San Jose lies in the heart of Silicon Valley, but you'd never know it to look at the IT tools available to city employees. The standard desktop in the city's government offices is an outdated PC running Microsoft's Office 2003 suite and Outlook 2003 e-mail client.

Steve Ferguson, San Jose's CIO and chief information security officer, knows that he needs to upgrade those systems, but years of IT budget cuts -- a reflection of city budget deficits going back to the dot-com bust -- have made that impossible. San Jose's (at the time) 100-person IT department lost 14 positions last year and another dozen this year. Going into fiscal 2010/2011, Ferguson's been asked to identify another 35% in IT-related costs that could potentially be lopped off.

Given the ongoing austerity measures, San Jose officials took note last fall when they saw that Los Angeles anticipates saving $5 million by switching from Novell's GroupWise desktop software to Google Apps. Might San Jose save millions too?

Ferguson crunched the numbers and determined that San Jose's existing bare bones e-mail system is already cheaper than what Google's providing to LA. San Jose's on premise Exchange/Outlook environment costs $1.88 per user per month, while LA is forking over $3 to $4 per user per month for Google's e-mail service. Even at the low end of what LA is paying, San Jose's annual costs would jump $160,000 in Google's cloud, Ferguson calculates.

But Ferguson will be the first to admit that San Jose has had to make trade-offs with its bargain basement e-mail platform. The city's seven-year-old Microsoft apps lack the newest features and productivity improvements, so workers are essentially handicapped by the tools they use daily to get things done. San Jose's IT department has stretched PC replacement cycles "to the limit," and when new PCs are brought in, IT staffers remove the new software that comes with them and replace that with Office/Outlook 2003 to ensure compatibility with the installed base.

"The model we currently have feels way too risky to me running a mission-critical service like e-mail in the tenth largest city in the country," Ferguson says.

So, despite the ongoing budget pressure, Ferguson is evaluating cloud-based e-mail and other apps as a potential way of bringing city desktops into the present and keeping them up to date with new capabilities delivered over the Web. San Jose is three months into a trial of Google Apps. The city has some experience with software as a service, tapping into a parks and recreation app and a housing department app that are hosted.

Ferguson does have one key concern about moving to the cloud, and it's probably not what you think. It's not security ("I believe they're addressing the security issues," he says) or reliability ("I think the cloud is going to be as reliable as what we have today"). Rather, Ferguson wants to be sure that any subpoenas or other legal requests involving city data in the cloud are handled by the city's lawyers, not by the cloud service provider. The city's attorneys are reading the fine print on Google's service contract to ensure that would happen.

No decision has been made by San Jose on whether to move to the cloud or which cloud service it might use. Ferguson still needs to develop a business case, and get support for it, before San Jose does anything. But the city seems in desperate need of an enterprise-wide upgrade, and Web apps would be the quickest route there. In addition to e-mail and new productivity apps, Ferguson says collaboration tools and mobile computing are high on the wish list.

Make note, however, that cloud computing won't necessarily be cheaper than San Jose's current desktop environment, though it would almost certainly be better. The expectation that the cloud is always cheaper is a common misconception, one that CIOs should address up front if they want to avoid disillusionment later. (See "Claims of Government Cloud Savings Don't Add Up.")

Either way, other benefits may argue in favor of a cloud approach. They include replacing old apps with feature-rich new ones; fast and easy enterprise-wide deployments and upgrades; shifting system administration to the cloud service provider; scalability; and even, in some cases, security and reliability that's better than what you can do on your own.

Silicon Valley's tech companies are certainly embracing the cloud model. Maybe it's not long before San Jose does, too.

John Foley is editor of InformationWeek Government snd his Government Technologist column is a regular feature.

To find out more about John Foley, please visit his page.