In June 2025, Ernst & Young released its Government State and Local 2025 Survey Findings, revealing that state and local IT decision-makers are under growing pressure to balance cost control with technology modernization. For the current fiscal year, cost reduction was cited by 56% of respondents as their top priority, closely followed by cybersecurity, cited by 54%. These short-term goals reflect a reactive environment where public agencies must deliver services efficiently while safeguarding against escalating cyber threats.

Yet even as agencies focus on immediate constraints, the long-term vision is clear: modernization is coming— although with significant barriers. According to the survey, just 47% of respondents rank legacy system upgrades as a current priority, but 55% expect it to be their top focus within five years. However, roughly 70% also report that it’s too expensive both to modernize legacy systems and to migrate away from them. This dual financial barrier underscores the complexity of government IT transformation: agencies can’t afford to stand still, but they also can’t afford to move forward easily.

Deloitte’s research strongly supports these findings in its Government Trends 2025 report and related articles. Like EY, Deloitte recognizes the high cost of traditional system upgrades but positions artificial intelligence (AI) as a strategic lever for accelerating modernization. Through what Deloitte calls the “Intelligent Core,” agencies can use AI to automate outdated processes, refactor legacy code, and implement intelligent overlays that avoid full replatforming—allowing them to modernize gradually and cost-effectively.

Both firms also see AI as a cornerstone of future operations. EY’s survey shows that 45% of agencies currently use AI tools, while 39% have adopted generative AI—figures expected to rise to 48% and 45%, respectively, within five years. Top AI-related priorities include developing a comprehensive strategy (49%), upskilling staff (49%), and building public trust in AI applications (48%). Deloitte’s Scaling Gen AI in Government report echoes these themes, emphasizing that successful AI implementation depends on three critical investments: strategic planning, workforce readiness, and strong governance frameworks. Without these, agencies risk implementing AI in limited pilot programs that fail to expand effectively or earn public confidence.

Together, EY and Deloitte’s findings offer a comprehensive roadmap for public sector innovation. Agencies are navigating an environment where fiscal prudence, operational resilience, and technology modernization must coexist. AI, once seen as a distant concept, is now central to reconciling these competing demands. And while the road to modernization is steep, the convergence of strategy, workforce training, and AI-driven solutions points to a more agile, adaptive, and efficient future for state and local government technology.

More information on the EY Government State and Local 2025 Survey Findings can be found, here.