The House Appropriations Committee on Jan. 6 heard a presentation from the Agency of Digital Services about how the agency plans to deploy a $15,000,000 appropriation to change how state IT services are budgeted and billed.

Denise Riley Hughes, Secretary of the Agency of Digital Services and the state's chief information officer, told the committee ADS has spent the last six months building a more holistic model for FY27 and wants to "take it from a very complex, unwieldy process into something that's a lot more predictable, transparent, explainable, and tied to services." She said the aim is to make clear what agencies are paying for and to reduce unexpected bills that previously appeared after spending had occurred.

The presentation explained that under the old, transaction-based recovery model agencies were billed in different ways — service level agreements (SLA), timesheets at legacy rates, bespoke contracts or by allocation — which produced reconciliation challenges and occasional under- or over-recovery of costs. ADS cited a historic timesheet recovery rate of $88.84 as an example of a rate that did not cover true costs and produced a "deficit spend model."

Kate Slocum, identified in the hearing as ADS chief financial officer, and ADS staff said the $15,000,000 was used to cover amounts that otherwise would have appeared on agency bills in the next fiscal year, applied to what ADS calls "core enterprise services" so agencies are not double-billed. "We took the $15,000,000 that we would have charged ... that is being consumed under SLA in '26 ... and we applied it to those core services that they're not gonna get a double bill for," ADS said during the presentation.

Committee members asked whether 'services' included programming, hardware installation and other elements; ADS confirmed services encompass multiple components and acknowledged the current process relies heavily on manual reconciliation and spreadsheets. ADS said it plans to recommend funding for a more comprehensive IT asset management system to reduce manual work.

Members also raised the role of federal funding. ADS said a service-based model would make rate structures more "federally friendly," enabling departments to draw down federal reimbursement more often instead of resorting to contracted vendors at premium rates. "We've been forced to use contracted resources at a premium for those types of projects," ADS said, arguing that better recovery models would allow the state to use internal staff and then be eligible for federal reimbursement when allowable.

On technology projects, ADS said it has reduced active projects from about 120 to fewer than 80 and currently supports roughly 400 staff. The agency noted it touches almost 2,000 systems across state government and that moving to a portfolio-based, service-oriented accounting model will improve user experience, reduce duplication, and allow the legislature to see where money is going.

Committee members recalled risks from past projects — including SNAP/EBT rollouts — and ADS said the core enterprise services approach helped manage recent rollouts more safely by grouping common capabilities such as data and security.

ADS described the ERP/Workday rollout as a separately tracked work stream funded through a mix of general fund and IT modernization funds rather than as part of the base budget restructuring ADS outlined.

The hearing included budget office commentary from Marty Felters, who said a move to core enterprise services would let ADS provide agencies with more timely expense estimates so agencies could plan or seek funds ahead of implementation. Committee members expressed appreciation for the clarity the slides provided and said ADS would return with further detail during the FY27 budget process.

The committee did not take formal votes during the session and adjourned after scheduling follow-ups and upcoming hearings.