New York State has embarked on a plan to shift a number of jobs filled by IT contractors and consultants to the state payroll as part of an effort to save millions of dollars.

As many as 500 new state IT jobs may be created under a new in-sourcing program that was recently approved by the legislature and backed by Gov. David Paterson.

This law creates "term appointments" for state IT workers, which strip away some hiring and firing rules that apply to permanent workers. The maximum tenure for "term appointments" is five years.

The state estimates that it can save approximately $25,000 annually for each contracting position that is shifted to the state payroll. The annual savings is pegged at as much as $15 million, but that estimate is contingent on whether the contracted positions can be replaced.

"I think most managers here would be very happy if we didn't need to outsource," said Mark Leinung, deputy director for state operations, said yesterday in a presentation to state managers that was made available on the Web.

The state may still turn to outsourcers in cases where it lacks the expertise needed for certain jobs, said Leinung. However, he added that the state plans to use some of the money saved to boost its IT training programs.

The term appointment law allows the state to hire workers that haven't taken a civil service exam, or if they have, regardless of the grade. The workers will be treated as "at will" employees, increasing the state's ability to terminate their employment, according to state documents.

The state has contractors now using H-1B visa holders, but the state is recommending that any state agencies "avoid hiring candidates who require visa adjudication" to the term positions.

As an example of how the move would cut costs, proponents of the law say that a state IT worker might earn an average of $55 an hour, including benefits, while the state pays its contractors an average of $128 an hour for workers in similar jobs. The state built a worksheet to calculate the in-source cost savings.

Salaries for IT jobs filled by "term appointments" will range from just over $49,000 to $96,000, according to a state fact sheet. The benefits package, including medical and paid time off, increases those totals by about 48%. These term employees can also enroll in New York state retirement systems.

New York, like many other states, is trying to close a multi-billion dollar budget deficit.

Whether government workers are less costly than contractors doesn't have a conclusive answer, said Ray Bjorklund, a vice president at consulting firm Federal Sources Inc. in McLean, Va. In the short-term, the outsourcing contracts may appear to be more expensive -- and sometimes are. But a temporary appointment who is ultimately hired to a full-time post could prove more costly than a consultant in the long term.

Moreover, state employees need equipped office space as opposed to contractors who may do most of their work remotely, perhaps out of state. On the other hand, on-site workers would contribute directly to the state's economy, said Bjorklund.

The idea of in-sourcing began gaining traction at the federal government level in the latter years of President George W. Bush's administration and accelerated after the election of President Barack Obama, said Bjorklund.

Government officials began to realize that outsourcing too many tasks in IT and elsewhere could lead to the loss of expertise in key areas. He said many officials concluded that there is a need to "protect inherently governmental functions from compromise."

A recent survey of 11 New York state agencies found multiple IT contracts with a total value of $302 million.

Patrick Thibodeau covers SaaS and enterprise applications, outsourcing, government IT policies, data centers and IT workforce issues for Computerworld. Follow Patrick on Twitter at @DCgov, or subscribe to Patrick's RSS feed . His e-mail address is pthibodeau@computerworld.com.