Vermont Built a Fund to Fix Its Broken Technology. Now the Legislature Wants to Raid It
The question is whether solving today’s problem by undermining tomorrow’s infrastructure is a trade worth making.
After decades of failed IT projects, emergency patches, and systems so old they predate the internet, the legislature created the Technology Modernization Special Fund — a dedicated pool of money, codified in state law, designed to break the cycle of neglect. The idea was simple: capitalize a fund, let the interest compound, and use both the principal and the earnings to systematically replace the mainframes and legacy platforms that power state government.
The statute was explicit. Interest earned by the fund stays in the fund. Balances remaining at the end of the fiscal year remain in the fund. The money wasn’t meant to be touched for anything else.
Four years later, the fund is working. The DMV has replaced a 50-year-old mainframe that once required employees to enter the same data as many as seven times per transaction. A modernized unemployment insurance system is scheduled to launch this summer. The $70 million Workday ERP project — replacing five legacy financial and human resources systems — is finally underway after years of delays.
And now, just as the fund is delivering results, the House has voted to sweep $9.55 million in accumulated interest out of it and into the General Fund. The budget bill, H.951, does so with a “notwithstanding 3 V.S.A. § 3306“ clause — a direct legislative override of the fund’s own enabling statute — targeting all interest earned in fiscal years 2023, 2024, and 2025, estimated in the bill text at $9,547,596.
What the Fund Was Built to Do
The Technology Modernization Special Fund was established through Act 185, the FY2023 budget bill, and codified at 3 V.S.A. § 3306. It was initially capitalized at approximately $53 million, funded through a combination of General Fund surplus and one-time revenues. The legislature authorized specific projects from the fund, each requiring approval from the Joint Information Technology Oversight Committee before money could be released.
The projects reflected the state’s most urgent technology failures. The DMV modernization received over $20 million from the fund — though the total project cost, including implementation and five years of management and operations, has reached approximately $104 million. The Department of Labor’s unemployment insurance system replacement was authorized for up to $30 million. An Enterprise Resource Planning upgrade — to replace the state’s core accounting, HR, and budgeting systems — received an initial $11.8 million, though the full project is now estimated to cost more than $70 million.
Smaller allocations went to fire safety system modernization ($960,000), the Attorney General’s case management system ($2.2 million), and property management software at the Department of Buildings and General Services ($1.8 million).
The fund’s interest — the $9.55 million the House now wants to redirect — was supposed to keep the fund sustainable. Technology costs rise. Projects take years. Without compounding interest, a one-time appropriation becomes a shrinking pool that can’t keep pace with the very problem it was created to solve.
What’s Already Working
At a press conference on April 1, Agency of Digital Services Secretary Denise Reilly-Hughes made the administration’s case against the sweep. The DMV modernization has delivered tangible improvements: same-day transaction processing, expanded online services, law enforcement data systems aligned with national standards. Before the upgrade, some transactions took up to 30 days. The department’s Phase 2 rollout completed in November 2025, retiring the old mainframe entirely.
The modernized unemployment insurance system — what Reilly-Hughes described as making it “faster and easier for workers to get benefits” — is expected later this summer. The Workday ERP project, while carrying significant risk flags from independent reviewers, is in active implementation with a phased rollout that began in late 2025 and extends through at least 2028.
Reilly-Hughes was direct about the consequences: “If we remove it, we turn a long-term investment strategy into a short-term funding source. Something this fund was never intended to be.”
What’s Still Broken
The irony of sweeping the fund’s interest becomes sharper when you look at what Vermont’s IT failures are costing taxpayers right now.
Vermont’s child welfare information system dates to the early 1980s. It is, by multiple accounts, the oldest in the nation. Family Services staff use 10 separate systems and over 30 Excel spreadsheets to do their jobs. The system experienced a multi-day failure after a routine server update. It cannot track the data the federal government requires for reimbursement, and the state has been losing federal funding as a result — though no one can say exactly how much, because the system itself lacks the sophistication to calculate the loss.
As Compass Vermont reported in February, this failure traces back to a decision made decades ago. When the federal government offered states a 90% match to modernize child welfare data systems in 1993, Vermont declined. The state has been paying for that decision ever since — not in one dramatic budget crisis, but in a slow, steady drain of federal dollars that are impossible to fully quantify with the tools the state has.
The pattern extends beyond child welfare. In March, State Auditor Doug Hoffer flagged Vermont’s child care oversight system for gaps that threaten both child safety and federal funding. Background checks for child care workers take a median of 77 days — well beyond the 45-day federal maximum — in part because the technology supporting the process can’t keep up. Hoffer’s audit found that glitches in the state’s Bright Futures Information System caused text to disappear from records or attach to unrelated cases, and that more than a quarter of serious violations were misclassified due to system errors. If the federal Office of Child Care fully enforces its rules, Vermont stands to lose more than $505,000 in Child Care Development Fund dollars.
The state’s criminal justice system runs on three non-integrated platforms — Valcour for police records, JustWare for prosecutors, and Odyssey for court filings — that cannot share data with each other. Maine, using the same JustWare software, has built a statewide prosecutorial data dashboard. Vermont has not.
Meanwhile, the Communications and Information Technology Fund — the state’s primary IT operating account — has gone from a $1 million surplus to a $25 million deficit in three years.
Why the House Did It
The arithmetic is straightforward. The House faced what the governor has described as the first revenue downgrade since 2017 — along with federal funding uncertainty and roughly $250 million in requests that had to be met with about $20 million in available dollars. The Appropriations Committee, chaired by Rep. Robin Scheu, D-Middlebury, voted the budget out unanimously, 11-0. The full House passed H.951 on a 97-40 vote.
The $9.55 million in IT fund interest was, as we reported last week, “straightforward new money” — one of only two new revenue sources the House identified that the governor hadn’t already tapped. The other was revenue from conforming Vermont’s tax code to the federal “One Big, Beautiful Bill Act.”
From the legislature’s perspective, the interest was sitting in a fund while Vermonters needed mental health services, housing assistance, and legal aid for immigration cases. These are real needs, and the committee heard testimony on all of them. The question is whether solving today’s problem by undermining tomorrow’s infrastructure is a trade worth making.
There is also a structural argument for the sweep that neither side has made explicitly. Vermont’s IT strategy is shifting from a capital expenditure model — buying hardware and building systems that last decades — to an operating expenditure model built around cloud subscriptions and monthly service fees. The Workday ERP project is itself a subscription: $28.875 million over 10 years for a cloud-based platform the state will never own. In a world where technology is rented rather than built, the case for a large, interest-bearing capital fund looks different than it did in 2022. Whether that shift justifies raiding the fund now, while legacy systems still run on 1980s infrastructure, is another question entirely.
The Cycle
Vermont’s relationship with technology investment follows a pattern that will be familiar to anyone who has followed it closely.
The state defers investment because there are always more immediately visible needs. Systems age past the point of effective maintenance. They begin failing — sometimes quietly, through lost federal revenue and manual workarounds, sometimes dramatically, through catastrophic outages. The failures eventually become expensive enough to force action. The legislature appropriates money, often one-time funds. The fix takes years. And by the time one system is replaced, three more are failing.
The Technology Modernization Fund was designed to break that cycle. Its interest was the mechanism that kept the fund sustainable — the part that ensured the state wouldn’t have to come back to the well every time a new system reached end of life.
Rep. Laura Sibilia, I-Dover, the Ranking Member of the House Energy and Digital Infrastructure Committee and a member of the Joint IT Oversight Committee, has been among the most vocal critics of the state’s approach to IT investment. When the governor’s FY2027 budget proposal omitted funding for the child welfare system replacement, she called it “inexplicable.” She has previously described the DMV modernization as proof that sustained investment works — and warned that Vermont does not have a reliable system for replacing aging technology.
The budget now moves to the Senate Appropriations Committee. At the April 1 press conference, Secretary of Administration Sarah Clark said the administration has “expressed our concerns” and looks forward to working with senators “to make the necessary changes.” Reilly-Hughes put it more bluntly: “Preserving the fund’s interest preserves the model that is delivering better service at lower long-term cost.”
What Happens Next
The Senate Appropriations Committee will take up H.951 in the coming weeks. The governor has already signaled he may veto the budget over other issues — primarily the House’s approach to property tax relief and education reform under Act 73. Whether the IT fund sweep survives the Senate process is an open question.
But the larger question isn’t about $9.55 million. It’s about whether Vermont can maintain the discipline to treat technology as a utility — something that requires consistent, sustained investment — or whether the fund will join the long list of good ideas that get cannibalized the first time money gets tight.
The state’s IT operating fund is $25 million in the red. The child welfare system dates to the early 1980s. The criminal justice system can’t produce a public data dashboard. Background checks for child care workers take nearly twice the federally allowed time.
These are not technology problems. They are service delivery problems, transparency problems, and federal funding problems that happen to be caused by technology. And they don’t get better by taking money out of the one fund that was designed to fix them.
Editor’s note: Compass Vermont reported on the origins of Vermont’s IT crisis in February, including the state’s 1993 decision to decline a 90% federal match for child welfare system modernization. The Technology Modernization Fund interest sweep was first identified in our FY2027 budget analysis last week. This story expands on those findings.