IT Modernization in 2026: Progress, Challenges, and What’s Next

In 2024, we examined the most critical IT challenges facing state and local governments, namely aging legacy systems, vulnerable cybersecurity, tight budgets, and the widening customer experience (CX) gap between organizations with unified communications platforms and those without. For 2026, we’re broadening our focus to include the private sector as many businesses are facing similar modernization issues.

Today, the same challenges remain, but the stakes have been raised. The option to incrementally modernize is beginning to close, and legacy systems are no longer just a source of inefficiency; they’ve become a barrier to AI adoption, an obstacle for omnichannel communications, and a liability to cybersecurity.

The good news is that the path is clearer now, and the technology to get there is more accessible than ever.

Where Modernization Stands in 2026

While modernization has been underway for the last twenty years, 2026 represents a turning point where the cost of inaction may overtake the cost of change. Aging legacy systems are not only unable to provide the level of customer service that most people expect, they are actively blocking the adoption of AI technologies that offer game-changing efficiencies and cybersecurity upgrades.

This is largely because fragmented systems are unable to provide the holistic data foundations required by advanced AI solutions. Siloed data is particularly common in and problematic for the public sector as many of those systems were built program-by-program over decades.

On the other hand, cloud adoption has become nearly universal—even for the public sector. According to Business Wire, 98% of public sector organizations have adopted the cloud, at least in part, and 94% of public sector leaders believe that continued cloud adoption is critical for their agencies.¹ In 2024, the burning question to answer was how much modernization was truly necessary. Today, the question is which systems need to be modernized first and how to do so without interrupting services.

AI Adoption Has Become the Top Priority

For the past 12 years, the National Association of State Chief Information Officers (NASCIO) has ranked cybersecurity as the top priority for government technology planning. In 2026, AI adoption became the number one policy and technology priority.² Advanced AI systems, in particular agentic AI, can alleviate the budget constraints many agencies and organizations face by augmenting their workforces. Instead of hiring new full-time employees or engaging specialist contractors, advanced AI systems can perform procurement and contract review, fraud detection, application processing, and many other multi-step administrative processes.

As stated above, the principal obstacle is data. AI systems cannot be deployed effectively without consistent standards for data sharing, quality, and security between systems. There is also a regulatory challenge that did not exist in 2024. The federal government has not only taken a hands-off approach to regulation, it has also issued an executive order that aims to stop states from enforcing their own AI regulations, adding confusion to the technical obstacles.³

Cybersecurity Remains a Critical Priority

Make no mistake, cybersecurity is not in the second spot of NASCIO’s list because the threat has diminished; AI has simply become an existential issue that affects virtually all of IT, including cybersecurity.

Cybercriminals are using AI to automate reconnaissance, increase the believability of phishing messages, and find vulnerabilities faster. 65% of organizations hit by ransomware said AI made the attack more effective.⁴

Legacy systems, which are often unpatched and incompatible with modern monitoring tools, are prime targets for these attacks. Case in point, 2025 saw a 27% increase in ransomware attacks on government agencies worldwide.⁵ Close to home for us at IPC Tech, an attempted ransomware attack on Suffolk, VA, in February of 2026 was averted, but still resulted in a data breach that affected 158,000 people.⁶

The compliance landscape is expanding in 2026 with expected security mandates for K–12 schools that cover multi-factor authentication, network segmentation, browser security, identity verification, and zero-trust principles.⁷ Nearly all of these hinge on identity, which is something many legacy systems were never designed to manage.

An additional complication for cybersecurity is reduced financial support for modernization. Federal grant sponsors like the Cybersecurity and Infrastructure Security Agency (CISA) have trimmed back their offerings and the State and Local Cybersecurity Grant Program may not even exist going forward.⁸ In 2024, we recommended a multi-layered defense that centered on advanced firewalls, intrusion detection, endpoint protection, regular assessments, and ongoing staff training. Today, those recommendations have shifted from an aspirational standard to an immediate requirement.

The Window for Communications Modernization May Be Closing Soon

Many organizations—both public and private—rely on outdated PBX phone systems that cannot integrate advanced communications tools, provide unified communications capabilities, or adequately support hybrid and remote workers. That is a big enough issue on its own for communications, CX, and operations, but things may get even worse. Major carriers have begun retiring traditional copper phone lines across much of the country. For example, AT&T plans to retire most of its copper network by the end of 2029 and Verizon filed to discontinue copper phone service at about 750,000 locations across nine states and Washington, D.C., by as early as November 30, 2026.⁹,¹⁰

These factors are accelerating the need to adopt Unified Communications as a Service (UCaaS) and hybrid solutions. If an organization planned a phased approach to modernization, where old systems are kept running while new systems are implemented and tested, the window to begin is closing rapidly.

What’s Next: Modernization Is Mission Critical 

Back in 2024, the top modernization challenges were updating legacy systems, upgrading data management and analytics, hardening cybersecurity, and expanding communications capabilities. These were tasks where the payoff was an improved, more reliable IT infrastructure. Today’s modernization challenges are no longer nice-to-have improvements, but rather are mission-critical imperatives.

AI adoption is essential for agencies and organizations to augment their workforces, but it cannot be deployed on siloed data. Cyber threats are growing and require increasingly sophisticated solutions that cannot be deployed without modern identity infrastructure. Outdated phone systems without unified communications capabilities are not only a liability for CX, they may not even function at all in the near future.

The silver lining is that these challenges have synergistic solutions. Unified data, modern identity controls, and cloud communications build on one another, so progress on one accelerates the others. Also, organizations that start now can still modernize on their own timeline, but that window is beginning to close.

If you’re working through any of these challenges, IPC’s technology evaluation and consulting team can help you decide where to begin and how to pace it within your budget. With decades of experience across cybersecurity, cloud, and telecommunications solutions, we’ve helped agencies and businesses of every size and shape modernize without disrupting the services people depend on.