Gov. Doug Burgum presented his 2021-23 Executive Budget to the 67th Legislative Assembly yesterday, delivering a plan that holds general fund spending even, invests in priorities and leverages the state’s strong balance sheet to build critical infrastructure and provide North Dakotans with the high level of customer service they deserve and expect.
“New challenges create opportunities and demand fresh ideas and approaches, and our proposed budget charts a course for North Dakota agencies and institutions to overcome these challenges and emerge stronger than ever before,” Burgum said. “We can accomplish this with a fiscally conservative budget that holds the line on general fund spending, invests in our priorities and maintains healthy reserves, all without raising taxes.”
Burgum began his address with gratitude for the health care workers and first responders on the front lines of the state’s battle against COVID-19. In addition to providing ongoing support for the state’s pandemic response, the executive budget proposes a historic $1.25 billion bonding package to support much-needed infrastructure projects – paid for with reliable Legacy Fund earnings – as well as criteria and categories for all future legacy fund earning investments, and key investments in technology, education and workforce to improve services to citizens and build for the state’s future success.
Bridging the gap, spending responsibly
Despite disruptions from the pandemic, the administration pressed ahead this year with the strategy review process that Burgum implemented in 2018 to find efficiencies, reinvent processes and encourage greater collaboration among agencies.
This comprehensive review revealed that continuing existing services and programs would require an additional $101 million of scarce ongoing general fund resources.
After identifying budget cuts and funding source changes and reprioritizing spending, the result is an executive budget proposal that reduces ongoing general fund spending by $61 million. Overall general fund expenditures would decrease slightly by about $8 million, to $4.836 billion, due to one-time investments.
The executive budget proposes a total budget of $15 billion from general, federal and special funds, up from the current $14.7 billion budget because it includes $550 million in appropriations for infrastructure projects as part of the $1.25 billion bonding package.
To help bridge a gap in ongoing general fund revenue, the executive budget proposes a transfer of $240 million from the state’s rainy-day Budget Stabilization Fund, which was fully replenished to $727 million this biennium. The budget also would transfer $83 million from the Foundation Aid Stabilization Fund to maintain the K-12 per-pupil payment at the current level of $10,036 through the 2021-23 biennium.
Both reserve funds would maintain healthy balances, Burgum noted, thanks to efforts to build reserves in recent years. The proposal also moves away from using Legacy Fund earnings to balance the budget for day-to-day government operations, which was never the intent of the Legacy Fund, he noted.
The budget proposal also includes:
Nearly $105 million for information technology projects to replace and upgrade systems that rely on antiquated mainframe technology. This includes funding for 15 projects spread across seven agencies dealing with a variety of systems and data from unemployment insurance to juvenile case management to traffic data and analysis.
“The perpetually deferred replacement of these 30- to 40-year-old systems increases both cost and risk to the state and our citizens. We must act now to protect citizens and their information,” Burgum said.
A decrease of 91 full-time equivalent team members, for a total of 15,779 FTEs, and performance-based salary increases of 2 percent in each year of the biennium. Agencies may provide additional increases based on performance if they can identify long-term salary savings through further FTE reductions, which will incentivize efficiency and innovation.
Increasing both state and team member retirement contributions by 1 percent to address the estimated $1.6 billion unfunded liability in the state’s pension fund, which negatively affects local bond ratings and increases borrowing costs at all levels of government. The contribution change would put the pension fund on a path toward solvency by 2065. Team members will benefit their future retirement by growing the pension fund, which will increase earnings to help ensure the fund delivers on its commitment to Team ND long into the future.
Workforce and education
With the proposal to maintain the K-12 per-pupil payment at its all-time high level, the state’s commitment to K-12 education has never been stronger, Burgum said. The budget would dedicate 38 percent of ongoing revenue to K-12 school aid, up from 33 percent in 2013-15.
Funding for higher education as a percentage of ongoing general fund revenue also would remain higher than in 2013-15, at 13 percent compared with 11 percent. Total funding for higher education next biennium is proposed at $2.6 billion, including a general fund decrease of $9.3 million from the current biennium’s legislative base level to reflect a trend of decreasing enrollment and a 7.5 percent reduction in the formula payment rate.
The proposed bonding package includes $45 million for workforce development through matching grants to expand and establish new centers for career and technical education and help replicate the success of the Bismarck Career Academy.
Funding for the Higher Education Challenge Grant program also would increase from $9.4 million to $20 million – $10 million from the general fund and $10 million from potential June 30, 2021, Legacy Fund earnings – to support North Dakota’s public colleges and universities. By requiring a 2-to-1 match in private donations, investing $20 million into the Challenge Grant program would bring a total of $60 million into the higher education system.
Health and human services
The executive budget reflects the support needed for the Department of Health to maintain the pandemic response, proposing $95 million in COVID-related funding, of which $84 million is one-time funding, including $40 million in federal and special funds.
To expand access to treatment services, the budget proposes increasing funding from $8 million to $17 million for the Substance Use Disorder (SUD) Voucher program through the Department of Human Services (DHS). The program exhausted its entire appropriation in just 14 months this biennium, and the budget proposal matches funding to the increased demand for the program.
The budget proposes construction of a new State Hospital in Jamestown through a public-private partnership. A private entity would build and maintain the hospital through a 40-year agreement. DHS would realize savings and efficiencies of about $5.5 million per year, which would help offset the cost, leaving a gap payment of approximately $1.7 million per year for debt service on the new hospital starting in the 2023-25 biennium.
The budget also renews a proposal to streamline administration of Medicaid expansion and reduce its fee schedule to match traditional Medicaid rates. North Dakota is one of 38 states that participate in Medicaid expansion – currently assisting 22,500 low-income adults in receiving health care services – but is the only state paying commercial rates to reimburse providers for Medicaid expansion clients. North Dakota reimburses providers about $14,000 for each Medicaid expansion client, while the next highest state, Alaska, pays $9,000 per client, Minnesota $8,600 and Montana $7,000 for the same services.
The proposed change in fee schedule would become effective July 1, 2022, allowing health systems time for the transition to take place after the pandemic and related stresses on the health care system have passed. The change would have no impact on individuals’ eligibility or access to services, Burgum noted.
The executive budget also includes funding to change the payment system for nursing homes to reward operational efficiency and well-maintained properties.
Investing in infrastructure
North Dakota has harnessed the power of bonding for decades. State agencies currently hold a modest balance of $2.25 billion in bonds issued mostly to support housing and water projects. However, the state has not used bonding extensively for transportation projects as many other states do.
With interest rates at historic lows and an assured source of repayment in Legacy Fund earnings, “Now is the time to invest in our future with a backbone of smart, efficient, modern infrastructure,” Burgum said.
“Waiting to build major infrastructure projects only until we can pay cash defers the economic benefits, exposes us to future construction inflation, raises local cost share and limits our growth,” he said. “Bonding works. Our school districts and cities do it regularly. It’s simple, and most importantly, in today’s interest rate environment, it is very smart and economical.”
Under the executive budget proposal, the state will sell bonds in the amount of $1.25 billion:
$700 million will be used for infrastructure revolving loan funds to be loaned out to political subdivisions for water, road, bridge and other projects under long-term, low-interest loans that will help keep property taxes low.
$323 million will go toward transportation, bridge and community project grants that can be undertaken now to see immediate improvements in communities and roadways.
$45 million go into a cost-sharing match grant program to incentivize the expansion and opening of local career academies.
$182 million will be used to address maintenance and repair issues with state facilities that have gone unaddressed for too long.
A portion of Legacy Fund earnings would be used to create a Legacy Bond Repayment Fund to make the debt payments on the $1.25 billion in bonds.
The repayment fund is one of five categories proposed for all future uses of the Legacy Fund earnings in the executive budget, along with using the funds to drive economic diversification, community development and strategic initiatives; supporting research and innovation; transforming how government provides services; and investing in transformational legacy projects that have a high return and lasting impact for citizens.
The budget also proposes a number of investments using Legacy Fund earnings from the current 2019-21 biennium, including $27 million to support growth in the unmanned aerial systems industry, $8 million for the Housing Incentive Fund to increase affordable housing across the state, $30 million for the Innovation Technology Loan Fund created by the 2019 Legislature, $25 million for statewide cybersecurity, $10 million for state park infrastructure upgrades, $10 million for a State Park Challenge Grant Program to drive private investments, and $5 million for an environmental quality restoration fund.
“With a fiscally conservative budget that prioritizes general fund needs without the ongoing reliance on Legacy earnings, we set our state on a historic path of harnessing the predictable free cash flow of Legacy earnings to multiply its impact through economic diversification, community building, infrastructure, research and innovation, government transformation, and lasting true Legacy projects,” Burgum said.