House Appropriations hears plan to use $15 million to change ADS billing method

The House Appropriations Committee on March 13 reviewed a plan to transfer $15,000,000 to the Agency of Digital Services’ Communications and Information Technology Fund to change how the agency bills state departments for certain IT services.

"The $15,000,000 transfer that we're here discussing today...will be a 1 time 15,000,000 transfer, to the Communications and Information Technology Fund to help the, to facilitate the, a change in billing practices at the Agency of Digital Services," James Duffy, officio analyst with the Joint Fiscal Office, told the committee.

The measure is a one‑time transfer in the governor's fiscal year 2026 recommendation. Joint Fiscal Office staff said the money would be used to shift roughly $15 million of costs now billed on a demand, in‑arrears basis into the communications and information technology (CIT) fund’s core enterprise services (CES) allocation so those costs are paid in the same year the services are used.

The move, officials said, is intended to reduce accounting complications and chronic deficits that arise when departments are billed a year after services are delivered. "Billing in arrears really makes it hard to put together an accurate budget a year in advance," Duffy said. Committee members heard Microsoft Office licensing and similar enterprise services cited as examples of costs that are easier to allocate on a per‑user or enterprise basis than through detailed post hoc billing.

Joint Fiscal Office and Agency of Digital Services staff described internal service funds such as the CIT fund as common state government cost‑allocation tools that let executive‑branch IT and other centralized services spread costs across general, special and federal funding streams. The JFO officials said the CIT fund is the primary funding mechanism for much of ADS’s work and that ADS uses multiple allocation methods — including a headcount approach for enterprise services and a demand‑driven, timesheet approach for bespoke work.

Committee members asked how JFO and ADS arrived at $15 million and whether that amount would be sufficient. "I think our work has found that 15,000,000 is about the right number in terms of dealing with this," Duffy said, adding that other estimates cited in committee discussion suggested roughly $30 million to $50 million could be involved in a multi‑year transition depending on how broadly the state reclassifies services.

Officials said the transfer would provide short‑term liquidity so departments do not face a double charge during the switch from arrears to more real‑time billing. One participant described the need for temporary liquidity as a bank‑account timing problem: to move the payment date forward you must be able to make two payments in close succession during the transition.

JFO staff pointed the committee to a recent budget adjustment history: about $2.1 million of service‑level agreement (SLA) changes were handled through the budget adjustment act in the prior year, and the proposed transfer aims to reduce such recurring BAAs tied to ADS arrears billing.

Several members probed whether departments will ultimately pay more under the new methodology if prior years were billed at lower, outdated rates. "If you're billing at $10 every time it costs you $15, that deficit...is gonna continue to grow," one committee member said; ADS and JFO staff agreed the multi‑year plan would also need to address rate setting and undercharged rates that have not kept pace with wages and costs since 2017.

JFO and ADS said the $15 million is intended to be one step in a multiyear strategy to reduce deficits, increase transparency and improve predictability. They noted additional work remains to: (1) identify which services should move from demand to CES allocations, (2) model the distributional effect on departments and funding streams (state versus federal), and (3) adjust rates so the CIT fund recovers costs without recurring deficits.

No formal vote was taken on the transfer during the committee meeting. Committee members asked JFO and ADS to provide further details on fund balances, alternative transfer amounts (for example, what a $10 million or $30 million transfer would accomplish), and the planned metrics for tracking cost savings after implementation.

The committee scheduled follow‑up work and signaled it expects to track reductions in future budget adjustment act requests as a measure of success.

The discussion concluded with JFO staff reaffirming that the change is intended to increase transparency, improve budgeting, and allow the state to leverage enterprise purchasing and administrative efficiencies over time.