Agency of Digital Services says year‑in‑arrears SLA billing drove $27.6 million in back charges; agency seeks more predictable model

MONTPELIER — Officials from the Agency of Digital Services told the House Appropriations Committee on Jan. 16 that a year‑in‑arrears billing model for IT services generated roughly $27.6 million in SLA (service‑level agreement) back charges for fiscal year 2024 and contributed to $2.6 million in growth from the previous year.

Kate Slocum, chief financial officer for the Agency of Digital Services, told the committee that ADS funds most operations through internal service funds and recoups costs through a mix of an "ADS allocation" spread across state headcount and consumption‑based SLA invoices. "The SLA...truly is a credit card," Slocum said, describing how agencies consume services during one year and receive an invoice months into the next fiscal year.

The nut graf: the billing timing and recovery model has made costs difficult for agency budget planners to predict, committee members said, and ADS officials described several near‑term steps and longer‑term IT projects intended to improve transparency and predictability.

ADS officials explained that the allocation line covers core, statewide services such as networking and cybersecurity and is billed early in the fiscal year; SLAs cover consumption of licenses, project‑based timesheet work and telephony, and are compiled from the prior 12 months of use and invoiced about three months into the following fiscal year. Slocum said the 2025 SLA bills reflect services consumed in fiscal 2024.

Committee members questioned drivers of recent increases. Slocum said Microsoft licensing costs did not rise because of a higher per‑seat rate but because of increased consumption and staffing needed to support licenses. She also said timesheet billing has grown because of IT modernization projects and flood‑recovery work that required project managers, developers and enterprise architects.

ADS staff told lawmakers the agency charged about $27.6 million in SLA back charges for the prior year and that total year‑over‑year growth across recovery models was about $2.6 million. Slocum said ADS's billing and reporting processes are currently cumbersome — invoices are produced from spreadsheets and the state cannot yet provide near‑real‑time consumption snapshots to agencies — but that a statewide Workday ERP rollout should enable more frequent visibility.

Maria V. Mateo, an ADS financial staff member, said time‑tracking and project billing rates have not been updated since 2017 and that the agency has hired an analyst to review role classifications and appropriate billing rates in coordination with the Department of Finance and Management.

Denise Riley Hughes, secretary of the Agency of Digital Services and the state's chief information officer, highlighted plans to move some expenditures out of the unpredictable SLA model and toward more transparent budgeting. She also said ADS is working with agency partners, including the state's attorneys and sheriffs, on storage‑tiering pilots for large video and image files to reduce high‑cost "hot" storage usage.

Committee members pressed whether the increased SLA burden was concentrated in particular agencies; several lawmakers and ADS staff said the Agency of Human Services accounted for a significant portion of the growth, and ADS confirmed invoices include the executive branch, elected offices and some judiciary chargebacks.

On timing, ADS staff said budget officers receive an SLA invoice and a projection for the coming year normally around three months into the fiscal year, meaning those figures often arrive after the fall budget submission window and can complicate planning. Slocum said ADS is actively discussing quarterly or more frequent SLA reporting and believes the new Workday finance and budget modules (budget and human capital management projected to go live in 2026, finance later) will permit more frequent snapshots and better burn‑down reporting.

The agency also noted other pressures that could raise IT costs, including higher vendor contract inflation and tariffs on hardware. ADS officials said they are seeking to reduce duplicated purchases across state government and to secure scale discounts where possible.

No formal votes or motions were taken during the ADS presentation. Committee members thanked ADS for the briefing and asked the agency to continue providing clearer projections and to work with Finance & Management on model changes.

Looking ahead, ADS said it expects to propose changes during the legislative session to make IT cost recovery more predictable and to present updated billing and rate proposals informed by the financial analyst's classification review.

Ending note: ADS officials told the committee their door is open for follow‑up questions and that they expect incremental improvements as Workday rollouts and internal reforms progress.