regulatory challenges.
