This seems very ridiculous. Google hosting government services, especially at the typically non-confidential city/state level, is less of an issue than hosting services for private companies. Almost everything those governments do is supposed to be open to the public. There is nothing (or at the most, very little) to compromise.
Any organization, public or private, should be backing up their Google-provided services on their own.
I totally agree with your overall conclusion that the article is silly alarmist. However, even government bodies that don't deal with "secret" information house lots of "sensitive" data whose public release would be a big deal. Departments / agencies have lots of confidential and proprietary business information of the private companies they regulate and most agencies have truckloads of personal data belonging to their constituents.
To say that Google Apps, etc is a new and unique threat to it is silly though. At this point between contractors and private infrastructure providers there is little or no government data that is handled only by government employees.
edit: Also, on the federal level one of the big pushes of the new CTO is for GSA to build out its own "cloud" of datacenters with which to host applications and house data for the rest of the executive agencies. While the government might well hire could services from private companies, the goal is to warehouse data inside a government controlled environment.
Yes, seems a bit one sided, Google should be able handle
technology advances fast and cheaper than the government.
Security, access issues etc, should be spec'ed like everything else in the government.
It's worth keeping in mind that when Google proudly proclaims, "hey, so and so many people have gone Google," they've chosen their definition very carefully:
"The reference to Going Google refers to US state governments using one or more of Google’s enterprise products..."
Let's not forget that Google's enterprise products include their search appliances, Google Earth (to some extent), etc. This isn't by any means saying that upwards of 50 percent of state governments are using Google Docs.
Good data in the post on Google (people are definitely more wary of them now that they announce more and more projects in more and more areas of internet architecture), but small fries compared to the military contractor complex's influence on the federal government, in northern Virginia and Maryland...
Any organization, public or private, should be backing up their Google-provided services on their own.