2005-2007 Budget Address
The Honorable John Hoeven
Governor of the State of North Dakota
December 8, 2004
Good morning. I wish to welcome the members of the 59th North Dakota Legislative Assembly, elected officials, cabinet members, state employees, First Lady Mikey, and my fellow North Dakotans.
I also want to acknowledge our men and women in uniform, those who are with us today, and those who are defending our nation overseas. Thank you, from the bottom of our hearts, for your service to our state and to our country.
Today, I am pleased to present the executive budget for the 2005-2007 biennium.
First, I want to recognize the Office of Management and Budget, our state agencies, and my staff for their hard work and diligence in constructing our new budget.
Our work has produced a responsive - and fiscally responsible - budget for the people of North Dakota. Thank you to all who have worked so hard on it.
Let me summarize the core of our budget:
- Our budget is conservative. It includes a rainy day fund of more than $60 million, one of the largest we've ever had.
- Our budget invests in the future of our state to continue the growth of our economy and expand the opportunities available to our citizens.
- Our budget provides for the basic needs of our citizens, who need our help and deserve our support.
- And our budget includes no tax increases.
For the past four years, we have made expanding our economy and creating good paying jobs priority number one.
In the 2001 session, we created a Department of Commerce to streamline our economic development resources and provide one-stop shopping for businesses.
We have forged a statewide economic development strategic plan, which has targeted industries where North Dakota has natural advantages - industries like value-added agriculture, energy, advanced manufacturing, technology and tourism.
We have simplified our corporate income tax, created a variety of new tax incentives to promote economic growth, improved our regulatory environment, and created one of the most competitive business climates not only in America, but in the world.
To make our business climate more widely known, we have launched the most aggressive campaign in our state's history to market North Dakota as a great place to live, work, and do business.
The results are a matter of record.
- Over the past four years, we have balanced our budget when other states couldn't.
- Forty-seven states faced deficits and raised taxes by almost $10 billion. Many of them, like Minnesota, still face deficits, forcing them to make tough choices between reducing services and raising taxes.
- Here in North Dakota, through aggressive economic development efforts, and with the hard work of people across our state, we have grown and expanded our economy.
- Last year, we led the nation in per capita income growth, and our wage growth was the second fastest in the nation.
- We were the only state in America where household income grew and poverty declined.
- We created jobs when other states lost jobs, and growing sales and income tax revenues reflect a growing economy and a rising standard of living for our citizens.
The results of our sound fiscal management and aggressive economic development efforts were recognized this November by Moody's Investor Services.
Moody's, which rates states' credit worthiness nationwide, has just raised our state's bond rating from Aa3 to Aa2.
This upgrade in North Dakota's credit rating further demonstrates that our approach is producing solid economic and fiscal gains for our state, as well as new opportunities for our people.
We have done these things together, and to our legislators, I say thank you. But, there is more to do.
For the next biennium, we have advanced three priorities in our budget:
- First, to exercise sound fiscal management that will help to ensure the financial health of our state for years to come.
- Second, to stimulate solid, sustainable economic growth for the future.
- Third, to provide for the basic needs of the people who need our help and deserve our support, including our seniors, our children, and our veterans.
We've made progress on all these fronts, but now we need to take our efforts to the next level.
Working together, we can build a brighter future for the people of North Dakota.
GOOD FISCAL MANAGEMENT
Due to our more dynamic economy and good fiscal management during the current biennium, our ending balance will be about $127 million.
That includes the one-time $50 million fiscal relief and represents the largest ending balance in 20 years.
In addition, our forecast for the 2005-2007 biennium contains about $82 million more in revenue growth over this biennium's income. We also have $41 million growth in the oil trust fund.
As good stewards of the taxpayers' money, we have looked carefully at our revenues and our expenditures to make sure we are spending within our means, and that we have healthy reserves going forward.
To meet our goal, our reserves, or rainy day funds, total more than $60 million. That includes a $10 million ending fund balance, $41 million in the oil trust fund, and $10 million in reserves at the Bank of North Dakota.
At the same time, we are proposing to further strengthen BND's capital structure. We recommend raising the floor on the Bank's statutory capital level from $140 million to $150 million.
With these substantial reserves in place, we are left with about $200 million of revenue growth to invest in vital services and growing our economy.
Revenues and reserves, of course, are only part of the picture. The other part is expenditures, and we do have significant additional costs.
Due to North Dakota's growing economy and per capita income, our state has had to assume a larger share of the cost of Medicaid.
That increased share amounts to $32 million next biennium, an amount equal to the reduction of our federal Medicaid match, or FMAP. In other words, we must replace federal dollars we will no longer receive with state dollars.
Also, the budget includes one-time expenditures of $11.9 million, and increased funding of more than $16 million for the legislative and judicial branches, as required by law.
As good stewards of the taxpayers' money, however, we have been careful to ensure that projected revenue growth will exceed the rate of growth in expenditures. Ongoing revenues - that is, revenues excluding transfers - are projected to grow at a rate of 4.3 percent annually.
When we adjust for costs we can't control - like the loss of federal funds for Medicaid, legislative and judicial increases, and committed one-time expenditures - we find we have growth in spending of just 3.7 percent per annum, well below our projected growth of 4.3 percent for revenues.
Also our budget also doesn't rely on reserve funds. Our only significant transfer is $16.9 million from the health care trust fund for nursing homes. This is half of what we used last biennium, and we are using it for its dedicated purpose - nursing homes.
Having budgeted conservatively - with revenues exceeding expenditures, and a prudent reserve going forward - we now have the resources we need to further invest in our priorities.
Working together, we can build a brighter future for North Dakota.
INVESTING TO GROW OUR ECONOMY
Investing to grow our economy begins with education.
EDUCATION
A world-class education system encompasses K-12 and Higher Education, but also more broadly, Career and Technical Education, lifelong learning, Workforce Development, and job force training.
K-12 Education
Our budget dedicates an increase of $37.5 million to K-12 education in the next biennium and fulfills the first installment of our plan to increase support for education by $75 million over the next four years.
Our plan for K-12 education has three main components: first, to further improve teacher compensation; second, to achieve greater funding equity among schools; and third to provide schools and districts with the funding they need to share resources and economize on costs.
Teacher Compensation
We need to attract and retain the best and brightest teachers to prepare a new generation of North Dakotans for the jobs and opportunities of the future. To do that, we are targeting 70 percent of all state aid and Tuition Apportionment dollars for increased teacher compensation.
We will also introduce legislation to raise beginning teacher salaries by $1,500 each year of the biennium.
Our ultimate goal is to see this work through the salary schedule to increase average teacher compensation by at least $3,000 over two years.
Improving School Equity
To improve school funding equity, we are proposing a series of measures:
- First, we propose a 50 percent increase in supplemental payments, increasing our commitment - from $5 million to $7.5 million.
- Second, we propose a change in the weighting factors, so that no school, regardless of size, will get less than 100 percent of its authorized per pupil payment.
- Third, we have simplified the weighting-factor categories to group schools according to their appropriate peer group, and thereby provide greater fairness.
- And fourth, we have increased payments to address the unique needs of schools that meet the statutory definition for small and isolated to further achieve equity.
Joint Powers Agreements
In addition to improving equity, we can also do more with Joint Powers Agreements.
Cooperation and sharing among school districts multiplies resources and provides more and better education experiences for our children.
To help school districts further the effort we began last session, we are proposing $2 million in state support for Joint Powers Agreements.
JPAs not only provide school districts with a blueprint for increasing efficiency and improving curriculum, but also help to reduce the pressure on local property taxes.
These agreements have demonstrated their ability to create educational opportunities for our children and cost savings for our school districts.
JPAs are the most promising plan we have seen to leverage school resources for the benefit of our students.
We call our plan the Quality Schools program, and believe it will become worthy of more funding in the coming years.
Career and Technical Education
In addition to traditional education, to truly benefit from the opportunities created by our growing and increasingly diverse economy, we must continue to build a workforce with the technical skills and training that they need to compete in a world economy.
Technology, in fact, is a common thread throughout all of the industries we've targeted for growth in North Dakota.
We have, therefore, recommended a total of $5.7 million for Career and Technical Education, information technology training and services, and continued funding for online resources at our libraries and K-12 schools.
This includes funding for STAGEnet - the state's voice, video, and data network; for Educational Technology Council grants; and for the state's K-12 High Tech Consortiums, which pool resources, equipment, and curriculum to make them available to more North Dakota students.
Higher Education
Working to build the best educational system means committing more resources to higher education as well.
There is broad agreement on the importance of our state's higher education system - as a source of both personal enrichment and economic vitality for the future of North Dakota.
Last biennium we called upon our campuses to be partners with us in economic development.
We asked them to leverage state, federal and private resources to drive economic growth and jobs, to provide excellence in education, and to train our young people for higher paying jobs - the careers of the future.
As a result, today they are planning new and innovative career paths for students, and partnering with private industry and government at all levels to help us build a brighter future right here in North Dakota.
For the next biennium, in order to take our efforts to the next level, we are proposing an increase of almost $29 million in core funding for the North Dakota University System.
This significant increase follows the recommendation of the Higher Education Roundtable that funding for our campuses grow as our economy grows.
We propose to fund our university system at a level equal to 21 percent of recurring revenues, which will help to keep tuition and the cost of a college education affordable for all.
Centers of Excellence
To expand and strengthen the bridge between our universities and the business community, we are proposing a significant expansion of our Centers of Excellence initiative as a $50 million, multi-biennium program with the Bank of North Dakota.
BND will be repaid through funding from the Department of Commerce, and we have included $5 million in that agency's biennial budget for that purpose.
The state's funding authority would be matched with resources from the private- and public-sector to create up to $150 million for development of Centers of Excellence on campuses throughout North Dakota.
Centers of Excellence bring everyone together to work on economic development - our campuses, business communities, local developers and students, as well as local, state and federal government partners.
Most importantly, Centers of Excellence mean better paying jobs, more dynamic campuses, and a more vibrant economy for communities all across our state.
It is an investment that will pay for itself many times over, and when you look at what other states are doing, it is an investment we must make or we will simply be left behind.
We look forward to working with legislators, our university system, our businesses, and community leaders to build these Centers of Excellence, and with them, a better standard of living and a brighter future for North Dakota.
ENERGY AND AGRICULTURE
At the same time, we need to continue our investments in energy and agriculture, two of the industries we've targeted for growth in North Dakota.
The fact is, energy in North Dakota is all around us, literally on the wind and in the land, and we are working hard to harness all of these sources for the good of our state and our nation.
Biofuels are the point at which value-added agriculture and energy development intersect.
In the coming biennium, we will continue funding for our ethanol incentive program, designed to boost both production and consumption of ethanol in North Dakota.
We will also continue to work with the Corn Council and other renewable fuel groups to develop additional means to encourage greater use of ethanol and biodiesel in North Dakota.
At the same time, we will also continue our work with Lignite Vision 21 to advance both wind and coal generated energy production in North Dakota.
So far, we have enrolled three major companies in Lignite Vision 21, a public sector, private sector joint venture to build new clean coal-fired power plants in the state.
Thanks in large part to the wind energy incentives we together put in place over the past two sessions, two major projects generating 60 megawatts of electricity have been completed in Edgeley and Kulm.
North Dakota Transmission Authority
The bottleneck in our efforts to expand both lignite and wind energy, however, is a lack of transmission capacity, which prevents us from getting our product to markets outside North Dakota.
Earlier this fall, we recommended that the Industrial Commission submit legislation to establish a North Dakota Transmission Authority.
This transmission authority would serve as a catalyst for new investment, provide low-cost financing to help North Dakota compete with surrounding states, and serve as a partner to investors, providing access to public sector financing not available otherwise.
Transmission is the key to unlocking our potential as a state for further development of our abundant sources of electricity, both wind and coal, and the creation of new, good paying jobs.
North Dakota Trade Office
Just as we seek solutions to growing our economy and creating good paying jobs within our state, we also need to look outward. We need to fully engage in the global marketplace.
To accomplish that, we have budgeted up to $500,000 to leverage North Dakota products in foreign markets, and we ask North Dakota exporters and export service professionals to match that amount for a total of $1 million.
Over the past year alone, North Dakota trade missions have reaped more than $12 million in foreign sales of agriculture and manufactured products to Taiwan, Japan, Cuba and China.
The North Dakota Trade Office has provided a good return on our investment for North Dakota citizens, and now we need to expand our efforts in cooperation with the private sector to build on our initial successes.
Public Service Commission Rail Rate Complaint Case
As we expand our opportunities, both at home and abroad, in energy and agriculture, we will work on behalf of our agricultural producers to ensure fair trade and transportation practices.
On behalf of our shippers, especially our wheat farmers and elevator operators, we have budgeted $900,000 for the Public Service Commission to press a rail rate complaint before the federal Surface Transportation Board.
Economic Development Accountability
As we expand our economic development efforts in all of these areas, we also need strong accountability measures.
In cooperation with legislators and North Dakota's economic development community, we will advance a plan to require the reporting of specific data regarding our progress.
To help us implement the plan, we have budgeted more than $100,000 to gather, analyze and make available statistical data concerning economic development projects in North Dakota.
All of these investments - investments in education and training, Centers of Excellence, energy development, a transmission authority, value-added agriculture, and the North Dakota Trade Office - they all represent investments in building our economy, creating jobs, and building a better standard of living for our citizens. Working together, we can build a brighter future for North Dakota.
CARING FOR PEOPLE
Good financial stewardship and a commitment to economic development have provided our state with solid revenue growth.
As we take a portion of these revenues to reinvest in our state, we must also dedicate a portion to honor one of our most important obligations - taking care of our people in need.
That means:
- Providing for our elderly, our children, and people with disabilities.
- It means tax relief for our seniors.
- It means ensuring law enforcement agencies and courts have the tools they need to keep North Dakotans safe.
- It means providing a pay increase for state employees.
- And it means financial assistance to show our veterans and their families that we are grateful for the sacrifices they have made and are continuing to make for our state and our nation.
Veterans Benefits
America is at war, and in time of war, no one makes greater sacrifices than our military and their families.
We must find real and practical ways not only to say thank you, but also to help them and their loved ones get through challenging times.
To do that, we are proposing $5 million for a Veterans Bonus Program to help those who have served in Iraq, Afghanistan, Somalia, Bosnia, Kosovo and here at home.
Our plan will provide $100 for each month of overseas service, up to $1,800, and $50 for each month of domestic service, up to $900. It also provides $2,500 for Purple Heart recipients and for the families of those who made the ultimate sacrifice in the service of their nation.
Further, we are proposing another $1 million in funding to expand the Tuition Assistance Program for National Guard members, doubling student aid from $500 per semester to $1,000, in addition to the 25 percent tuition discount provided by the University System.
Our men and women in the North Dakota military are making a tremendous effort for all of us, and we must do all we can to recognize their sacrifices.
Senior Security
We also recognize the need to take care of another group of North Dakotans to whom we owe so much - our seniors.
Our budget includes a range of initiatives we call Senior Security, which will not only say thank you, but will also make a real difference in the lives of the elderly.
Homestead Tax Credit
First, we propose to provide our seniors with property tax relief.
To do that, we are proposing more than $3 million to enhance the Homestead Tax Credit for the elderly and those with disabilities.
Under the plan, homeowners 65 years of age or older would be eligible for a $3,600 reduction in their home's tax valuation, depending on income and assets.
The maximum benefit would be raised from the first $44,000 of a home's value to allow the full reduction on an $80,000 house.
Seniors and people with disabilities under 65 who rent, rather than own, would also qualify, and receive a partial refund on their rent.
Social Security/Unemployment Insurance Offset
Also, we are proposing legislation to repeal the Social Security offset for unemployment insurance, which our seniors currently incur. The cost is about $700,000.
Our retired seniors should not be penalized for continuing to participate in the North Dakota workforce. They should be treated fairly, like all other employees, for contributing their talents and experience to North Dakota.
Nursing Home Reimbursement Rates
Our budget recommendation for nursing homes is designed to maintain quality, cost-effective services for our seniors.
Working closely with industry leaders, our plan includes a new formula that works better for nursing homes and for the state.
First, we have agreed to compensation for direct care reimbursement based on the median percentile method plus a percentage, rather than the old cost-plus-a- percentage method.
Second, we have fully funded their operating margin and their incentive payments to promote greater efficiency.
And third, we will re-base nursing home reimbursement rates to reflect the industry's current cost structure.
Home and Community Based Care
In addition, our budget expands funding for seniors who can and desire to stay in their homes and communities. To help meet the needs of these seniors, we have increased funding for Home and Community Based Care.
It is money well spent, and well deserved.
Human Services and Medicaid
Further, it is vitally important that we adequately fund Medicaid to care for our poor and our elderly. Our Department of Human Services budget does just that.
The increase for the Department of Human Services budget includes $32 million, which is the cost of making up the reduction in the federal share of Medicaid.
The balance of the increase for the Human Services budget will fund all current programs at existing eligibility factors.
It will also cover all costs not controlled by the department, such as rate setting rules, federal mandates, insurance premiums, and drug costs.
In addition, we have funded the replacement of the Department of Human Service's outdated Medicaid Management Information System at a cost of $3.7 million, to be matched by more than $25 million in federal money. At the same time, our budget recognizes the needs of our medical professionals and organizations that provide Medicaid services.
To better support their efforts, we have included a 4 percent increase for all providers over the next biennium.
We have worked hard to find cost-effective ways to meet the growing costs of health care services faced by our state. It is truly a challenge, and we look forward to working with the Legislature to continue to meet that challenge.
Corrections and Public Safety
As our veterans and military protect our homeland, our law enforcement and corrections professionals protect our state.
Although North Dakota remains the safest state in the nation, we must never grow complacent. We are not immune from serious offenses.
Just over one year ago, our state and nation were outraged by the Dru Sjodin murder, and moved by the grief and dignity of her family in the aftermath of such a horrible crime.
Over the past year, we have held a series of task force meetings with corrections officials, law enforcement professionals, judges, prosecutors and other concerned citizens to see how we could strengthen our criminal justice system to better protect our citizens from violent criminals.
Although we can never ensure that such a terrible crime doesn't happen again, we can take aggressive steps to make sure that we have done everything possible to prevent it.
We must also meet the demands of a significantly larger and growing prison population.
Meeting these needs requires an increase of more than $20 million in new money for our Department of Corrections budget, and more than $3 million in our Human Services budget.
This funding will cover expanded monitoring of sex offenders, enhanced civil commitments in both the community and at the State Hospital, and an increased number of treatment officers and sex offender specialists at our prisons.
Our plan includes such measures as mandatory supervised probation and DNA testing for all felony sex offenders; enhanced sentencing for the most heinous sexual crimes; and enforcement of our tough standards for offenders who relocate from other states.
Our budget invests in the kinds of technology and treatment methods that will improve the safety of our citizens.
We propose to add three field service professionals to monitor sex offenders and five new sex offender specialists.
Our plan also includes funding to monitor sex offenders with Global Positioning System devices that can track an offender 24 hours a day, 7 days a week.
Enhanced treatment and monitoring not only reduce the risk to the public, but also reduce costs by cutting the recidivism rate and the need for prison beds.
In addition, we have proposed $1 million in equity funding to address salary issues in the Department of Corrections budget.
State Employee Compensation
This brings us to the issue of our hard-working state employees.
All across our state, these employees work hard for the citizens of North Dakota, and they deserve an increase in compensation.
Last legislative session, we were able to absorb an increase in health care premiums for state employees, but they did not receive a salary increase.
We support following the recommendation of the State Employee Compensation Committee to allow an increase of four percent in each year of the 2005-2007 biennium.
The full four percent compensation increase is funded in the first year of the biennium and a three percent increase is funded in the second year of the biennium.
The additional one percent in the second year of the biennium can be provided by agencies to their employees, but they must find cost savings and efficiencies to fund it. This approach is both supportive of our state employees and prudent for taxpayers.
In addition, our budget follows the committee's recommendation to fully fund family health insurance premiums for state employees, as well as the establishment of a $5 million state equity pool, split between the general fund and special funds, to address equity issues within state agencies.
State Aid Distribution
Finally, good fiscal management and a growing economy have also enhanced our ability to meet the needs of our cities and counties, and provide additional property tax relief.
In the current biennium, our cities and counties will have received $4 million more in revenue sharing than was anticipated, and in the next biennium, they will see an additional $4.3 million.
Improved state aid distribution, along with our proposed increase in state aid to education, will help reduce pressure on property taxes.
PLANNING FOR THE FUTURE
Caring for our people, investing in our future, and sound fiscal management are the principles we've built into our budget.
Today, I ask you join with me to summon the vision, leadership, and resolve to invest in the people of North Dakota - to invest in their talents, their ingenuity, their energy and their outstanding work ethic.
Wherever I travel in North Dakota - from Grand Forks to Williston to Crosby - from Fargo to Rugby to Dickinson - in large towns and small - I sense a new attitude:
- We can create more, good paying jobs and careers.
- We can grow and diversify our state's economy.
- We can build upon our state's agricultural and energy base.
- We can take our place as a state where technology, tourism, and advanced manufacturing thrive.
- We can retain our outstanding quality of life and use it to help us grow and prosper.
- And at the same time, we can provide for the needs of our people - without increasing their taxes.
Our budget is designed to unleash the potential of the people of North Dakota and ensure continued economic growth and opportunity.
Our time is now - together we can build a brighter future for our state.
Thank you, and may God bless North Dakota.
