Ha.. something I can actually answer... as I do this for a living.
Records retention policies are put in place due to a lot of things. Yes 10 years ago everything was on paper.. before that is was Fiche. (radox... gross). The biggest problem is you are not just storing data on a computer.. you have documents and pictures that have to go through workflow and all sorts of other stuff... its actually really time consuming to get stuff into a computer if you don't set it up right in the first place.
Secondly.. where as hard drives are cheap.. they also have to back up their data as required by law. LTO tape backups, disaster recovery plans and maintenance of those systems is where you hit the costly part. That and its the government.. so someone up high said "10 years" and everyone below follows it blindly.
Third.. all of the documents that get stored in systems require multiple indexes so that you can search on the name, document type, date etc... believe it or not.. these systems can get astronomical in size... and the bigger it gets the more unwieldy it is.
Its more just their lack of keeping up with tech though.