Joint Fiscal Office outlines how Vermont pays for IT modernization and routine services

James Steffey, senior analyst at the Joint Fiscal Office, told the House Appropriations Committee on April 9 that Vermont separates IT spending into routine operating costs and one‑time modernization projects and uses different funding approaches for each.

Steffey said operating costs — for items such as email, internet connectivity and baseline cybersecurity services — are typically “folded into existing state budgeting practices fairly well” and are often covered through Agency of Digital Services (ADS) billing to agencies via an internal service fund known as the Communications and Information Technology (CIT) fund. He explained that the CIT fund allocates core enterprise costs on a per‑head basis and bills demand‑driven services (for example, ADS staff hours or extra Microsoft licenses) through a separate “demand” category that can be used to recover costs for bespoke projects.

The Joint Fiscal Office presentation distinguished those annual operating expenses from major IT modernization efforts — large, discrete projects to replace legacy systems. Steffey said the state relies chiefly on one‑time appropriations for such projects. The highest‑profile vehicle is the Technology Modernization Special Fund (Tech Mod Fund), created in fiscal 2022 to finance IT upgrades across state government. "There have been three transfers to the Tech Mod Fund totaling about $77,000,000, and just over $50,000,000 of that has been appropriated for specific projects," Steffey said.

Steffey noted that projects authorized under the Tech Mod Fund require additional approvals: project expenditures must be authorized by the General Assembly and then approved by the Joint Information Technology Oversight Commission (JITOC) before funds are disbursed. He also said that the tax department operates a narrower example of a recurring special fund — the tax computer modernization special fund — which receives a very small, dedicated portion of tax revenues to support its own systems.

Committee members raised common concerns about using one‑time appropriations for modernization. Representative Tiff (first name used in the transcript) and Representative Harrison (last name referenced in committee remarks) expressed frustration that deferring upgrades can increase costs and cause the state to miss higher federal matching opportunities. Steffey responded that states nationwide face the same tradeoffs and that "no one" approach has solved the tension between finite annual budgets and the episodic, often multi‑million dollar cost of replacing legacy systems.

Steffey also described visibility limits: while ADS maintains five‑year strategic plans for agencies, he said there is not a single, centralized catalog of every critical application across state government and that ADS does not have perfect visibility into all legacy systems. He defined “legacy” systems in the presentation as older software that may still operate but “can no longer meet evolving user demands,” creating brittleness when requirements change.

Steffey outlined examples of recent modernization projects that have used one‑time funding, including unemployment insurance modernization, the DMV modernization, and an enterprise resource planning (ERP) financial system upgrade. He said roughly five or six projects have been authorized so far under the Tech Mod Fund. On other states’ approaches, Steffey said jurisdictions have tried revolving funds, competitive application processes, and mixed recurring/one‑time models but that no single model has emerged as uniformly successful.

Committee members asked whether modernization produces measurable cost savings. Steffey said ADS publishes an annual report and dashboard that attempt to measure asset cost savings and that some savings are difficult to quantify because IT work can shift non‑IT labor hours rather than eliminate clear line‑item costs.

Steffey summarized: "IT operating costs and modernization costs are expensive and complicated and ever changing." He offered to provide the committee with additional state and national examples and the slide deck used for the presentation.

The committee did not take formal action on funding during the hearing; Steffey was presenting to inform future deliberations.