Agency of Digital Services asks Legislature to advance $15 million to shift IT billing model and standardize services

The Agency of Digital Services asked the Vermont House Appropriations Committee on Feb. 12 for a $15 million transfer in fiscal 2026 to begin phasing in a standardized enterprise billing model intended to reduce unpredictable interagency chargebacks and make core technology services uniform across state government.

The request is part of ADS's FY26 budget presentation to the committee. Denise Riley Hughes, secretary for the Agency of Digital Services and state chief information officer, said the agency’s FY26 base budget is “just under $138,000,000,” with roughly $133,000,000 attributed to the primary internal service fund that supports statewide communications and information technology. She and Kate Slocum, ADS chief financial officer, told members the $15 million would be a first-year subsidy to move core services out of time-and-materials demand billing and into a Core Enterprise Services model.

ADS said the transfer would “buy down” next year’s invoices so agencies are not hit with a sudden increase in charges for services consumed this year. “The $15,000,000 essentially buys down the SLA, which would be a future invoice for '27,” Slocum said, describing the transfer as a two-year phase-in that lets ADS normalize charges for baseline services such as network access, help desk support, identity accounts and baseline security.

In its presentation, ADS framed the request as a move from the current allocation-and-demand model toward a standardized baseline so all agencies receive the same level of foundational IT services at the same rate. The agency reported it currently supports about 12,000 users across state government, manages 241 public-facing services on vermont.gov, and has identified $45 million in cumulative enterprise cost savings since its 2017 creation; ADS said it added about $3.4 million in savings and cost avoidance in the last year.

Committee members pressed ADS on several operational issues tied to the proposal, including escalating cyber threats, video evidence storage bills for state’s attorneys and sheriffs, and how federally funded projects intersect with the IT Modernization Fund. ADS said cyber incidents and online transactions are increasing in volume and sophistication, and that internal user practices are a common source of risk; Hughes said ADS follows a zero-trust posture and has issued a new security foundations policy shared with other branches of government.

ADS also described the IT Modernization Fund (a one-time $67 million general-fund transfer made in 2023) and showed a list of projects currently supported by the fund, including DMV core modernization (phase 1 completed; phase 2 in IT Mod), AGO case management, WIMS, network modernization and others. ADS said the fund sits under ADS’s budget and is used to pay the IT portion of modernization projects (vendor and ADS staffing costs), not business-side program costs that remain in the operating departments. ADS reported a substantial unspent balance remains in the IT Mod fund and that interest is accruing on that balance.

Several committee members asked whether agencies could absorb the new billing structure from different funding streams (federal, general fund, special funds). Slocum said the agency has discussed the change with partner agencies and found no immediate “red flags,” but that agencies will need to analyze allowability and fund sources at the program level. The agency also noted some large federally funded projects (child welfare, unemployment insurance, other AHS projects) typically rely on federal matching rules and are handled separately from IT Mod fund appropriations.

ADS stressed the phase-in is intended to make IT costs more predictable and equitable. Under the current model, Slocum said, agencies that can pay for time-and-materials resources receive prioritized attention; the proposed model would make baseline services available to all agencies regardless of their capacity to pay extra for ADS staff time. ADS projected that as about 50 projects move from implementation into maintenance and operations, ADS demand-side costs will decline, and that in FY27 the second phase of the model would further normalize billing rates.

Committee members asked for additional detail on implementation, how the transfer would be applied to agency bills, and whether the change would shift costs into different funds. ADS offered to provide more specific analyses showing how the change affects agencies by fund source and said staff will continue working with the Legislature and the Department of Finance and Management to design an equitable approach. No formal vote or appropriation occurred during the hearing.

The presentation also highlighted a set of operational successes ADS cited for the past year: rapid implementation of a Summer EBT rollout affecting roughly 40,000 children, launch of a new Secretary of State business filing system, DMV core modernization phase 1, consolidation of multiple call centers into a single cloud-hosted contact platform, release of a Cyber Advisory Council report, and full migration away from in-house physical data centers to hosted and public-cloud services. ADS told members it expects several IT Modernization Fund projects to complete by the end of calendar 2026.

ADS asked the committee to consider the FY26 transfer to enable a phased move to the Core Enterprise Services billing model and to reduce unpredictable “BAA” (bridge/one-time) requests across agency budgets. Committee members signaled interest and asked for follow-up detail about agency-level impacts, fund-source allowability and precise implementation steps. ADS said it would return with those details.

The committee did not take action at the Feb. 12 hearing; ADS remains available to answer follow-up questions and provide further cost and funding breakdowns to the Appropriations Committee.