2009-2011 Budget Address
The Honorable John Hoeven
Governor of the State of North Dakota
December 3, 2008
Good morning. It is my pleasure to welcome the members of the 61st North Dakota Legislative Assembly, Justices of the Supreme Court, Lt. Gov. Jack and Betsy Dalrymple, elected officials, cabinet members, state employees, First Lady Mikey, and my fellow North Dakotans.
I want to begin by thanking the Office of Management and Budget, all of our state agencies, and my staff for their hard work, as well as their conscientious and thoughtful approach to constructing our new budget.
Working together, I believe we have produced a forward-looking and productive budget for the people of North Dakota - a budget that funds our priorities, sets aside a healthy reserve, and provides real tax relief for the hard-working men and women of our state. Please accept my sincere thanks to all who have spent many diligent hours on this important work.
Today, I am pleased to present our executive budget for the 2009-2011 biennium.
Eight years ago, we set our sights squarely on economic development to create quality jobs and raise the standard of living for our people.
Working with you, the Legislature, our campuses, the private sector, and others, we set the course for economic growth with a comprehensive strategic plan for aggressive economic development statewide.
Our plan targeted five industry sectors - industries where North Dakota has real advantages because of our natural and human resources - our land and our citizens.
These include value-added agriculture, advanced manufacturing, technology-based businesses, energy, and tourism.
At the same time, we added benchmarks - concrete measures - to assess our progress and provide the people of North Dakota with the accountability they deserve.
We began our work by building the strongest possible business climate - work that continues to this day. We have aggressively pursued economic development. Together, with the Legislature, we've simplified our tax code, reduced regulatory red tape, advanced Centers of Excellence, and made North Dakota one of the best places in America for businesses to start-up, expand, and grow.
And we're getting results.
Since 2000, we have gained more than 30,000 new jobs, and currently have more than 10,000 job openings across the state.
Last year, North Dakota's Gross State Product grew by more than $1.8 billion dollars. In fact, since 2000, we have grown steadily at a rate of more than $1 billion a year - a total of 56 percent compared to 41 percent for the nation.
And we've grown faster than the nation in per capita personal income, as well. Between 2000 and 2007, we saw more than a 43 percent growth in per capita personal income, compared to 29 percent for the nation.
Beyond the nation's borders, North Dakota is now a player in the world economy, exporting everything from commodities and processed foods, to aircraft parts and medical testing services. Since 2000, North Dakota's exports have grown by 225 percent - from $626 million to more than $2 billion.
Whether the measure is job growth, per capita income, or gross domestic product, we've grown faster than the national average.
Clearly, these and other measures of our state's economic progress demonstrate that our approach to economic development is working. But there is more to do.
We are not immune to the problems of the national economy - which is why we must keep our focus on aggressive economic development. That is really what we strive to do in this budget.
In our new budget, we take a balanced approach to funding North Dakota's needs and achieving our shared goals:
- First, we invest in the priorities that have consistently fueled our economic success - priorities like education, economic development, infrastructure, research and development, and jobs training programs. These are the investments that help us to create quality jobs, take care of those in need, and continue to improve the standard of living for all North Dakotans.
- Second, for the hard working people of North Dakota, we provide $400 million dollars in broad-based tax relief. Our tax plan reduces property taxes by $300 million, and in addition, devotes $100 million in income tax relief for our citizens.
- And finally, we budget for sustainability over the long term. We set aside a healthy reserve of $600 million at the beginning of the biennium, and project further growth in those reserves by the end of the biennium.
THE BIG PICTURE
Let's start with an overview of our budget plan for the 2009-2011 biennium. We have some charts to help illustrate it for you. (Intro Chart.)
This first chart outlines our budget objectives for the biennium: Fund Our Priorities, Provide Real Tax Relief, and Build Our Reserves for the future.
Due to our more dynamic economy, we have seen growth in both our ongoing revenues and our reserves during the current biennium.
That growth is projected to continue into the next biennium, as well.
As good stewards of the taxpayers' dollars, we have looked closely at our revenues and expenditures, and we have been careful to ensure that ongoing revenues are greater than ongoing expenditures. These figures are shown in Chart 1.
In the 2009-2011 biennium, our General Fund ongoing revenues and transfers will total about $2.784 billion, after a reduction of $100 million in income tax relief. At the same time, our ongoing expenditures will total about $2.754 billion. With these projections, you can see that ongoing revenues exceed ongoing expenditures. Overall, ongoing spending increases about 9 percent per annum, which is well within our means.
Our budget does not borrow or bond. It does not impose any new taxes. In fact, we do significantly more to fund our priorities, while reducing the tax burden on our citizens and setting aside a healthy reserve for the future.
Also, as shown next in Chart 2, our growing revenues are reflected in a $392 million ending fund balance for the current biennium. This is our actual General Fund surplus after transfer of $111 million to the Budget Stabilization Fund, as required by law.
This General Fund surplus is largely the result of higher revenues from sales and income taxes, which have been generated by North Dakota's growing and more diversified economy, as well as our prudent fiscal management.
Our budget takes a portion of this surplus - $357 million - and invests it in one-time capital needs and other critical areas, like infrastructure, capital projects, technology systems, equipment, extraordinary repairs, and deferred maintenance.
These are the kinds of investments that will further stimulate economic activity, make our state more competitive, help those in need, and improve our standard of living. They are also the kinds of investments that make real tax relief possible.
That tax relief is shown in our next chart, Chart 3. Our budget dedicates $400 million for permanent tax relief. This includes $300 million in property tax relief and $100 million in income tax relief for the people of North Dakota.
In addition, as part of our Permanent Tax Relief and Education Funding Reform Plan, we propose new funding for K-12 education, which I will discuss shortly. These new dollars will not only strengthen instructional adequacy and improve teacher compensation, but also further take the pressure off property taxes.
After funding our priorities, and providing both real tax relief and tax reform, our budget also significantly builds our reserves for the future. Building our reserves is important and vital, particularly given the challenges faced by our national economy.
Chart 4 illustrates how we build a strong reserve, even after we provide tax relief and make necessary capital investments in the growth of our state.
We begin the new biennium on July 1, 2009 with a $392 million General Fund Cash Balance, from which we have funded $357 million in One-time Capital Investments. That leaves a General Fund Cash Balance of $35 million. To that, we add our Budget Stabilization Fund, which increases from $200 million to $311 million, based on statutory requirement.
At the same time, by the beginning of the next biennium, our Oil Tax Trust Fund grows to $562 million. We use $300 million of that to provide property tax relief, leaving a balance of $262 million in our Permanent Oil Tax Trust Fund. All of these sources combined - our July 1, 2009 cash balance, Budget Stabilization Fund, and Permanent Oil Tax Trust Fund - give us a total reserve at the beginning of the 2009-2011 biennium of $608 million.
This reserve will grow with the addition of oil tax revenues generated during the next biennium. Because of the volatility in the petroleum markets, however, we have prepared two forecasts - one is based on the oil prices projected by Economy.com, the state's financial consulting firm, and the second uses the current price of crude oil all the way through the next biennium. Both estimates show growth, but taken together, they provide us with a range that is helpful in the budgeting process.
Charts 5 and 6 illustrate our two projections for the next biennium. In the first estimate, shown on Chart 5, we project revenue growth in the Oil Tax Trust Fund of $567 million, which would bring the fund's balance from $262 to $829 million. Add to this sum our Budget Stabilization Fund Balance - $311 million - and our Projected General Fund Ending Balance - $65 million - and we arrive at a total reserve of $1.2 billion by the end of the biennium.
Our second scenario, shown in Chart 6, is very conservative, and uses the current price of oil through June 30, 2011 to project oil tax revenues. This results in additional oil tax revenues of $204 million over the course of the next biennium. When we add this to our Oil Tax Trust Fund adjusted beginning balance of $224 million, the result is $428 million in oil revenue reserves. Add to this our Budget Stabilization Fund of $311 million, and $65 million for our Projected Ending Fund Balance and our projected reserve becomes $804 million - still a larger and stronger reserve position.
This budget provides the right balance, and a clear map for further growth.
We are living within our means. In other words, ongoing revenues cover ongoing expenditures; we make important one-time investments that help build our state; we provide real tax relief for our citizens; and we build a strong reserve for the future.
Now, having reviewed the overall structure for our budget, let's take a closer look at the individual funding priorities for growth within the budget.
All represent investments in our people, our state, and our future.
Let's start with education funding.
BUILDING OUR FUTURE ON EDUCATION
Education - both K-12 and higher education - is the foundation on which we build our economic future. For that reason, over the past four bienniums, we have increased funding for K-12 schools by more than $200 million.
In the last session, we made North Dakota history by passing the greatest reform in K-12 education funding in more than a generation.
This session, we want to do more.
Our total K-12 education package invests an additional $130 million in our North Dakota schools, which will bring the state's share of the cost of education from 49 percent to the long-sought goal of 70 percent. This represents an important step forward for our children, our workforce, our families and our future.
In the months since you last met, the Governor's Commission on Education Improvement has devoted its time and talents to addressing the issue of education adequacy.
To support their work, our budget includes an increase of $110 million in General Fund monies for State Aid Formula payments. Because a good education begins with good teachers, we recommend - as we have in the past - that no less than 70 percent of new money received by a district be applied to teacher compensation.
Also, a good early education system benefits North Dakota in many ways, as well. Consequently, our budget includes $15 million to continue the all-day kindergarten program we initiated in the last session.
In addition to their important work on adequacy and all-day kindergarten, I have also asked the commission to develop a plan for pre-kindergarten education in our state. To that end, we are proposing funding, as per the commission's recommendation, for a new, pre-K education program. Commission members are already working with daycare providers and educators to develop plans to implement pre-K in the next biennium.
At this time, I want to thank and acknowledge Lt. Gov. Jack Dalrymple, Rep. RaeAnn Kelsch, Rep. Dave Monson, Sen. Tim Flakoll, Sen. Dave O'Connell, Superintendent Wayne Sanstead, the school officials, and the entire commission for their hard work and thoughtful recommendations.
Higher Education:Also, as in past budgets, we acknowledge the significant contribution higher education makes to our economic vitality. For that reason, we propose strong funding for our colleges and universities.
Our plan increases ongoing funding for the university system by $96 million, and further provides additional one-time funding of $74 million.
To help students and families with the cost of college, we include in our ongoing budget for higher education $40 million for ACT-ND, a direct needs-based tuition assistance program. When combined with federal Pell Grants, ACT-ND will cover between 80 and 100 percent of the cost of college tuition for eligible North Dakota high school graduates.
It is important to make college affordable for all, but it is also important to ensure that we retain and recruit quality faculty and staff. Our budget provides ongoing funding for a 5 percent salary increase in each year of the biennium, as well as additional monies for health insurance coverage and funding for equity.
We also recognize that our campuses have a need to maintain good facilities. That is why we have provided the $74 million in one-time funding for capital projects, extraordinary repairs, and enhanced security on our campuses.
We are making a total additional investment of $170 million in our University System, which should also make it possible for our campuses to hold the line on tuition and fees to no more than the rate of inflation over the next biennium.
WORKFORCE DEVELOPMENT AND ECONOMIC DEVELOPMENT
To help fill the new jobs we are creating, our budget dedicates an increase of $24 million to Workforce Development programs and initiatives. These programs will not only help our young people seeking their first career, but also older workers seeking new skills for a new, more diversified economy.
That includes $10 million to support education and training programs like Rural Medical Tuition Scholarships for doctors, wind tower technician training, STEM Grants and other workforce-building programs.
Our STEM Grants, for example, will provide up to $2,000 a year for up to five years - that's $10,000 - to assist young people studying in the fields of science, technology, engineering, or math.
In addition, our budget also includes enhanced funding for career and technology education programs, career advisors, and "Virtual CTE Centers" to help broaden the availability and quality of technical training programs across our state.
These are investments in our youth - the young men and the young women who will build the future of our state.
Infrastructure
Like education and a skilled workforce, a strong infrastructure is the foundation for a strong economy. Good roads, bridges, and water supply systems are essential to serving the needs of new and expanding businesses - and ultimately to creating good jobs and opportunities for our citizens.
For that reason, we have proposed a $120 million Infrastructure Enhancement Plan, above and beyond expected revenue increases from established funding formulas for transportation. Our budget fully funds a new, revised formula that maximizes federal funding and increases funding for counties, cities and townships to use for roads, as well as increased funding to assist with county and regional transit systems.
Our plan also recognizes the rapid development our oil and gas producing counties have experienced over the past two years. To help them address the added wear and tear on their roads and bridges, we raise the annual per county cap on the oil tax distribution formula by $1 million for each county, and in addition, boost the Oil Impact Fund from $6 million to $20 million.
Water Projects
No less important for sustaining our economic infrastructure are statewide water projects, like the Northwest Area Water Supply Project, the Southwest Area Pipeline Project, and the Red River Valley Water Supply Project.
To support them, we recommend fully funding the administration overhead for the Water Commission, and providing more than $100 million through the Resource Trust Fund for vital water projects throughout our state. This is in line with the recommendations of the state Water Coalition and the State Water Commission.
These infrastructure investments will bolster our transportation and water supply systems to meet the needs of our state's growing agriculture, manufacturing and energy economies.
AGRICULTURE AND ENERGY: PARTNERSHIPS AND OPPORTUNITIES
Agriculture and value-added agriculture - tied with energy development - are important drivers in the growth of our economy. That is why it is crucial that we continue to make well-placed investments in research and development to ensure that our producers remain on the cutting edge.
The partnership between agriculture and renewable energy is one of the most exciting developments in North Dakota's economy, and research is vital for the success of both. Our budget anticipates the next phase of ag-based renewable energy development with a number of new initiatives and enhancements to existing programs, including $25 million for agriculture research and development.
At the heart of our plan are NDSU's Extension Service and our Agricultural Experiment Stations, located across the state. We build on the $7 million we provided in the last session by providing an additional $11.5 million for Phase 2 of the new Agriculture Research Greenhouse. We also provide a significant funding increase for our Agricultural Experiment Stations, which are vital to the state's research efforts.
In addition, we provide strong funding for biomass research and development, the next major phase in the progress of the biofuels industry. That includes funding to bring our Biofuels PACE program to $5 million, and a new program to encourage the installation of blender pumps at North Dakota retailers.
As we commit ourselves to building our renewable energy resources, we must also continue to build our traditional resources.
Industries like oil, natural gas, and coal will continue to be essential to our energy mix well into the future, and our budget provides a number of innovative incentives to promote development in these sectors.
By enhancing support for research and development for traditional energy resources, we are providing the technology to produce more energy in an environmentally sound way.
For example, we propose raising the cap on our Oil and Gas Research Fund, which will help us to do more with new technologies like horizontal drilling and tertiary oil recovery. Similarly, through our Lignite Research Fund, we are doing more to develop new methods of carbon capture and sequestration.
Through EmpowerND, our comprehensive, multi-resource energy policy, we are forging partnerships between and across industry sectors, both renewable and traditional. These partnerships are transforming our energy industry, and helping to make North Dakota a true powerhouse for the nation.
QUALITY OF LIFE
Law Enforcement and Public Safety
As we raise our standard of living, we must work to build our quality of life, as well.
North Dakota is regularly recognized by national organizations for our good schools, safe communities, excellent healthcare, and other quality of life measures. These are assets we can never take for granted. It takes work - and resources - to maintain them.
Over the past few legislative sessions, we have worked together to toughen our laws protecting children and other vulnerable individuals - and in the upcoming session, we will do more.
Two years ago, we set aside $41 million for a renovation and expansion of the state prison in Bismarck. Since then, we have worked closely with the Legislature's interim Correctional Review Committee to get further input on the plan. Our budget includes an additional $22.5 million for the prison to address the need for on-premises medical facilities, additional orientation cells, and a more secure administrative segregation unit for the most dangerous criminals.
Also, to ensure that we have adequate professional corrections staff, we propose funding an equity pool to help retain and recruit officers.
North Dakota is regularly ranked among the safest states in the nation, and that is in large part because of our quality law enforcement and corrections officers. They deserve our support.
Taking Care of People
Quality of life means being safe and secure in our homes and businesses, but it also means having access to quality healthcare and other services for children and families, our seniors, and our military.
Our commitment to Human Services continues to increase, in part, because we are assuming a larger share of the costs of services formerly covered by the federal government. This year, because North Dakota's per capita income has risen again, we will need to dedicate an additional $10 million just to cover the cost of the state's share of Medicaid.
As a result of this, and other rising costs, our Human Services budget increases by $126 million.
SCHIP
That includes additional funding for SCHIP, the State Children's Health Insurance Program.
This past year, we worked hard to win federal approval to raise the eligibility level for SCHIP from 140 to 150 percent of the poverty level. As a result, today an additional 800 North Dakota children are able to receive healthcare coverage under Healthy Steps, North Dakota's SCHIP program.
But we want to do more.
We propose raising the eligibility level for SCHIP to 200 percent of the poverty level, and our budget provides the funding to do it.
Childcare Support for Working Parents
Another way we can help families is by helping parents secure quality, affordable childcare. That not only helps working families, but it also helps to build a workforce equal to the needs of a growing, more diversified economy.
Our budget increases total childcare assistance from less than $24 million to more than $36 million. That includes additional dollars for the state's Childcare Assistance Program, which helps low-income families who are working or seeking training to reenter the workforce. It also includes $3.5 million for a Childcare Provider Grant Program to help establish or expand provider facilities, as well as train and educate childcare workers.
These efforts - combined with funding for mandatory criminal background checks for childcare workers, and our new pre-K program - will help families find safe, accessible childcare services and build our workforce for the future.
Seniors - HCBC
As we do more for children, we also need to do more to help our citizens at the other end of life's spectrum, our seniors.
Our budget includes an increase of more than $17 million for Home and Community Based Care Programs to help North Dakota's elderly and people with disabilities maintain their independence.
At the heart of our plan is the establishment of a new Aged and Disabled Resource Center to serve as a single point of entry for long-term care services. Center staff will work with seniors, people with disabilities, and their families to help them find services to meet their unique needs at any stage of care.
Our budget also includes funding for additional managed care services, increased funding for Medicaid personal care, expanded meal delivery, and non-medical transportation.
Long Term Care and other Healthcare Providers
When Home and Community Based Care isn't enough, our seniors and people with disabilities rely on quality care at our hospitals, as well as quality long-term care from our nursing homes. In this regard, North Dakota is second to none. Our hospitals and nursing homes are nationally recognized for being among the best in the country.
To help maintain that level of quality, my office and the Department of Human Services have worked closely with providers to rebase our Medicaid reimbursement rates and bring them in line with providers' actual costs. This effort has resulted in a $40 million rebasing of rates for hospitals, doctors, dentists, chiropractors, and ambulance services.
For nursing homes and other long term care providers - as well as providers serving the developmentally disabled - our budget includes a provider increase of 7 percent for each year of the new biennium. This will help them to address rising costs, recruit and retain providers, and maintain their outstanding quality of care.
Our seniors helped to build our state, and they deserve our support.
Public Employee Salaries and Health Insurance
Improving our quality of life should extend as well to our state employees, who serve us in so many ways.
To do that, our budget includes a 5 percent salary increase in each year of the new biennium. In addition, our budget fully funds the increase in public employee health care premiums, and we have included additional funding for equity to retain and recruit qualified state workers.
The men and women who serve in our agencies and departments are dedicated and hard working. We truly appreciate the quality work they do on our behalf.
Military and Veterans
And finally, when we talk about quality of life, we can never forget the men and women currently serving in our military and our veterans.
In the last two legislative sessions, you approved benefits for a Veterans Appreciation program, including bonus payments of $100 for each month of overseas service, and $50 for each month of domestic service.
However, many of our soldiers have been called on to serve on more than one deployment, creating added sacrifices for them and for their families. To help them shoulder that burden, our budget recommends extending bonus payments to cover multiple tours of duty.
In addition, we also include funding to enhance the National Guard's reintegration program for North Dakota soldiers, so that when they return home, they will know there's a helping hand to greet them.
Our budget also acknowledges our gratitude to our veterans by providing enhanced funding for the new Veterans Home in Lisbon. In the last session, you approved a $9 million appropriation to meet the state's share for a new 150-bed facility.
In this budget, we provide additional funding of $12 million to complete the project.
To all of you who serve, and to your families, we say thank you - thank you for your sacrifices.
BUILDING A BUDGET FOR CONTINUED GROWTH
Two years ago this month, I stood before you and posed a critical question: "Where do we want to be 10 years - or 20 years - from now?"
In the course of the last session, I believe you answered that question by making the kinds of investments that have helped us to make real progress.
The budget I present to you today builds on that progress. It continues to fund our priorities for growth, it provides real tax relief for our citizens, and it creates a stronger reserve than we have ever had before.
It is a sustainable budget, and it is also an enterprising and farsighted budget. It is a budget for the future.
Now is the time to roll up our sleeves. I look forward to working with all of you, and the people of North Dakota, to achieve our shared goals.
Thank you. May God bless you and your work. And may God bless the Great State of North Dakota.