Saturday......October 11 -----------------------------Minutes -- North Dakota Legislative Committee -- Interim Budget and Finance Committee

NORTH DAKOTA LEGISLATIVE COUNCIL
Minutes of the
BUDGET AND FINANCE COMMITTEE
Tuesday, September 23, 2008
Roughrider Room, State Capitol
Bismarck, North Dakota
Representative Al Carlson, Chairman, called the
meeting to order at 9:00 a.m.
Members present: Representatives Al Carlson,
Ole Aarsvold, Merle Boucher, Jeff Delzer, Bob
Skarphol, Ken Svedjan, Clark Williams; Senators
Randel Christmann, Tony Grindberg, Ray Holmberg,
Elroy N. Lindaas, David O'Connell, Larry J. Robinson,
Bob Stenehjem
Members absent: Representatives Rick Berg,
Bob Martinson
Others present: Jim W. Smith, Legislative
Council, Bismarck
See attached appendix for additional persons
present.
It was moved by Senator Grindberg, seconded
by Senator Robinson, and carried on a voice vote
that the minutes of the previous meeting be
approved as distributed.
STATUS OF GENERAL FUND
Ms. Pam Sharp, Director, Office of Management
and Budget (OMB), presented a report on the status
of the general fund, including oil and gas tax
distributions to local governments. A copy of the
report is on file in the Legislative Council office.
Ms. Sharp presented the following schedule
showing the status of the general fund for the 2007-09
biennium as of August 31, 2008, and reflecting the
July 2008 revised revenue forecast for the remainder
of the biennium:
July 1, 2007, balance $295,541,176
Estimated revenues 2,612,741,314
Estimated available funds $2,908,282,490
Appropriations (2,461,973,956)
Estimated June 30, 2009, balance $446,308,534
Ms. Sharp presented the following schedule
showing the status of the permanent oil tax trust fund
for the 2007-09 biennium as of August 31, 2008, and
reflecting the July 2008 revised revenue forecast for
the remainder of the biennium:
July 1, 2007, balance $143,270,662
Estimated revenues 634,030,335
Estimated available funds $777,300,997
Appropriations and transfers (145,716,541)
Estimated June 30, 2009, balance $631,584,456
Compared to the original legislative revenue
forecast for the 2007-09 biennium through August
2008, Ms. Sharp said general fund revenues have
exceeded estimates by $218.7 million or 16.6 percent.
She said major positive variances relate to individual
and corporate income tax categories.
Ms. Sharp presented a schedule of oil and gas tax
and mineral royalty allocations to cities and counties
for fiscal years 2004 through 2008 and for fiscal year
2009 through September 22, 2008. She said total
allocations for fiscal year 2008 totaled $40.8 million,
$13.2 million more than the $27.6 million allocated for
fiscal year 2007.
Representative Skarphol asked for information on
oil prices, production, and tax collections for
July 2008. Ms. Sharp said OMB would provide that
information.
Senator Christmann asked for information on
outstanding bonds of the state, including information
on the amount of debt that has been reduced during
the 2007-09 biennium. Senator Holmberg suggested
receiving information on outstanding special
assessment balances of state agencies. Chairman
Carlson asked OMB to provide for the committee at its
next meeting information on the state's outstanding
debt and related general fund payments due during
the 2007-09 and 2009-11 bienniums, special
assessment balances outstanding and payments due
during the 2009-11 biennium, and opportunities the
state may have to prepay outstanding debt and
special assessment balances during the 2009-11
biennium.
2009-11 BIENNIUM
BUDGET INFORMATION
The Legislative Council staff presented a
memorandum entitled Authorized Number of Full-
Time Equivalent Positions - Consideration of Inclusion
in Appropriation Bills. The Legislative Council staff
said based on a request at an earlier committee
meeting, the memorandum includes examples of
appropriation bills that identify the number of
authorized full-time equivalent (FTE) positions for
each agency within the bill. The Legislative Council
staff said the examples include an alternative
appropriation bill format that identifies an agency's
base level funding, adjustments or enhancements,
and legislative appropriation within one section of the
bill using a three-column format as well as the current
Budget and Finance 2 September 23, 2008
appropriation bill format utilizing three sections of the
bill. The Legislative Council staff reviewed the current
process of authorizing the number of FTE positions for
each agency and the Emergency Commission's role in
authorizing additional FTE positions during the
interim. The Legislative Council staff said in order for
the current Emergency Commission process to
continue, the Emergency Commission would need
specific statutory authority to approve additional FTE
positions.
Ms. Sheila Peterson, Fiscal Management Director,
Office of Management and Budget, commented on the
proposed appropriation bill changes. She said OMB
supports the three-column format for providing agency
appropriations within one section of the appropriation
bill. She suggested that if FTE positions are included
in agency appropriation bills, the number be identified
for each agency in total and not identified for each
division of an agency. She also suggested the
committee provide the Emergency Commission the
additional statutory authority needed to continue
authorizing additional FTE positions during the
interim.
Senator Holmberg expressed support for the threecolumn
appropriation bill format and including the FTE
positions in the appropriation bill; however, he said,
agencies should have flexibility to shift FTE positions
within their agencies.
Representative Delzer suggested that if the
committee considers a bill draft to authorize the
Emergency Commission to authorize additional FTE
positions during the interim, Budget Section approval
should be required for any additional FTE positions.
It was moved by Representative Delzer,
seconded by Senator Holmberg, and carried on a
roll call vote that the committee recommend,
pursuant to North Dakota Century Code (NDCC)
Section 54-44.1-07 relating to the form of the
budget data, the Budget Section request the Office
of Management and Budget to prepare the
appropriation bills for introduction to the 2009
Legislative Assembly in a format that provides:
• Base level funding, adjustments or
enhancements, and the appropriation for
each agency in a single section using a
three-column format.
• The number of FTE positions in total for
each agency shown for the base level,
adjustments or enhancements, and the
authorized (appropriation) level.
Representatives Carlson, Aarsvold, Boucher,
Delzer, Skarphol, Svedjan, and Williams and Senators
Christmann, Grindberg, Holmberg, Lindaas,
O'Connell, Robinson, and Stenehjem voted "aye." No
negative votes were cast.
Ms. Sharp provided information relating to the
2009-11 biennium budget, including the number of
agency budget requests submitted to date, estimated
ongoing and one-time revenues and related general
fund transfers, cost-to-continue items, major
anticipated appropriations, major initiatives that may
be considered as part of the executive budget,
potential state government efficiencies being identified
as part of the budget development process, and
potential options for use of funding in the permanent
oil tax trust fund.
Ms. Sharp said OMB has granted extensions until
October 15 for a number of state agency budgets. To
date, she said, OMB has held 14 agency budget
hearings. She presented a schedule identifying
anticipated revenues for the 2009-11 biennium,
including $2.735 billion of ongoing general fund
revenues and $666 million of revenues to the
permanent oil tax trust fund. She said this information
is based on OMB's July 2008 preliminary forecast.
Ms. Sharp presented a schedule identifying for
each agency 2009-11 preliminary budget limits,
including adjustments for one-time funding, authorized
carryover, bond payments, cost-to-continue current
services, and phased-in programs.
Ms. Sharp said major initiatives being considered
in the development of the executive budget include
funding priorities, reserves, and tax relief. She said
the Governor has discussed providing additional
higher education tuition assistance of $34 million,
providing $300 million of property tax relief,
$100 million of additional school funding, and
$100 million of income tax relief.
Ms. Sharp said the executive budget development
process is not yet complete so potential state
government efficiencies and options for use of funding
in the permanent oil tax trust fund have not yet been
identified. A copy of the report is on file in the
Legislative Council office.
Representative Carlson asked for OMB's estimate
of cost-to-continue items of state agencies.
Ms. Sharp said because each agency is unique, it is
difficult to identify a specific percentage increase for
cost-to-continue items that would be applicable to all
agencies.
Representative Skarphol suggested OMB provide
a schedule summarizing major cost components of
agency budgets to assist the Legislative Assembly in
evaluating state agency budgets.
The Legislative Council staff presented a
memorandum entitled Preliminary Outlook - North
Dakota 2009-11 Biennium General Fund Budget. The
Legislative Council staff said the memorandum
provides preliminary information on general fund
ongoing and one-time revenues and expenditures
anticipated for the 2009-11 biennium. The Legislative
Council staff said the memorandum also identifies the
estimated fiscal effect for the 2009-11 biennium on the
general fund if initiated measure No. 1 relating to the
creation of a constitutional permanent oil tax trust fund
and measure No. 2 relating to a reduction of individual
and corporate income tax rates are approved in the
November 2008 general election.
Senator Holmberg said the information included in
the report should be considered only for discussion
purposes and is not an indication of amounts the
Budget and Finance 3 September 23, 2008
2009 Legislative Assembly may approve for the
2009-11 biennium.
Representative Boucher suggested the committee
receive information on major special funds, including
potential funds that may be available for the 2009-11
biennium. Chairman Carlson asked the Legislative
Council staff to provide the committee with information
on amounts that may be available in major special
funds during the 2009-11 biennium.
Mr. Eric Hardmeyer, President, Bank of North
Dakota, provided information regarding potential
amounts that may be available for transfer to the
general fund from the Bank of North Dakota for the
2009-11 biennium. Mr. Hardmeyer said for calendar
year 2007, the net income of the Bank was
$51,086,000 and the Bank's leverage ratio was
7.19 percent. He said the Bank's goal is have a
leverage ratio of at least 8 percent. Mr. Hardmeyer
said the Bank is anticipating future net income as
follows:
2008 $57 million
2009 $55 million
2010 $55 million
2011 $55 million
Mr. Hardmeyer said if the 2009 Legislative
Assembly transfers $60 million of Bank of North
Dakota profits to the general fund during the 2009-11
biennium, this amount would be approximately
55 percent of the Bank's projected earnings during the
biennium. He said continuing to transfer $60 million of
profits per biennium will allow for capital growth of
$50 million to provide for nearly $300 million in capital
and a leverage ratio of nearly 8 percent at the end of
the 2009-11 biennium. A copy of the report is on file
in the Legislative Council office.
Mr. Vance Taylor, General Manager, Mill and
Elevator, provided information regarding potential
amounts that may be available for transfer to the
general fund during the 2009-11 biennium. Mr. Taylor
said from July 1999 through June 2007, the mill
earned profits of $28.9 million, of which $19 million
was transferred to the general fund. For the 2007-09
biennium, he said, the Legislative Assembly has
required a transfer of $5 million from the mill's profits
to the general fund. For fiscal year 2008, he said, the
mill experienced a net loss of $821,000 due to record
high grain prices, volatile basis levels, and futures
market aberrations. He said these negative market
conditions continued to affect profits for the first
quarter of 2009; however, he said, if market conditions
continue to stabilize 2007-09 biennium profits are
anticipated to be at a break-even level. For the
2009-11 biennium, he said, the mill anticipates profits
to return to a more normal level of approximately
$7.2 million, which is the average of the last four
bienniums. A copy of the report is on file in the
Legislative Council office.
Representative Boucher suggested the Legislative
Assembly consider allowing the Bank of North Dakota
or the Mill and Elevator flexibility in transferring funds
to the general fund based on the state's need for the
funds and unique circumstances affecting the Bank or
the mill.
In response to a question from Representative
Carlson, Mr. Taylor said the Mill and Elevator is
authorized a line of credit at the Bank of North Dakota
of up to $75 million.
In response to a question from Representative
Skarphol, Mr. Taylor said he would provide to the
committee the current estimated value of the Mill and
Elevator.
Ms. Karlene Fine, Executive Director, Industrial
Commission, provided information regarding potential
amounts that may be available for transfer to the
general fund from the student loan trust fund during
the 2009-11 biennium. She said for the period
July 2001 through June 2007, the student loan trust
has transferred $44.4 million to the general fund. In
addition, she said, the 2007 Legislative Assembly
authorized transfers of $523,380 to the State Board of
Higher Education for providing funding for veterinary
students attending Kansas State University. For the
2007-09 biennium, she said, the trust anticipates
income of approximately $3 million compared to a
$2.4 million estimate for the 2009-11 biennium. She
said the reduction is due to the student loan portfolio
declining as students repay their loans. A copy of the
report is on file in the Legislative Council office.
Mr. Gary Preszler, Commissioner, Land
Department, provided information on potential
amounts that may be available for transfer from the
lands and minerals trust fund to the general fund
during the 2009-11 biennium. He said the lands and
minerals trust fund consists of over 700,000 mineral
acres formerly owned by the Bank of North Dakota
and the State Treasurer and the minerals located
under navigable rivers and lakes. He said the trust
currently receives oil and gas royalties from over
270 producing wells. Oil and gas leases are offered
through auctions each quarter. In addition, he said,
the trust receives royalties and lease bonus payments
from mining of coal, sand, and gravel. He said current
projections indicate that the lands and minerals trust
fund will have a $16.8 million June 30, 2009, balance
and anticipated revenues of over $24 million for the
2009-11 biennium. He said based on these
projections, an estimated $39 million could be
transferred to the general fund during the 2009-11
biennium resulting in a $1 million ending balance for
the fund on June 30, 2011. A copy of the report is on
file in the Legislative Council office.
The committee recessed for lunch at 12:00 noon
and reconvened at 1:00 p.m.
AGENCY BUDGET INFORMATION
Ms. Brenda M. Weisz, Chief Financial Officer,
Department of Human Services, provided information
regarding the status of the department's 2007-09
biennium budget and information on its 2009-11
biennium budget request. She said the only major
program change affecting the department's 2007-09
Budget and Finance 4 September 23, 2008
biennium budget is the increase in eligibility from
140 percent to 150 percent of poverty for the
children's health insurance program effective
October 1, 2008.
Ms. Weisz presented a schedule showing, by
major program, anticipated expenditures compared to
appropriated amounts for the 2007-09 biennium. In
total, she said, the department is anticipating unspent
general fund appropriation authority of $3.3 million for
the 2007-09 biennium.
Ms. Weisz said the 2007 Legislative Assembly
authorized the department to obtain a loan of up to
$3.5 million from the Bank of North Dakota for
providing developmental disabilities services grants.
At the present time, she anticipates the department
will need to obtain a loan of $1 million to provide these
services for the biennium.
Ms. Weisz reported on the status of the Medicaid
management information system computer project.
She said the 2007 Legislative Assembly appropriated
$3.6 million for the project. She said although the
project has experienced delays, she does not
anticipate the project to exceed the appropriated
amount.
Mr. Alex Schweitzer, Superintendent, Department
of Human Services institutions, provided an update on
capital projects of the State Hospital and
Developmental Center. He said the 2007 Legislative
Assembly appropriated $3.1 million from the general
fund for construction of a high security addition to the
GM Building on the campus of the State Hospital to
provide for an expansion of the State Hospital's
secure services program. He said because
admissions to the secure services unit have been less
than anticipated and because bids for the construction
project were $5.2 million, $2.1 million more than
appropriated, the department and OMB are planning
to use the $3.1 million for other capital projects that
were delayed or deferred because of cost increases
or new needs. He said the department is planning to
use the funds for:
New security fence $307,042
16 West building improvements 326,420
Flooring replacement 54,976
Sewer pipe repairs 31,730
Increased costs of the electrical distribution system 1,211,504
Employees Building improvements 675,000
Paint booth 49,500
Architectural and engineering costs 233,427
Total $2,889,599
A copy of the report is on file in the Legislative
Council office.
Representative Delzer asked whether legislative
approval is needed to change the use of these funds.
The Legislative Council staff said staff would review
statutory provisions and report to the Budget Section
chairman before the Budget Section meets on
Thursday, September 25, 2008.
Mr. Dave Krabbenhoft, Department of Corrections
and Rehabilitation, provided information on the status
of the department's 2007-09 biennium budget and on
the department's 2009-11 biennium budget request.
He said for the 2007-09 biennium to date, the number
of male inmates has averaged 1,288, two fewer than
the estimated number of 1,290. For female inmates,
he said, the average number to date is 151, 60 fewer
than the estimate of 211. Because the actual number
of inmates has been less than projected, he said, the
department is currently anticipating a small amount of
unspent general fund appropriation authority for the
2007-09 biennium.
Regarding the 2009-11 biennium budget request,
Mr. Krabbenhoft said the department has not yet
submitted its budget request and has been granted an
extension by OMB until October 15. He said the
department is currently estimating an average of
1,354 male inmates for the 2009-11 biennium, which
is a 5 percent increase over the average inmate
population to date during the 2007-09 biennium. He
said the department is estimating an average of
164 female inmates for the 2009-11 biennium, which
is an 8.6 percent increase over the average number of
female inmates to date during the 2007-09 biennium.
He said for the 2009-11 biennium budget request, the
priorities of the department are to provide adequate
funding for its employees and to obtain funding for
remodeling and expanding the State Penitentiary as
recommended by the Legislative Council's interim
Correctional Facility Review Committee. A copy of the
report is on file in the Legislative Council office.
Mr. Dale Frink, State Engineer, State Water
Commission, provided information regarding
anticipated uses of additional resources trust fund
revenues available for the 2007-09 biennium and
information on the commission's 2009-11 biennium
budget request. He said the State Water Commission
has not yet completed its 2009-11 biennium budget
request. He said the department anticipates an
unallocated balance in the resources trust fund on
June 30, 2009, of approximately $20 million resulting
in approximately $120 million for new water projects
during the 2009-11 biennium.
Mr. Frink said the State Water Commission has
$87,690,000 of water development trust fund bond
principal outstanding. He said the 2009-11 biennium
bond payments associated with these bonds total
$16,866,625. In addition, he said, the State Water
Commission has $17,291,000 of Southwest Pipeline
Project bonds outstanding requiring 2009-11 biennium
payments of $2,391,375. He said these payments are
made by the Southwest Water Authority from revenue
generated by the Southwest Pipeline Project. He said
the State Water Commission's total outstanding bonds
are $105 million. A copy of the report is on file in the
Legislative Council office.
Representative Delzer asked that the committee
receive information at its next meeting on the status of
outstanding bonds of the state and options for retiring
the bonds early. Chairman Carlson asked the
Legislative Council staff to arrange for OMB to present
this information to the committee at its next meeting.
Budget and Finance 5 September 23, 2008
Ms. Dorette Kerian, Director of Information and
Technology Systems and Services, North Dakota
University System, provided information on the
Northern Tier Network. She said NDCC Section
15-10-45 provides for the uses of the Northern Tier
Network. She said while provisions of the Century
Code section include the use of the Northern Tier
Network for educational purposes, questions have
arisen as to who may use it and for what purposes.
She said there are significant advantages to the state
of allowing full use of the Northern Tier Network in
support of elementary and secondary and higher
education in North Dakota. She said allowing
expanded use of the Northern Tier Network by the
University System and elementary and secondary
education could reduce bandwidth growth and
traditional Internet-related costs for these entities. A
copy of the report is on file in the Legislative Council
office.
Mr. Kent Blickensderfer, Qwest Corporation,
commented on the use of the Northern Tier Network
by nonuniversity entities. He said during past
legislative sessions, Qwest, along with the North
Dakota Association of Telecommunications
Cooperatives, other telecommunications companies,
the Governor, and the Legislative Assembly, agreed
that the state should not compete in the private
telecommunications business. He expressed concern
that the University System, through the Northern Tier
Network, is requesting changes that will allow a state
entity to compete with private telecommunications
companies. He said NDCC Section 15-10-45, which
restricts the state from competing with private
providers, should not be changed. A copy of the
report is on file in the Legislative Council office.
Senator Grindberg asked the Legislative Council to
provide information on companies that have received
grants or hardware from the Northern Tier Network.
Mr. David Crothers, North Dakota Association of
Telecommunications Cooperatives, commented on
the Northern Tier Network. He said the association
opposes the University System's proposed changes to
NDCC Section 15-10-45 relating to competition with
private industry. He said current statutory provisions
limit the use of the Northern Tier Network by higher
education to research purposes only. He said the
2007 Legislative Assembly provided funding for the
Northern Tier Network but recognized that parameters
must be established to ensure that the state of North
Dakota would not enter the telecommunications
business or become a competitor to private providers.
He said the University System is proposing to remove
these restrictions and allow the Northern Tier Network
to carry information previously provided by private
telecommunications companies. A copy of the report
is on file in the Legislative Council office.
Ms. Cathy Forsch, Director of Operations, Tax
Department, provided information on the department's
"Gentax" computer system, including actual return on
investment compared to estimates made as part of
the original project plan. She said the original
estimates of additional state revenue resulting from
implementation of the "Gentax" computer system were
$2.5 million per year. She said the Tax Department
through June 2008 has realized revenue increases of
$7.7 million resulting from implementation of the
system. A copy of the report is on file in the
Legislative Council office.
Chairman Carlson announced the next committee
meeting is tentatively scheduled for Tuesday, October
21, 2008, and said the committee will be reviewing
potential total available revenue for the 2009-11
biennium and potential spending levels for the
2009-11 biennium to consider as recommendations to
forward to the Legislative Council.
Representative Skarphol asked whether there are
other cost-of-living indexes that should be reviewed
when considering funding for certain state agencies.
He said the Higher Education Committee has been
informed that a higher education cost adjustment
(HECA) index is more appropriate for calculating costof-
living increases relating to higher education. He
said the HECA index is generally a higher percentage
than the consumer price index.
The committee adjourned subject to the call of the
chair at 3:45 p.m.
_________________________________________
Allen H. Knudson
Legislative Budget Analyst and Auditor
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