While the vast majority of government entities maintain a roadmap for technology modernization, deep-seated anxieties regarding talent retention, severe budget constraints, and the immense weight of legacy systems continue to threaten public sector digital transformation. According to a comprehensive new report released by Ernst & Young (EY), state and local government leaders are increasingly caught between the urgent need to innovate and the grinding reality of maintaining outdated infrastructure.

The findings, published on November 12, 2026, shed light on the complex hurdles facing public sector agencies as they attempt to balance routine IT maintenance with forward-looking digital initiatives. While strategic plans for technological advancement are widely prevalent across government offices, the day-to-day execution of these roadmaps is frequently compromised by institutional limitations, funding deficits, and a shortage of specialized technological talent.

The Heavy Burden of Legacy Infrastructure

At the heart of the public sector’s technological struggle is an overwhelming reliance on aging, legacy information technology systems. State and local government leaders are increasingly feeling the heavy operational weight of these outdated platforms, which often consume disproportionate shares of annual operating budgets.

According to the EY survey data, nearly 40% of responding government agencies reported that they spend more of their annual IT budget on the ongoing maintenance of legacy systems than they do on deploying new upgrades or developing innovative digital tools. This resource allocation imbalance traps many agencies in a continuous cycle of keeping the lights on rather than investing in strategic, future-proof solutions.

Furthermore, the risks associated with this technological lag are alarmingly high. Three-quarters of the survey respondents—75%—warned that their continued reliance on legacy technology could ultimately lead to significant operational failures. These failures threaten critical public services, administrative workflows, and the security of sensitive citizen data.

Compounding the financial and operational strain, nearly three-quarters of the surveyed government leaders reported feeling entirely overwhelmed by the sheer volume, complexity, and scale required to replace these older systems. Transitioning away from decades-old software and hardware requires a monumental expenditure of time, capital, and specialized human resources—commodities that are often in chronically short supply within the public sector.

Justin Fishman, the EY Americas government and public sector state, local, and education leader, emphasized the holistic approach required to overcome these systemic barriers. In an October 29 news release accompanying the report, Fishman noted that modernization requires agencies to plan well beyond individual, isolated technology investments. Instead, leaders must carefully consider the comprehensive capabilities needed to execute and sustain those efforts over the long term.

Fishman explained that this strategic foresight includes understanding how critical variables—such as funding streams, talent availability, legacy environments, and organizational change management—directly affect an agency’s ability to transition from narrow, individual initiatives to broader, agency-wide modernization transformations. Without addressing these foundational elements, agencies risk stalling their digital journeys before meaningful progress can be achieved.

Widespread AI Adoption Meets Readiness Realities

While traditional IT infrastructure remains a persistent anchor, the public sector’s engagement with emerging technologies tells a markedly different, yet equally complex, story. The EY survey revealed that artificial intelligence piloting and active use are already widespread across state and local government agencies. Furthermore, the majority of public sector leaders report witnessing tangible benefits from these early deployments.

However, this enthusiasm is tempered by lingering apprehensions. Government officials reported significant concerns regarding AI funding, underlying digital infrastructure, and overall data readiness. These findings echo previous research from earlier in the year, including a survey conducted by Euna Solutions, which similarly concluded that public sector interest and adoption rates in artificial intelligence are rapidly outpacing actual institutional readiness.

The gap between enthusiasm and preparedness is particularly visible in the realm of organizational policy and governance. While the Ernst & Young survey found that an impressive 94% of responding agencies had established some form of an artificial intelligence governance policy or strategy, only 51% of those respondents described their approach as comprehensive and unified. This disparity highlights a critical vulnerability as agencies begin to scale their reliance on advanced automated tools.

As government bodies venture deeper into advanced technological territory, the stakes for robust oversight are rising exponentially. Steve Harvey, a principal and government and public sector system integration (SI) leader for state, local, and education at Ernst & Young, underscored the urgency of establishing rigorous controls.

In a public statement, Harvey noted that as agencies move rapidly toward generative and agentic artificial intelligence systems—capable of performing increasingly consequential, autonomous work—they require governance frameworks that explicitly define accountability. These frameworks must establish appropriate operational boundaries and produce verifiable evidence that the technology is functioning precisely as intended.

Harvey asserted that robust artificial intelligence governance must become an absolute core pillar of government modernization efforts moving forward. Within the context of federal and local policy discussions, system integration and advanced capabilities are increasingly viewed through the lens of emerging frameworks, including the terminology surrounding super intelligence emphasized in recent federal executive actions.