To downgrade Class 1 control wire to Class 2 or 3 before a distribution block, you can add an isolating transformer to the circuit. An isolating transformer provides galvanic isolation between the primary and secondary circuits, effectively creating a new power circuit with a different classification.In your case, you can install an isolating transformer in the transformer panel between the transformer output and the fused terminal block. The primary winding of the transformer will be connected to the transformer output (120VAC), and the secondary winding will provide the 24VAC output to the distribution block.By using an isolating transformer, the 24VAC circuit becomes isolated from the 120VAC circuit, and the wire connecting the transformer to the distribution block is now classified as Class 2 or 3, depending on the isolation rating of the transformer. This will allow you to use smaller conduit sizes and meet the NEC requirements for Class 2 or 3 wiring.

Important notes: The isolating transformer must have an appropriate voltage rating and isolation rating to meet the NEC requirements. The transformer must be properly sized to handle the current requirements of the circuit.* The transformer should be installed in accordance with the manufacturer's instructions and local electrical codes. Flag for review