Agentic AI
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Artificial Intelligence & Machine Learning
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Next-Generation Technologies & Secure Development
AI Is Now the Top Focus for Modernization to Relieve Budget, Staffing Pressures
State CIOs have a lot on their plates as they look toward 2026. These technology leaders need to balance the demands of citizens and their own agencies to provide rapid digital transformation with limited budgets, growing cybersecurity risks and flat workforce growth. As a result, CIOs are placing big bets on artificial intelligence and generative AI to help push government IT forward and innovate.
See Also: A CISO’s Perspective on Scaling GenAI Securely
According to the National Association of State CIOs, this year AI tech – including generative and agentic AI – is the top strategic initiative for state CIOs – marking an “unprecedented” shift in IT priorities, said NASCIO Executive Director Doug Robinson. In fact, AI first appeared on the organization’s annual survey of state and territory CIOs just three years ago.
This overnight strategy shift shows that CIOs are recalibrating the way they deliver services, using AI, automation and modernization projects to mitigate the constraints they face from stagnant budgets, calls to do more with less and growing demands for digital transformation.
The financial challenges facing state CIOs in 2026 are daunting. Gartner projects that U.S. state and local government IT budgets will increase by an average of just 2%, while the number of technology workers is expected to remain flat. At the same time, CIOs are being forced to adapt in real time.
And according to Gartner, 94% of state and local government CIOs and technology executives have already changed their priorities and projects on the fly during 2025. State organizations are moving away from traditional calendar-based budgeting cycles to a more dynamic system in which CIOs are making decisions on resource optimization and where to deploy AI throughout the year.
Cybersecurity was ranked as the second overall strategic priority, followed by “budget, cost control and fiscal management.” The financial pressures will intensify as the devolution of federal responsibility shifts costs to the states, Robinson said. “The big squeeze comes in 2026 and 2027.”
Internal AI Projects Lay the Foundation
While the potential benefit of AI to citizen services, such as a better DMV experience or more searchable websites – is on the horizon, in the near-term, many states are seeing internal benefits from AI.
“Right now, the predominant use of AI, GenAI … is in document generation and policy analysis,” Robinson said. “It’s all focused on internal review activities and internal productivity.”
Minnesota State CIO Tarek Tomes sees AI as a force multiplier rather than a replacement for public servants in his state. “We’re scaling secure, responsible AI so our teams can work smarter and deliver more value,” he said. “These tools don’t replace our expertise. They extend it, giving our teams more time to focus on what people need most: human connection, compassion and good government.”
Minnesota is projecting a return on investment for its AI innovations. For example, the state’s AI-enabled Legislative Tracker within the Department of Revenue automates the review and summarization of thousands of pages of proposed tax legislation. As a result, staff can focus on deeper analysis and provide faster guidance to policymakers.
North Carolina State CIO Teena Piccione said she sees AI as a “value add for state employees,” aimed at simplifying processes, boosting efficiency and freeing staff to focus on human-intensive work. To help mitigate public distrust and ensure safe AI adoption, the state has created an AI Leadership Council and recently hired its first Deputy Secretary for AI and Policy.
The Modernization Mandate
Modernization ranks fourth among NASCIO’s strategic priorities, and state leaders say they’re moving the focus toward enabling mission-driven work and away from managing technology overhead.
“Modest growth projection means we need to be more intentional – not slower – in how we modernize,” Tomes said. “Through the Technology Modernization Fund, Minnesota focuses resources on the highest-impact and highest-risk systems rather than spreading funding thin across many small efforts.”
Minnesota is deploying shared platforms and reusable solutions, scaling modernization at the enterprise level while targeting high-risk systems. The state’s goal is to deliver measurable outcomes, strengthen reliability and security, and reduce long-term operational costs, he said.
North Carolina applies similar discipline. Projects are filtered through several lenses: impact, risk and security, modernization ROI or efficiency gains and readiness, Piccione said.
“We make sure that we sequence projects so that we are prioritizing a successful modernization rather than prematurely starting a project just to say that we are modernizing,” Piccione said. The focus is on initiatives that deliver the “biggest bang for our buck and make the biggest difference for our state.”
Cybersecurity, Resilience and Compliance
Along with these new investments in emerging AI technology, cybersecurity and risk management are also top priorities, with most expecting AI to play a key role in defending the enterprise.
“Almost all the states are using GenAI today in their cybersecurity protection, their threat posture,” Robinson said. “On the other hand, the bad actors are using GenAI to enhance their attack capabilities, building more sophisticated phishing and social engineering attacks.”
For example, Minnesota is applying AI to strengthen cyber readiness to respond faster, identify vulnerabilities earlier and protect systems and data across the enterprise, Tomes said.
As they to modernize legacy systems and introduce AI, states are also grappling with a major regulatory deadline. In April 2026, states must comply with the U.S. Department of Justice’s Title II ADA final rule mandating that web content and mobile apps are accessible to people with disabilities. Piccione confirmed that North Carolina is aligning all state digital services to meet the April 2026 compliance deadline.
Accessibility jumped from 10th to sixth on NASCIO’s priority list as the deadline nears, and some states have millions of web pages that need to be compliant.
“Some of them have been kicking the can down the road,” Robinson said. “They maybe have some anxiety about their level of readiness.”