The Trends Reshaping the Public Sector and How the Industry is Adapting

Every public sector leader recognizes this all-too-familiar scenario: A valued team member announces their retirement, taking decades of institutional knowledge with them. Hiring a replacement isn’t easy. The new hire needs to be digitally savvy but also understand the unique complexities of public sector processes. Meanwhile, the organization’s tech modernization timeline keeps stretching while cybersecurity risks evolve. And, of course, the budget remains tight.

This scenario is playing out across public sector organizations of all sizes, as three key trends converge to create broad implications for day-to-day processes and long-term decision-making:

• Workforce Demographics: The average age of public sector employees is higher than in the private sector. For example, only 7% of employees in the federal workforce are under age 30, compared to 23% in the private sector. An aging workforce creates challenges as the industry looks to transfer institutional knowledge to the next generation while struggling to compete for skilled talent.
• Digital Acceleration: Although the public sector has traditionally been slower to adopt technology than the private sector, public sector leaders are now making technology investment a top priority. They view it as imperative for data security, automation and overall efficiency. IT spending in the public sector is projected to nearly double from $9.6 billion in 2023 to $18.3 billion in 2032.
• Resource Management: Budget constraints are a fact of life for public sector organizations. The combination of inflation, rising deficits and looming budget cuts will affect strategic priorities and spending in the years ahead. As a result, organizations are exploring new options, such as strategic outsourcing and shared services, to enable them to do more with existing resources.

4 Ways Public Sector is Tackling the Challenges

An aging workforce, technological advancement and fiscal realities create ripple effects across all facets of public sector organizations. For practical examples of how these challenges are impacting the industry, read on for insights on how organizations are adapting processes and strategies in four functional areas.

1. Addressing ever-evolving cyber risks

Cyber threats are a persistent risk for public sector organizations. Cyber attacks are increasingly complex and sophisticated, with artificial intelligence (AI) amplifying cybercriminal capabilities. At the same time, new and enhanced privacy regulations and cybersecurity compliance requirements add a degree of difficulty. Keeping up requires a strategic approach and constant diligence.

Public sector organizations face difficulties competing for top talent against private sector companies. As a result, many organizations outsource some IT and cybersecurity functions to gain the specialized expertise they need. “Partnering with outside cybersecurity experts can help public sector organizations assess and test their strategies, address gaps, enhance policies and implement employee training,” says Tiffany Garcia, Managing Director of CBIZ Cybersecurity. “Outside experts can help with basic blocking and tackling, too. In recent years, we’ve seen a significant increase in public sector organizations implementing multi-factor authentication (MFA). The use of MFA adds a critical layer of protection, with research showing that MFA reduces the risk of accounts being compromised through cyberattacks by 99%.”

“Over the last few years, MFA has become a requirement as organizations seek and renew cybersecurity insurance policies,” says Lee Nestel, President of the Education Practice with CBIZ Insurance Services, Inc. “Organizations with MFA and other controls like frequent air-gapped backups, employee cybersecurity training and business continuity plans in place can secure lower-deductible policies. In addition, taking these steps makes organizations more prepared and better able to recover from cyber attacks.”

2. Ensuring business continuity

Cyber threats and data breaches are two of the top risks to an organization’s ability to operate. However, the public sector also faces business continuity risks due to natural disasters, public health emergencies, infrastructure failures and supply chain disruptions.

Developing – and maintaining – a comprehensive business continuity plan is critical for public sector entities to ensure they’re able to deliver essential services, meet public expectations, comply with regulatory standards and preserve public trust. Yet, a Government Accountability Office report estimates that nearly half of federal agencies do not have business continuity and disaster recovery plans in place.

In addition to having a documented plan, regular reviews, testing and updates are essential, especially as public sector organizations work with more outside vendors. “We recommend that organizations start by doing a business impact assessment,” says Jennifer Brandt, Managing Director of CBIZ Advisory Services. “This identifies the most important processes that need to continue functioning or resume promptly in the event of a disruption. The impact assessment helps evaluate the implications if employees are unable to work, if systems are not functioning, or if offices, facilities or critical business partners are not operational.”

“It’s also important to review business continuity plans at least annually or anytime circumstances that affect the plan change,” adds Kevin Wright, Managing Director of CBIZ Advisory Services. “Business continuity plans don’t just apply to disasters. Organizational consolidations, substantial system or vendor changes, and personnel changes should also trigger a business continuity plan review.”

3. Determining current valuations

As public sector organizations strive to balance reporting requirements, operational efficiency and strategic resource allocation, having up-to-date, detailed valuations becomes more important — and complex. Accurate valuations also help schools, universities and governmental units to assess the long-term impact of public programs and investments.

Public sector organizations are looking to outsourced resources for valuation services related to fixed asset inventory, property insurance and real estate purchases or sales. A primary reason is the need to analyze and provide more detailed data in order to satisfy regulatory and insurance requirements.

“Partnering with an outside expert helps public sector organizations take advantage of specialized knowledge that most don’t have in-house,” says Ron Acebal, Senior Client Executive with CBIZ Valuation. “Outsourcing can also have favorable cost implications beyond staffing. For example, access to more sophisticated analytics and expertise can uncover gaps and produce a more comprehensive valuation that can lead to significant insurance savings or uncover opportunities for more efficient asset management.”

4. Outsourcing pension administration

Pension plans remain a valuable differentiator as the public sector competes to recruit and retain talent.

Eighty-six percent of public sector workers have access to defined benefit pension plans, versus only 15% in the private sector. In recent years, many public sector organizations have been rethinking how the plans are administered.

Traditionally, many public sector pension plans were self-administered, with small and mid-size organizations using home-grown spreadsheets, MS Access databases or stand-alone legacy programs. Recently, staffing challenges and cybersecurity risks have prompted an increasing shift to self-administration using third-party software and platforms or outsourcing some or all pension administration to a third-party administrator.

“As longtime staff retire and hiring experienced pension specialists becomes more challenging, public sector organizations are looking for outsourced solutions,” explains Todd Flessner, Vice President of CBIZ Pension Administration. “Another driving force is the need for more sophisticated technology to automate processes, enhance data security and ensure regulatory compliance. Leveraging vendor technology can also enable the public sector organization to provide a more accessible online user experience.”

The public sector industry professionals at CBIZ can help you optimize your organization’s strategies for 2025 and beyond. Connect with a member of our team and gain access to more resources here.

This article includes input from Ron Acebal, Senior Client Executive with CBIZ Valuation Services; Todd Flessner, Vice President of CBIZ Pension Administration; Jennifer Brandt, Managing Director of CBIZ Risk Advisory Services; Kevin Wright, Managing Director of CBIZ Risk Advisory Services; Tiffany Garcia, Managing Director of CBIZ Cybersecurity; and Lee Nestel, President of CBIZ Insurance Services, Inc. – Education Practice.