BUDGET SECTION

The Legislative Council's Budget Section is referred to in various sections of the North Dakota Century Code (NDCC) and the Session Laws of North Dakota. Although there are statutory references to the Budget Section, it is not created by statute. The Budget Section is an interim committee appointed by the Legislative Council. By tradition, the membership of the Budget Section consists of the members of the Senate and House Appropriations Committees, the majority and minority leaders and their assistants, and the Speaker of the House.

Budget Section members were Representatives Ken Svedjan (Chairman), Ole Aarsvold, Wesley R. Belter, LeRoy G. Bernstein, James Boehm, Merle Boucher, Rex R. Byerly, Ron Carlisle, Jeff Delzer, Eliot Glassheim, Pam Gulleson, Robert Huether, Keith Kempenich, James Kerzman, Kim Koppelman, Bob Martinson, David Monson, Bob Skarphol, Blair Thoreson, Mike Timm, Francis J. Wald, John M. Warner, Amy Warnke, and Janet Wentz and Senators John M. Andrist, Bill Bowman, Randel Christmann, Tony Grindberg, Joel C. Heitkamp, Ray Holmberg, Aaron Krauter, Ed Kringstad, Elroy N. Lindaas, Dave Nething, Larry J. Robinson, Randy A. Schobinger, Ken Solberg, Bob Stenehjem, Harvey Tallackson, Russell T. Thane, and Steven W. Tomac.

The Budget Section submitted this report to the Legislative Council at the biennial meeting of the Council in November 2002. The Council accepted the report for submission to the 58th Legislative Assembly.

The following duties, assigned to the Budget Section by statute, were acted on during the 2001-03 biennium:

1. Higher education campus improvements and building construction (NDCC Section 15-10-12.1 and 2001 Senate Bill No. 2039, Section 1) - This section requires the approval of the Budget Section or the Legislative Assembly for the construction of any building financed by donations, gifts, grants, and bequests on land under the control of the State Board of Higher Education. Campus improvements and building maintenance of more than $385,000 also require the approval of the Budget Section or the Legislative Assembly. Budget Section approval can only be provided when the Legislative Assembly is not in session, except during the six months prior to a regular legislative session. Budget Section approval regarding the construction of buildings and campus improvements must include a specific dollar limit for each building, campus improvement, or maintenance project. If a request is to be considered by the Budget Section, the Legislative Council must notify each member of the Legislative Assembly and allow any member to present testimony to the Budget Section regarding the request. Campus improvements and building maintenance of $385,000 or less and the sale of real property received by gift or bequest may be authorized by the State Board of Higher Education.
2. Irregularities in the fiscal practices of the state (NDCC Section 54-14-03.1) - This section requires the Office of the Budget to submit a written report to the Budget Section documenting:
   1. Any irregularities in the fiscal practices of the state.
   2. Areas in which more uniform and improved fiscal procedures are desirable.
   3. Any expenditures or governmental activities contrary to law or legislative intent.
   4. The use of state funds to provide bonuses, cash incentive awards, or temporary salary adjustments for state employees.
3. Transfers exceeding $50,000 (NDCC Section 54-16-04(2)) - This section provides that, subject to Budget Section approval, the Emergency Commission may authorize a transfer of more than $50,000 from one fund or line item to another. Budget Section approval is not required if the transfer is necessary to comply with a court order, to avoid an imminent threat to the safety of people or property due to a natural disaster or war crisis, or to avoid an imminent financial loss to the state.
4. Federal funds not appropriated (NDCC Section 54-16-04.1) - This section provides that Budget Section approval is required for any Emergency Commission action authorizing a state officer to spend more than $50,000 of federal funds that were not appropriated and that the Legislative Assembly has not indicated an intent to reject.
5. Other funds not appropriated (NDCC Section 54-16-04.2) - This section provides that Budget Section approval is required for any Emergency Commission action authorizing a state officer to spend more than $50,000 from gifts, grants, donations, or other sources, which were not appropriated and which the Legislative Assembly has not indicated an intent to reject the moneys or programs.
6. Report from ethanol plants receiving production incentives (2001 Senate Bill No. 2019) - Section 4 of this bill requires any North Dakota ethanol plant receiving production incentives from the state to file with the Budget Section a statement indicating whether the plant produced a profit during the preceding fiscal year, after deducting incentive payments received from the state.
7. Preliminary planning revolving fund (NDCC Section 54-27-22) - This section provides that before any funds can be distributed from the preliminary planning revolving fund to a state agency, institution, or department, the Budget Section must approve the request.
8. Form of budget data (NDCC Section 54-44.1-07) - This section requires the director of the budget to prepare budget data in the form prescribed by the Legislative Council and to present it to the Legislative Assembly at a time and place set by the Legislative Council. The Legislative Council has assigned this responsibility to the Budget Section.
9. State building construction projects (NDCC Section 48-02-20) - This section provides that a state agency or institution may not significantly change or expand a building construction project approved by the Legislative Assembly unless the change, expansion, or additional expenditure is approved by the Legislative Assembly, or the Budget Section if the Legislative Assembly is not in session.
10. Tobacco settlement funds (NDCC Section 54-44-04) - This section provides that the director of the Office of Management and Budget is required to report to the Budget Section on the status of tobacco settlement funds and related information.
11. Objection to budget allotment or expenditure (NDCC Section 54-44.1-12.1) - This section allows the Budget Section to object to a budget allotment, and expenditure, or the failure to make an allotment or expenditure if such action is contrary to legislative intent.
12. Extraterritorial workers' compensation insurance (NDCC Section 65-08.1-02) - This section authorizes the Workers Compensation Bureau to establish, subject to Budget Section approval, a casualty insurance organization to provide extraterritorial workers' compensation insurance.
13. Reports on medical assistance expenditures and approval to spend funds resulting in a request for deficiency appropriations (2001 House Bill No. 1012, Section 20) - This section requires the Department of Human Services to report to each meeting of the Budget Section during the 2001-02 interim on the status of actual medical assistance expenditures to projections based on legislative appropriations for the 2001-03 biennium and provides for the Budget Section to approve any request to expend funds at a level that will require a request for a general fund deficiency appropriation.
14. Transfers from the Bank of North Dakota to offset declines in general fund revenues (2001 House Bill No. 1015, Section 12) - This section provides that the Budget Section may approve the transfer of up to $25 million from the Bank of North Dakota to the state general fund if, during the 2001-03 biennium, the director of the Office of Management and Budget determines that general fund revenues will not meet the legislative forecast.
15. Debt forgiveness plan at the Fargo Family Healthcare Center (2001 House Bill No. 1015, Section 21) - This section requires the University of North Dakota School of Medicine and Health Sciences to forgive the amount of debt owed by the Fargo Family Healthcare Center upon the center's adoption of a plan to address sustainability of programs at the center, approval of the plan by the Budget Section, adoption by the city of Fargo of a plan to provide support to the center, forgiveness by the city of Fargo of center debt relating to rental expenses, and final approval by the Budget Section.
16. Status of the risk management workers' compensation program (NDCC Section 65-04-03.1 and 2001 House Bill No. 1015, Section 29) - This section requires the Workers Compensation Bureau and the Risk Management Division of the Office of Management and Budget to periodically report to the Budget Section on the success of the risk management workers' compensation program.
17. Additional full-time equivalent (FTE) positions at the Workers Compensation Bureau (2001 House Bill No. 1024, Section 2) - This section authorizes the Workers Compensation Board of Directors to hire up to 10 FTE positions in addition to the FTE positions authorized in Section 1 of House Bill No. 1024 for the 2001-03 biennium and requires the board to report to the Budget Section on any additional FTE positions and related funding authorized.
18. Rental space in proposed Workers Compensation Bureau building (2001 House Bill No. 1024, Section 5) - This section requires that if a new Workers Compensation Bureau facility is built, the bureau is to report to the Budget Section on plans for leasing space in the building to other state agencies.
19. Transfers to the state tuition fund (NDCC Section 15.1-02-14 and 2001 House Bill No. 1058, Section 1) - This section requires the Superintendent of Public Instruction to report annually to the Budget Section regarding any transfer to the state tuition fund of federal or other moneys received by the Superintendent to pay programmatic administrative expenses for which the Superintendent received a state general fund appropriation.
20. Job insurance trust fund (NDCC Section 52-02-17 and 2001 House Bill No. 1084, Section 1) - This section requires that Job Service North Dakota report before March 1 of each year the actual job insurance trust fund balance and the targeted modified average high-cost multiplier, as of December 31 of the previous year, and a projected trust fund balance for the next three years.
21. Survey of all political subdivision-owned armories (2001 House Bill No. 1215, Section 1) - This section appropriates funds to the Adjutant General for the purpose of distributing grants on an equal matching fund basis to political subdivisions for the maintenance and repair of political subdivision-owned armories. Before approval of any project under the program, the Adjutant General is to conduct a major repair and maintenance needs survey of all political subdivision-owned armories and provide a report of the results of the survey and recommendations to the Budget Section.
22. Additional .5 FTE position in the Department of Financial Institutions (2001 Senate Bill No. 2008, Section 2) This section authorizes the Department of Financial Institutions, upon approval of the Emergency Commission and the Budget Section, an additional .5 FTE position for the licensing and regulation of deferred presentment service providers.
23. Status of the Department of Commerce (2001 Senate Bill No. 2019, Section 7) - This section requires the commissioner of the Department of Commerce to report periodically to the Budget Section during the 2001-02 interim on the status of the establishment of the Department of Commerce.
24. Performance measures for the Department of Commerce (2001 Senate Bill No. 2019, Section 7) - This section requires the commissioner of the Department of Commerce to establish performance measures and report to the Budget Section on the department's progress in achieving its performance measures for the 2001-03 biennium.
25. Workforce training funds raised by the University System (2001 Senate Bill No. 2020, Section 5) - This section requires the North Dakota University System to report during the 2001-02 interim to the Budget Section regarding the amount of workforce training funds raised in each region of the state during the first fiscal year of the biennium and the amount anticipated to be raised before June 30, 2003.
26. Status of the State Board of Agricultural Research and Education (NDCC Section 4-05.1-19 and 2001 Senate Bill No. 2021, Section 10) - This section requires the State Board of Agricultural Research and Education to present a status report to the Budget Section during the 2001-03 biennium concerning employees, expenditures, research and cooperative projects, and source of income for the extension centers and main station.
27. Requests by the Information Technology Department to finance the purchase of software, equipment, or implementation of services (NDCC 54-59-05(4) and 2001 Senate Bill No. 2043, Section 2) - This section requires the Information Technology Department to receive Budget Section approval before executing any proposed agreement to finance the purchase of software, equipment, or implementation of services in excess of $1 million.
28. Report from the Information Technology Department (NDCC Section 54-59-19 and 2001 Senate Bill No. 2043, Section 8) - This section requires the Information Technology Department to prepare and present an annual report to the Information Technology Committee and to present a summary of the report to the Budget Section.
29. Performance measures developed in the Information Technology Department (2001 Senate Bill No. 2043, Section 9) - This section requires the Information Technology Department to develop performance measures to assist the Legislative Assembly in determining the effectiveness and efficiency of the department's operations during the 2001-03 biennium and to report the results to the Budget Section.

The following duty, assigned to the Budget Section by Legislative Council directive, is scheduled to be addressed by the Budget Section at its December 2002 meeting:

Review and report on budget data (Legislative Council directive) - Pursuant to Legislative Council directive, the Budget Section is to review and report on the budget data prepared by the director of the budget and presented to the Legislative Assembly during the organizational session.

The following duties, assigned to the Budget Section by statute or Legislative Council directive, did not require action by the Budget Section during the 2001-02 interim:

1. Children's Services Coordinating Committee grants (NDCC Section 54-56-03 and 2001 Senate Bill No. 2014, Section 2) - These sections provide that Budget Section approval is required prior to the distribution by the Children's Services Coordinating Committee of any grants not specifically authorized by the Legislative Assembly.
2. State Forester reserve account (NDCC Section 4-19-01.2) - This section provides that Budget Section approval is required prior to the State Forester spending moneys in the State Forester reserve account.
3. Investment in real property by the Board of University and School Lands (NDCC Section 15-03-04) - This section provides that Budget Section approval is required prior to the Board of University and School Lands purchasing, as sole owner, commercial or residential real property in North Dakota.
4. Game and Fish Department land acquisitions (NDCC Section 20.1-02-05.1) - This section provides that Budget Section approval is required for Game and Fish Department land acquisitions of more than 10 acres or costing more than $10,000.
5. Provision of contract services by the Developmental Center (NDCC Section 25-04.02.2) - This section provides that, subject to Budget Section approval, the Developmental Center at Westwood Park, Grafton, may provide services under contract with a governmental or nongovernmental person.
6. Termination of food stamp program (NDCC Section 50-06-05.1(17)) - This section provides that, subject to Budget Section approval, the Department of Human Services may terminate the food stamp program if the rate of federal financial participation in administrative costs is decreased or if the state or counties become financially responsible for the coupon bonus payments.
7. Termination of energy assistance program (NDCC Section 50-06-05.1(19)) - This section provides that, subject to Budget Section approval, the Department of Human Services may terminate the energy assistance program if the rate of federal financial participation in administrative costs is decreased or if the state or counties become financially responsible for the energy assistance program payments.
8. Transfers resulting in program elimination (NDCC Section 54-16-04(1)) - This section provides that, subject to Budget Section approval, the Emergency Commission may authorize a transfer that would eliminate or make impossible the accomplishment of a program or objective funded by the Legislative Assembly.
9. Cashflow financing (NDCC Section 54-27-23)  - This section provides that in order to meet the cashflow needs of the state, the Office of Management and Budget may borrow, subject to Emergency Commission approval, from special funds on deposit in the state treasury. However, the proceeds of any such indebtedness cannot be used to offset projected deficits in state finances unless first approved by the Budget Section. Additional cashflow financing, subject to certain limitations, must be approved by the Budget Section.
10. Budget stabilization fund (NDCC Section 54-27.2-03) - This section provides that any transfers from the budget stabilization fund must be reported to the Budget Section.
11. Budget reduction resulting from initiative or referendum action (NDCC Section 54-44.1-13.1) - This section provides that, subject to Budget Section approval, the director of the budget may reduce state agency budgets by a percentage sufficient to cover estimated revenue reductions caused by initiative or referendum action.
12. Program terminations or reductions due to reduced federal funding (2001 House Bill No. 1015) - Section 14 of this bill requires state agencies, departments, and institutions to receive Budget Section approval for the following:
    1. Termination of a program for which federal funding is terminated.
    2. Prioritization of programs as necessary to make programmatic reductions if federal funding for separate programs is combined in a block grant, resulting in a reduction of federal funds available for those programs.
13. Federal block grant hearings (2001 Senate Concurrent Resolution No. 4002) - This resolution authorizes the Budget Section, through September 30, 2003, to hold any required legislative hearings for federal block grants.
14. Reduction of the game and fish fund balance below $10 million (NDCC Section 20.1-02-16.1) - This section provides that the Game and Fish Department can spend moneys in the game and fish fund within the limits of legislative appropriations only to the extent the balance of the fund is not reduced below $10 million, unless otherwise authorized by the Budget Section.
15. Closing of the State Hospital landfill (2001 House Bill No. 1012, Section 23) - This section authorizes the State Hospital, during the second year of the 2001-03 biennium, to use projected savings from other areas of the budget and transfer appropriation authority between line items to provide funding for the costs of closing the State Hospital landfill, subject to Emergency Commission and Budget Section approval.
16. Waiver of exemption of special assessments levied for flood control purposes on state property (NDCC Section 40-23-22.1 and 2001 House Bill No. 1015, Section 17) - This section provides that state property in a city is exempt from special assessments levied for flood control purposes unless the governing body of the city requests waiver of the exemption and the exemption is completely or partially waived by the Budget Section.
17. Sources of funds received for construction projects of entities under the State Board of Higher Education (NDCC Section 15-10-12.3 and 2001 House Bill No. 1015, Section 24) - This section requires each institution under the State Board of Higher Education undertaking a capital construction project, that was approved by the Legislative Assembly and for which local funds are to be used, to present a biennial report to the Budget Section detailing the source of all funds used in the project. This section applies to projects approved after July 1, 2001.
18. Workers Compensation Bureau building maintenance account (2001 House Bill No. 1024, Section 6) - This section requires that if a new Workers Compensation Bureau facility is built and rental space is included in the facility, the Workers Compensation Bureau is to deposit the building rental proceeds in a building maintenance account and report to the Budget Section on a biennial basis on the revenues deposited and expenditures from the account.
19. Annual audits of renaissance fund organizations (NDCC Section 40-63-07 and 2001 House Bill No. 1460, Section 1) - This section requires the Division of Community Services to provide annual reports to the Budget Section on the results of audits of renaissance fund organizations.
20. Construction of the Towner nursery tree storage building (2001 Senate Bill No. 2003, Section 14) - This section authorizes the Forest Service, after receiving approval from the Budget Section, to obtain and use funds received from any source for construction of the Towner nursery tree storage building.
21. Addition to the Blikre activities center (2001 Senate Bill No. 2003, Section 20) - This section authorizes the State College of Science, after receiving approval from the Budget Section, to obtain and use funds received from any source to assist in the Blikre activities center addition.
22. Replacement of federal funding with general or special fund moneys in the Department of Corrections and Rehabilitation (2001 Senate Bill No. 2016, Section 7) - This section provides that if during the 2001-03 biennium the federal government reduces funding below the level anticipated by the 57th Legislative Assembly for any programs administered by the Department of Corrections and Rehabilitation, the department may not supplant the federal funds with general or special funds without first obtaining approval from the Budget Section.
23. New correctional programs which exceed $100,000 of cost during a biennium (NDCC Section 54-23.3-09 and 2001 Senate Bill No. 2016, Section 12) - This section requires the director of the Department of Corrections and Rehabilitation to report to the Legislative Assembly or, if the Legislative Assembly is not is session, to the Budget Section prior to the implementation of any new program that serves adult or juvenile offenders, including alternatives to conventional incarceration and programs operated on a contract basis if the program is anticipated to cost in excess of $100,000 during the biennium.
24. Transfers of funds between line items for the Information Technology Department (2001 Senate Bill No. 2022, Section 2) - This section authorizes the director of the Office of Management and Budget and the State Treasurer to make transfers of funds between line items of appropriations for the Information Technology Department as requested by the Chief Information Officer. Transfers that increase line items in excess of the January 7, 2001, executive budget recommendation require Emergency Commission and Budget Section approval. The Chief Information Officer is to inform the Budget Section of the transfers.

OFFICE OF MANAGEMENT AND BUDGET
Status of the State General Fund

At each Budget Section meeting, a representative of the Office of Management and Budget reviewed the status of the state general fund and revenue collections for the biennium.

The following is a summary of the status of the state general fund, based on actual revenue collections through the month of September 2002, and the July 2002 revised revenue forecast for the remainder of the 2001-03 biennium:

Unobligated general fund balance - July 1, 2001	$62,240,652
Add
General fund collections through September 30, 2002	990,921,011
Forecasted general fund revenue for the remainder of the 2001-03 biennium (based on the July 2002 revised revenue forecast)	664,245,418
Total estimated general fund revenue for the 2001-03 biennium	$1,717,407,081
Less
2001-03 biennium general fund appropriations	1,746,983,713
1.05% allotment - July 2002	(18,343,329)
Department of Human Services - Intergovernmental transfer payment	3,478,509
2001-03 biennium adjusted general fund appropriations	$1,732,118,893
Add
Potential transfer from Bank of North Dakota estimated as of September 30, 2002	14,711,812
Estimated general fund balance - June 30, 2003 ($11,994,694 was the 2001 legislative estimate)	$0

The July 2002 revenue forecast estimated total revenue to be approximately $1.641 billion, which was approximately $64.9 million less than the 2001 legislative forecast. The decrease in revenue was due mainly to decreases in individual income tax and corporate income tax collections. As noted later in this report, in July 2002 the Governor ordered a 1.05 percent allotment under NDCC Section 54-44.1-12 to help offset the budget shortfall and requested Budget Section approval under Section 12 of 2001 House Bill No. 1015 to transfer an additional $25 million from the Bank of North Dakota to the general fund, which was approved.

Fiscal Irregularities

Pursuant to NDCC Section 54-14-03.1, the Budget Section received a report from the Office of Management and Budget on irregularities in the fiscal practices of the state. Fiscal irregularities include the use of state funds to provide bonuses, cash incentive awards, and temporary salary adjustments for state employees. The Parks and Recreation Department granted five employees bonuses, ranging from $750 to $1,800, for the work involved with the flooding at Turtle River State Park. The bonuses were provided from Federal Emergency Management Agency funding. The Department of Economic Development and Finance provided a pay incentive in the amount of $2,850 to an individual involved with the manufacturers' partnership program. The report said the employee was a salaried employee whose salary was reduced, and the maximum amount the employee could receive in incentives could not exceed the original salary. The Department of Public Instruction provided bonuses to 20 employees for temporary workload increases during the 2001 legislative session ranging from $1,200 to $3,000.

The Budget Section asked the Legislative Council staff to survey state agencies to determine which agencies were providing employee bonuses. The Legislative Council staff presented the Budget Section with a memorandum entitled State Agency "Irregular" Salary Payments Survey. The state agencies were surveyed and provided details on the types and amounts of irregular salary payments provided to employees for fiscal years ended 1999, 2000, and 2001. The state agency survey responses include a description of agencies' nonmonetary compensation policies.

The Legislative Council staff reported to the Budget Section that unless specifically exempted, employees covered by the Fair Labor Standards Act must receive overtime pay for hours worked in excess of 40 hours in a workweek at a rate not less than one and one-half times the regular rate of pay. Employees of a public agency, which is a state, political subdivision of a state, or an interstate government agency, may receive, in lieu of overtime compensation, compensatory time off at a rate not less than one and one-half hours for each hour of employment for which overtime compensation is required.

Preliminary Planning Revolving Fund

Pursuant to NDCC Section 54-27-22, the Budget Section received reports from the Office of Management and Budget on recommendations for the use of money in the preliminary planning revolving fund. The January 2002 balance in the preliminary planning revolving fund was $148,000. The report listed the following criteria that are used to evaluate agency requests for money from the preliminary planning revolving fund:

• External mandates, such as court order, health, life safety, and building code concerns.
• Program needs, such as the impact of the facility on achieving departmental goals or program requirements.
• State policy direction, including gubernatorial and legislative priorities.
• Funding for the project, including the amount available from non-general fund sources.
• Scope of the project, including the estimated costs and the need to complete the project in multiple phases.

Based on the above criteria, the Office of Management and Budget requested money be provided from the preliminary planning revolving fund for the following five projects that the Office of Management and Budget plans to recommend to future legislative assemblies:

Project Description	Agency	Recommended Funding From the Preliminary Planning Revolving Fund
Science building and associated spaces renovation	Lake Region State College	$22,000
O'Kelly Hall renovation (first phase)	University of North Dakota	35,000
Horton Hall renovation	North Dakota State College of Science	59,000
Graichen gymnasium egress and health/safety project	Valley City State University	14,000
Medora Visitor Center addition	State Historical Society of North Dakota	12,000
Total		$142,000

Pursuant to NDCC Section 54-27-22, the Budget Section approved the distribution of $142,000 from the preliminary planning revolving fund, as recommended by the Office of Management and Budget. The balance in the preliminary planning revolving fund as of the end of October 2002 was $137,294.

Tobacco Settlement Proceeds

Pursuant to NDCC Section 54-44-04, the Budget Section received reports on tobacco settlement proceeds received by the state. The Office of Management and Budget reported that as of October 2002 approximately $79.7 million had been received to date by the state and deposited in the tobacco settlement trust fund. The proceeds have been apportioned among the community health trust fund, common schools trust fund, and water development trust fund as follows pursuant to NDCC Section 54-27-25:

Tobacco settlement trust fund
Community health trust fund (10%)	$7,968,150
Common schools trust fund (45%)	35,856,673
Water development trust fund (45%)	35,856,673
Total transfers from the tobacco settlement trust fund	$79,681,496

The Office of Management and Budget reported the balances in the trust funds were:

Community health trust fund
Deposits	$7,968,150
Expenditures	2,505,165
September 30, 2002, balance	$5,462,985
Water development trust fund
Deposits	$35,856,673
Expenditures	11,203,215
September 30, 2002, balance	$24,653,458

2003-05 Biennium Budget Form Changes

Pursuant to NDCC Section 54-44.1-07, the Office of Management and Budget presented a report to the Budget Section on the form of budget data to be presented to the 2003 Legislative Assembly and the feasibility and desirability of locating new positions, new programs, or new construction away from a central office setting.

The Office of Management and Budget reported that the Legislative Assembly passed 2001 House Bill No. 1035 providing for a state employee telecommuting incentive program. The telecommuting incentive program provides bonuses to agencies and employees based on savings realized by locating full-time equivalent (FTE) positions away from a central office setting.

Pursuant to NDCC Section 54-44.1-07, the Budget Section requested that the budget data prepared by the Office of Management and Budget continue to include an analysis to be completed by each agency of the feasibility and desirability, including the costs and benefits, of locating any new positions, new programs, or new capital construction away from a central office setting.

The Governmental Accounting Standards Board issued new guidelines on governmental financial reporting. The Office of Management and Budget reported that the 2001 Legislative Assembly passed legislation to help North Dakota's transition to the new reporting model. To coincide with the reporting model, the Office of Management and Budget proposed that equipment costs under $5,000 be moved from an equipment line item to the operating line item. In addition, a new capital assets line item will be used to replace the capital improvements and equipment line items and include all equipment over $5,000, land and buildings, and other capital payments. Pursuant to NDCC Section 54-44.1-07, the Budget Section approved this request.

Homeland Security Costs

The Budget Section received periodic reports from the Office of Management and Budget on homeland security costs. The Office of Management and Budget reported that through October 3, 2002, state agencies and institutions have incurred or are anticipated to incur a total of $514,749 of state-funded costs for homeland security measures. The Office of Management and Budget reported the industries most affected by the September 11, 2001, terrorist attacks, including travel-related industries, are not a significant part of North Dakota's economy.

BANK OF NORTH DAKOTA
Transfer

Pursuant to Section 12 of 2001 House Bill No. 1015, the Budget Section received a request for approval to transfer up to $25 million from the Bank of North Dakota to the state general fund to help offset the revenue shortfall. The Office of Management and Budget, pursuant to NDCC Section 54-44.1-12, implemented a 1.05 percent general fund allotment, saving $18 million. General fund revenues, including the beginning balance, are expected to be $43 million less than the original forecast. The balance, or $25 million, was proposed to be transferred to the general fund.

Pursuant to the provisions of 2001 House Bill No. 1015, the Budget Section approved the request to transfer up to $25 million from the Bank of North Dakota to the state general fund to the extent necessary to meet the revenue shortfall, provided any transfers necessary be made as late as possible in the 2001-03 biennium, and the Budget Section encourages the 2003 Legislative Assembly to provide for a transfer of any general fund balance on June 30, 2003, to the Bank of North Dakota, up to the amount of the $25 million transferred.

FARGO FAMILY HEALTHCARE CENTER

Pursuant to Section 21 of House Bill No. 1015, the Fargo Family HealthCare Center presented a plan addressing the sustainability of programs and services at the center to the Budget Section for approval. Section 21 of House Bill No. 1015 also provides that, upon approval of the plan by the Budget Section, adoption by the City of Fargo of a plan to provide support to the center, and forgiveness by the City of Fargo of at least $100,000 in center debt relating to rental expenses, the Budget Section may approve the debt forgiveness. The Fargo Family HealthCare Center requested the Budget Section for debt forgiveness of $395,000 from the University of North Dakota (UND) School of Medicine and Health Sciences. The debt owed to the UND School of Medicine and Health Sciences accumulated in the period from March 14, 1994, through June 30, 1996.

The Fargo Family HealthCare Center was organized in 1994 as a federally funded community health center serving primarily the low income, uninsured, and minorities in the Fargo-Moorhead area. Since the center's opening, there has been a relationship with the UND School of Medicine and Health Sciences to provide resident physicians to serve the center's patients. During the first two years of operation, the center had significant cashflow problems which led to the debt. The center attributed the cashflow problem to the original contract with the UND School of Medicine and Health Sciences and computer conversion problems, which resulted in an inability to bill Medicaid for client services. Corrective action was taken in 1996 and the center has been paying $40,000 a year on the debt owed to the UND School of Medicine and Health Sciences. The center reported the University of North Dakota is transitioning its residency program from the center, and the center needs to hire physicians to replace the resident physicians. The center reported that those facts, plus the need for a new computer system and the increasing trend in the number of uninsured patients at the center, have all had a significant impact on the center's ability to continue.

Pursuant to Section 21 of 2001 House Bill No. 1015, the Budget Section approved the Fargo Family HealthCare Center plan to address sustainability of programs and services and approved the forgiveness of $395,000 of debt owed by the Fargo Family HealthCare Center to the UND School of Medicine and Health Sciences.

HIGHER EDUCATION
Local Funds Report

The University System presented a comparison of budgeted expenditures to actual expenditures of local funds at each institution of higher education for the 1999-2001 biennium. The University System also presented a comparison of projected and actual local funds revenue sources by each campus for the fiscal years ended 2000 and 2001.

College President Retention Awards

The Budget Section received a report from the North Dakota University System regarding the State Board of Higher Education policy for college president retention awards. The new executive compensation policy was established by the State Board of Higher Education as an incentive for presidents to continue in the University System. Presidential tenure has been declining nationally over the last 20 years and the North Dakota University System has had 14 new presidents and executive deans in the last nine years. North Dakota college president salaries, in most cases, do not compare well with regional peer institutions. The board's policy is intended to promote retention of institution presidents by providing them an additional payment at retirement based on years of service, beginning after six years of service with the maximum payment limited to the president's final annual base salary.

Capital Projects

During the 2001-2002 interim, the Budget Section received requests relating to the following University System capital projects:

• University of North Dakota - Construction of a front entrance to the School of Medicine and Health Sciences building - Pursuant to NDCC Section 15-10-12.1, the Budget Section approved the UND's request to increase other funds spending authority from $350,000 to $465,000 for construction of a front entrance to the UND School of Medicine and Health Sciences.
• Williston State College - Health Science and Sports Complex project - Pursuant to NDCC Section 48-02-20, the Budget Section approved the Williston State College request to increase other funds spending authority by $750,000, and the total authorization from $4,500,000 to $5,250,000, for the Williston State College Health Science and Sports Complex project.
• North Dakota State University - F Court student apartment building project - Pursuant to NDCC Section 48-02-20, the Budget Section approved the North Dakota State University request to increase other funds spending authority by $600,000 to complete the F Court student apartment building project.
• Bismarck State College - Renovation of Schafer Hall - Pursuant to NDCC Section 48-02-20, the Budget Section approved the Bismarck State College request to increase spending authority for renovation of Schafer Hall at Bismarck State College from $596,000 to $700,000, $65,000 of which is from local funds related to lawsuit settlement funds from asbestos manufacturers and $39,000 is from funds available in the capital assets line item.
• Minot State University - Old Main/McFarland Auditorium renovation project - Pursuant to NDCC Section 48-02-20, the Budget Section approved the Minot State University request to increase other funds spending authority by $800,000 and total authorization from $7,850,000 to $8,650,000 for Minot State University's Old Main/McFarland Auditorium renovation project due to higher than estimated project costs.
• University of North Dakota - Design and construction of School of Medicine and Health Sciences Center for Excellence in Neurosciences building and related facilities costs - Pursuant to NDCC Section 15-10-12.1, the Budget Section approved the University of North Dakota request to increase federal funds spending authority by $2,953,462 for design and construction of a UND School of Medicine and Health Sciences Center for Excellence in Neurosciences building ($2,923,462) and for related facilities costs ($30,000).
• University of North Dakota - School of Medicine and Health Sciences laboratory renovation, laboratory equipment purchase, and related facilities costs - Pursuant to NDCC Section 15-10-12.1, the Budget Section approved the request to increase federal funds spending authority by $4,086,620 for the UND School of Medicine and Health Sciences to purchase a positron emission tomographic (PET) scanner ($2,500,000), other related laboratory equipment ($859,620), renovate existing facility space for a support laboratory ($720,000), and related facilities costs ($7,000).
• University of North Dakota - School of Medicine and Health Sciences laboratory renovation - Pursuant to NDCC Section 15-10-12.1, the Budget Section approved the UND School of Medicine and Health Sciences request to increase federal funds spending authority by $400,000 to renovate existing facilities for laboratory space for conducting biomedical research projects, contingent upon receipt of a Center for Biomedical Research in Excellence grant.
• Williston State College - Health Science and Sports Complex project - Pursuant to NDCC Section 48-02-20, the Budget Section approved the Williston State College request to increase other funds spending authority by $500,000 and the total authorization from $5.25 million to $5.75 million for the Health Science and Sports Complex project.
• North Dakota State University - Minard Hall addition - Pursuant to NDCC Section 48-02-20, the Budget Section approved the North Dakota State University request to increase other funds spending authority from $3 million to $3.4 million for the Minard Hall addition project.
• Carrington Research Extension Center - Feed mill and feedlot - Pursuant to NDCC Section 48-02-20, the Budget Section approved the request to increase other funds spending authority from $300,000 to $310,000 for a feed mill and feedlot at the Carrington Research Extension Center.

Workforce Training Funds

Pursuant to Section 5 of Senate Bill No. 2020, the Budget Section received a report from the North Dakota University System on the workforce training funds raised in each region during the 2002 fiscal year. The state is divided into four regions, as summarized in the following chart:

Region	Regional Funds Raised in Fiscal Year 2002	Regional Funds Anticipated to Be Raised in Fiscal Year 2003
Northwest	$40,150	$20,000
Northeast	59,500	65,000
Southwest	0	0
Southeast	292,421	100,000
Total	$392,071	$185,000

DEPARTMENT OF HUMAN SERVICES
Funding for Medicaid

Pursuant to Section 20 of 2001 House Bill No. 1012, the Budget Section received periodic reports from the Department of Human Services on the status of actual medical assistance expenditures compared to projections, excluding developmental disabilities grants, and whether the actual expenditures for the biennium are anticipated to exceed funding appropriated. The Budget Section learned through September 2002, the Department of Human Services has spent $407.3 million. The total amount anticipated to be spent by the end of the biennium is $676.3 million, of which $183.7 million is from the general fund. This projection reflects general fund spending of $16.3 million more than the legislative appropriation, reflecting the impact of the allotment reduction.

The Department of Human Services reported the following reasons for the increase in Medicaid expenditures:

• The number of eligible Medicaid recipients increased by about 5,000 for the biennium.
• The number of persons receiving services increased.
• The number of expensive medical cases increased.
• The utilization of outpatient hospital services exceeded original estimates by 22.3 percent.
• The actual net costs of drugs exceeded original estimates by 7.3 percent.
• The utilization of physicians' services increased 15.6 percent more than anticipated.

The Department of Human Services outlined an approach to deal with the Medicaid budget shortfall, including:

• The department issued a state employee travel "freeze."
• The department implemented a voluntary early retirement program.
• Vacant employee positions were left unfilled.
• The department committed to transfer approximately $1 million in savings generated from other budget areas.
• Possible fiscal relief from the federal government in the form of the restoration of the federal matching percentage.
• Additional funds available through the Intergovernmental Transfer (IGT) process.

North Dakota Families Receiving Assistance From State Programs

The Budget Section received information from the Department of Human Services on the number of families in North Dakota receiving financial assistance from state programs, including temporary assistance for needy families (TANF), food stamps, medical assistance, and child care. The statewide average participation in North Dakota's assistance programs for calendar year 2001 was:

• 2,969 families in the TANF program.
• 6,042 households in the food stamp program.
• 43,050 enrolled recipients in the Medicaid program.
• 2,874 families in the child care program.

The Budget Section received information from the Department of Human Services on the number of child support enforcement cases in North Dakota. For the quarter ended December 31, 2001, there were 13,131 non-IV-D cases and 39,047 IV-D cases in North Dakota. A IV-D case is one where the custodial parent has received state and federal assistance. During calendar year 2001, the Department of Human Services received $52.2 million for IV-D cases and $32.4 million in collections for non-IV-D cases. The number of child support enforcement cases is increasing both nationally and in North Dakota.

DEPARTMENT OF COMMERCE
Status Reports and Performance Measures

Pursuant to Section 7 of 2001 Senate Bill No. 2019, the Budget Section received periodic reports on the status and performance measures of the Department of Commerce. The Department of Commerce reported its first anniversary was in August 2002 and significant progress has been made by the department. The department reported that North Dakota had experienced gains in the number of people working in off-farm jobs, growth in sales tax revenue, increases in personal income, growth in tourism, growth of existing businesses, and increases in the startup of new businesses.

The Department of Commerce unveiled the six goals of the North Dakota Economic Development Foundation's strategic plan, which is to accelerate the creation of good quality jobs in North Dakota. The six goals are:

1. Develop a unified front for economic development based on collaboration, accountability, and trust.
2. Strengthen partnerships among the state's higher education system, economic development organizations, and private businesses.
3. Create quality jobs to retain North Dakota's current workforce and attract new high-skilled labor.
4. Create a strong marketing image to build on the state's numerous strengths, including workforce, education, and quality of place.
5. Accelerate job growth in diversified industry targets to provide opportunities for the state's long-term economic future.
6. Strengthen North Dakota's business climate to increase global competitiveness.

The department also targeted five industries for economic development in North Dakota. The five industries are:

1. Value-added agriculture.
2. Energy.
3. Advanced manufacturing.
4. Information technology.
5. Tourism.

The Department of Commerce reported on the performance measures within the department by presenting statistics relative to the accomplishments of each of the four divisions within the agency for the first year of the 2001-03 biennium. The four divisions are the Community Services Division, Economic Development and Finance Division, Tourism Division, and Workforce Development Division.

WORKERS COMPENSATION BUREAU
Status of Risk Management Workers' Compensation Program

Pursuant to NDCC Section 65-04-03.1, the Budget Section received information from the Workers Compensation Bureau on the status of the risk management workers' compensation program. Effective July 1, 2001, 141 state agencies were consolidated into one account for purposes of workers' compensation pursuant to Section 65-04-03.1. Section 65-04-03.1 requires the Workers Compensation Bureau to use the combined payroll, premium, and loss history of the agencies involved to determine rates, dividends, assessments, and premiums. The Workers Compensation Bureau reported good progress and excellent results concerning 2001 House Bill No. 1015, which established a single workers' compensation account for all state entities. The bill expires on July 1, 2003, and the Workers Compensation Bureau will be proposing legislation to continue the program. The estimated savings to the state for the period of July 1, 2001, to June 30, 2002, was $1.469 million.

Additional Full-Time Equivalent Positions

The Budget Section received a report on additional FTE positions at the Workers Compensation Bureau pursuant to Section 2 of 2001 House Bill No. 1024. That section authorized up to 10 additional FTE positions and $500,000 for related wages, salaries, and benefits for the Workers Compensation Bureau. At the time of the report, the Workers Compensation Bureau had hired 8.67 FTE positions to provide services previously provided under contract with an out-of-state vendor, consisting of two advocates within the Office of Independent Review and 6.67 FTE positions for information technology staff in the Workers Compensation Bureau's Information Services Department. Of the remaining 1.33 FTE positions, 1 FTE position is to fill a facility management position for the Workers Compensation Bureau office building under construction.

Workers Compensation Bureau Building

Pursuant to Section 5 of 2001 House Bill No. 1024, the Budget Section received periodic reports on the progress of construction and proposed rental space of the Workers Compensation Bureau building. The four-story building located at 1600 East Century Avenue will contain 111,900 square feet of office space, plus a 4,100 square-foot rooftop mechanical room. The total cost of the building project is estimated to be between $12 million and $14.5 million. The space for the Workers Compensation Bureau should be completed on May 1, 2003, and the space available for the other tenants completed on June 1, 2003.

The Workers Compensation Bureau will occupy the third and fourth floors and a small portion of the second floor. The Department of Commerce will occupy a majority of the second floor. Other agencies will occupy the remainder of the second floor and one-half of the first floor. Half of the first floor is dedicated to storage, building maintenance, and mechanical rooms. Initial rental fees are estimated at $13 per square foot. The Workers Compensation Bureau will no longer pay rent and related costs, which amount to nearly $500,000 per year.

Extraterritorial Workers Compensation Insurance

Pursuant to NDCC Section 65-08.1-02, the Budget Section received a report on the bureau's plans for the provision of extraterritorial workers' compensation insurance. The Workers Compensation Bureau reported that when North Dakota employees are injured while temporarily and incidentally operating outside of North Dakota, the North Dakota employer could be found to be in noncompliance with other states' laws. Therefore, without a separate policy in the adjacent state to cover the injured North Dakota employee, the North Dakota employer may have to pay penalties in the other state.

One solution to the problem is reciprocity agreements between states. The Workers Compensation Bureau has negotiated reciprocity agreements with seven states, including Montana and South Dakota. However, attempts to enter into a reciprocity agreement with the state of Minnesota have not been successful.

The committee learned a solution to the problem in Minnesota is the legislation adopted in 1993 and contained in NDCC Chapter 65-08.1. Chapter 65-08.1 allows the Workers Compensation Bureau to create a workers' compensation stock insurance company for the purposes of offering extraterritorial or other states' insurance. Section 65-08.1-02 states the casualty insurance organization may be established only upon the director's determination that the organization is needed to provide sufficient workers' compensation coverage for the employees and employers of this state and upon the approval of the Budget Section.

Pursuant to NDCC Section 65-08.1-02, the Budget Section approved the request for the Workers Compensation Bureau to establish a casualty insurance organization to provide extraterritorial workers' compensation insurance coverage. The Budget Section will receive an update regarding the implementation of this program at its December 2002 meeting.

INFORMATION TECHNOLOGY DEPARTMENT
Performance Measures

Pursuant to Section 9 of 2001 Senate Bill No. 2043, the Budget Section received a report from the Information Technology Department regarding the development of performance measures to assist the Legislative Assembly in determining the effectiveness and efficiency of the department. The Information Technology Department's performance measures are based on the following four business drivers:

1. Provide value to our customers.
2. Statewide direction and leadership.
3. Customer relationships and satisfaction.
4. Learning and growth.

Annual Report

Pursuant to NDCC Section 54-59-19, the Budget Section received the Information Technology Department's 2001-02 annual report. The annual report is composed of four sections:

• Section 1 - An executive summary that describes and quantifies benefits the state is realizing from investments in information technology.
• Section 2 - Information on the state's information technology planning process.
• Section 3 - A status report on the costs and benefits of large information technology projects, including a summary of each project completed in the last 12 months and an update of ongoing large information technology projects.
• Section 4 - Information on the department's performance, including a rate comparison and an update on the department's performance measures.

The Information Technology Department reported that seven of the 14 large Information Technology Department projects were completed on or under budget, resulting in total savings of $1.8 million. For the remaining projects, the total cost overrun was approximately $176,000.

The Information Technology Department reported that eight agencies provide 76 percent of the department's revenue, and out of the 74 services the department provides, approximately 73 percent of the department's revenue is generated from 16 services.

Enterprise Resource Planning System Initiative

The Budget Section received information from the Information Technology Department regarding the procurement and implementation of the enterprise resource planning (ERP) system. The ERP system is an initiative to replace the financial, human resources, and student administration systems for higher education and state government. PeopleSoft was selected as the vendor to supply the software and MAXIMUS to implement the ERP system. The PeopleSoft ERP system includes financial management, supply chain management, human resources and payroll, student information and contribution relations solutions, and portal software. The ERP system also includes enterprise performance management software that will be implemented in the future.

The department spent approximately $282,907 of the $7.5 million general fund appropriation provided by the 2001 Legislative Assembly for the ERP system initiative. The estimated ERP system initiative costs for the remainder of the 2001-03 biennium are:

PeopleSoft
Software license	$3,692,758
Maintenance	997,045
Training units	206,250
Subtotal		$4,896,053
MAXIMUS		6,200,000
Total		$11,096,053

Under this agreement, the department paid PeopleSoft $150,000 on August 1, 2002, and the remainder of the $4,746,053 debt plus related interest of $117,967 will be paid on August 1, 2003. The agreement allows the department to use the remaining ERP system initiative 2001-03 biennium appropriation of $7,217,093 for implementation services performed by MAXIMUS.

Pursuant to NDCC Sections 54-16-04.2 and 54-59-05(4), the Budget Section approved the request of the Information Technology Department to increase other funds spending authority and the ERP system line item by $5 million and to approve a financing proposal of $4,896,053 to purchase software for the ERP system.

JOB SERVICE NORTH DAKOTA
Status of the Job Insurance Trust Fund

Pursuant to NDCC Section 52-02-17, the Budget Section received a report on the status of the job insurance trust fund. Job Service North Dakota reported that 1999 House Bill No. 1135 provides a seven-year timeframe to achieve targeted unemployment compensation fund reserve goals based in part on a national economic model that estimates the funds needed to pay unemployment claims for a one-year recessionary period based on current wages and historical claims. Also, 1999 House Bill No. 1135 shifted unemployment funding burdens to "negative balance" employers. The trust fund balance as of December 31, 2001, was $30.8 million, which was slightly lower than the December 31, 2000, balance. This balance will allow Job Service North Dakota to only pay about one-fourth of targeted benefits. The trust fund is projected to reach the target balance within the seven-year period using the existing tax rate schedule.

ADJUTANT GENERAL/NATIONAL GUARD
National Guard Armory Survey

Pursuant to 2001 House Bill No. 1215, the Budget Section received information on a National Guard survey of all political subdivision-owned armories. The 2001 Legislative Assembly appropriated $250,000 to be distributed on an equal matching fund basis for grants of up to $25,000 per political subdivision for the maintenance and repair of political subdivision-owned armories. Priority was given to those projects for which the political subdivision contributes the highest ratio of funds for each dollar of state funds. Surveys were sent to mayors of 18 cities, with 14 responding, requesting assessments of major maintenance and repair projects. The projects were to have a direct benefit to the full-time National Guard personnel.

The state match was calculated based on an equal share match with the participating city or the remaining cost of the proposed projects for those cities providing more than an equal share of funding. Projects were funded from each of the 14 cities requesting the match. Prioritizing was not necessary because the total state match did not exceed the $250,000 appropriated after each political subdivision received the amount of state match for which it was qualified according to the guidelines in the bill. The total recommended state match for armory repair and maintenance projects was $249,111.

Pursuant to the provisions of 2001 House Bill No. 1215, the Budget Section accepted the National Guard's survey of all political subdivision-owned armories and project funding recommendations.

COUNTRY OF ORIGIN LABELING

The Budget Section received information from the State Department of Health on the department's enforcement of NDCC Section 19-02.1-25 relating to the country of origin labeling and provisions in the United States Department of Agriculture 2002 farm bill relating to country of origin labels and the impact on North Dakota. Section 19-02.1-25 requires retailers to indicate by label or other written identification the country of origin of the fresh beef, lamb, and pork available for sale to customers.

The State Department of Health has responsibility for enforcement of the labeling law and reported current federal laws do not mandate country of origin labeling and any imported meat slaughtered or further processed in this country is considered domestic supply; the 2002 federal farm bill provides for voluntary country of origin labeling guidelines to be adopted by September 30, 2002; mandatory federal country of origin labeling regulations are anticipated to be implemented by 2004; and under the new farm bill, in order for a commodity to be labeled a product of the United States of America, it must have been born, raised, and processed in the United States.

TRANSFERS TO THE STATE TUITION FUND

The Budget Section received a report from the Department of Public Instruction regarding duplicative payments received for administrative expenses and any related transfers to the state tuition fund pursuant to NDCC Section 15.1-02-14. The Department of Public Instruction reported it did not receive any federal or other money for which a general fund appropriation had been provided. The federal grants received by the department were used to supplement existing funds and do not replace general fund money.

ELECTRONIC CHECK SIGNATURE SERVICES

The Budget Section received information from the Attorney General's office regarding the Attorney General's opinion on whether the State Treasurer's use of electronic check signature services provided by the Information Technology Department is in compliance with NDCC Section 54-27-08. The Attorney General's office examined whether the use of an electronic signature would constitutionally challenge the State Treasurer's ability to receive all public money and disburse funds when received. According to case law, the transfer of the administrative function of putting a signature on a warrant from a constitutional office can be accomplished without disrupting the constitutional duty of the office. The State Treasurer by letter informed the Budget Section that as of December 1, 2002, the signing of state warrants will be moved from the State Treasurer to the Information Technology Department. The letter indicates the State Treasurer had requested additional security features and monitoring elements for the check-signing process that were not included due to cost requirements of the Information Technology Department.

STATUS OF THE STATE BOARD OF AGRICULTURAL RESEARCH AND EDUCATION

Pursuant to 2001 Senate Bill No. 2021 and NDCC Section 4-05.1-19, the Budget Section received an update on the status of the State Board of Agricultural Research and Education. The State Board of Agricultural Research and Education has been in existence for five years. The Budget Section received information on State Board of Agricultural Research and Education livestock research, including the beefline initiative. All beefline projects were done on a cooperative basis with the agricultural experiment stations and the agricultural research centers.

CORRESPONDENCE FROM ETHANOL PLANTS

Pursuant to 2001 Senate Bill No. 2019, the Budget Section received reports from the North Dakota ethanol plants that received production incentives from the state. The Alchem, Ltd., LLP plant was the only plant to receive production incentives from the state during calendar year 2000. The Budget Section learned that after deducting the payments received from the state, the Alchem, Ltd., plant did produce a profit. The Alchem, Ltd., and the Archer Daniels Midland Company plants received production incentives from the state during calendar year 2001. The Budget Section learned that both plants produced a profit after deducting the payments received from the state.

LEGISLATIVE HEARINGS FOR FEDERAL BLOCK GRANTS
Background

The Budget Section was informed that of the 14 block grant programs listed in the 2001 Catalog of Federal Domestic Assistance, only the community services block grant requires a public hearing held by the Legislative Assembly. The required public hearing will be held as part of the appropriations hearing for the Department of Commerce during the 2003 legislative session.

Recommendation

The Budget Section recommends House Concurrent Resolution No. 3001 to authorize the Budget Section to hold public legislative hearings required for the receipt of new federal block grant funds during the period from the recess or adjournment of the 58th Legislative Assembly through September 30, 2005.

FEDERAL FUNDS

The Budget Section reviewed a report on federal funds anticipated to be received by state agencies and institutions for bienniums ending June 30, 2003, and June 30, 2005. The report indicated for the 2001-03 biennium, state agencies and institutions anticipate receiving $1.963 billion of federal funds, approximately $32 million more than the amount appropriated by the 2001 Legislative Assembly. For the 2003-05 biennium, state agencies and institutions anticipate receiving approximately $1.935 billion of federal funds. The 2003-05 biennium requests, if funded, would require $269,998,769 of general fund matching dollars, $5,297,200 less than that provided for the 2001-03 biennium. The 2003-05 biennium requests are based on a 95 percent budget request included in the Governor's 2003-05 budget guidelines.

LEGISLATIVE COUNCIL STAFF REPORTS

The Budget Section received the following reports prepared by the Legislative Council staff:

• Fifty-Seventh Legislative Assembly Analysis of Changes to the Executive Budget - 2001-03 Biennium. The report provided information on legislative changes to the executive budget, FTE changes, major programs, and related legislation for each state agency. The report also includes an analysis of various special funds and statistical information on state appropriations.
• State Agency "Irregular" Salary Payments Survey.
• 2001-03 Biennium Report on Compliance with Legislative Intent. The report provided information regarding agency compliance with the legislative intent included in the agencies' 2001-03 biennium appropriations, information on the status of selected special funds, and agencies' activities through December 31, 2001, and later, as appropriate.
• Preliminary Outlook - North Dakota 2003-05 General Fund Budget October 2002 Update. The report provided a preliminary outlook regarding North Dakota's 2003-05 biennium general fund budget and related information.

BUDGET TOUR REPORTS

The Budget Section reviewed memorandums summarizing the visitations of the budget committees and the budget tour groups. These memorandums will be compiled for submission to the Appropriations Committees during the 2003 legislative session.

The Budget Committee on Government Services, Representative Jeff Delzer, Chairman, toured the West Central Human Service Center, International Peace Garden, North Central Human Service Center, and the State Fair Association.

The Budget Committee on Government Administration, Senator Tim Mathern, Chairman, toured the Veterans Home, Southeast Human Service Center, Division of Independent Study, and the Agronomy Seed Farm.

The Budget Committee on Human Services, Representative Amy Warnke, Chairman, toured the Northeast Human Service Center, North Dakota Vision Services - School for the Blind, Mill and Elevator, Lake Region Human Service Center, School for the Deaf, Camp Grafton, and the Developmental Center.

The Higher Education Committee, Senator David E. Nething, Chairman, toured Valley City State University, State College of Science, North Dakota State University, Northern Crops Institute, Upper Great Plains Transportation Institute, North Dakota State University Extension Service, North Dakota Agricultural Experiment Station, University of North Dakota, University of North Dakota School of Medicine and Health Sciences, Mayville State University, Lake Region State College, Bismarck State College, Minot State University - Bottineau, Forest Service, Minot State University, North Central Research Extension Center, Williston State College, Williston Research Extension Center, and Dickinson State University.

The Budget Section tour group, Representative Ken Svedjan, Chairman, toured the State Penitentiary, Roughrider Industries, Missouri River Correctional Center, Youth Correctional Center, James River Correctional Center, State Hospital, and the South Central Human Service Center.

AGENCY REQUESTS AUTHORIZED BY THE EMERGENCY COMMISSION

Pursuant to NDCC Sections 54-16-04, 54-16-04.1, and 54-16-04.2, the Budget Section considered agency requests that had been authorized by the Emergency Commission and forwarded to the Budget Section. From the June 14, 2001, meeting to the October 8, 2002, meeting, the Budget Section considered 56 requests, all of which were approved. The attached appendix provides a description of each agency request considered by the Budget Section.

OTHER REPORTS

The Budget Section received a report on the University of North Dakota Energy and Environmental Research Center, which is a research, development, demonstration, and commercialization facility. The Energy and Environmental Research Center has experienced growth in contract revenue since its expansion in 1994, and the facility is utilizing all existing space. Therefore, a project is planned to expand laboratories and office space to accommodate 92 additional employees. The estimated cost of the project is $8 million, and the committee learned the Grand Forks Economic Development Corporation may contribute up to $1 million toward the project. The financing structure for the expansion is a lease revenue bond with the University of North Dakota Foundation as the lessor. The foundation would issue lease revenue bonds and enter into an agreement with the State Board of Higher Education to lease the facilities. The University of North Dakota would make the lease payments directly to the trustee.

The Budget Section received a report on the development and construction of the University of North Dakota Hilton Garden Inn on the west campus. The land lease for the hotel is based on fair market value and was approved by the State Board of Higher Education. The hotel is privately owned and is to be completed in November 2002. The land lease provisions allow for:

• University of North Dakota approval of the interior and exterior design of the building.
• The right of first refusal for the university if the property is placed for sale.
• University of North Dakota approval required for the lease to be assigned.
• Rent to be paid to the university while the hotel is being built.
• The property must be constructed by 2004.

The Budget Section received a report on North Dakota State University's flood damage from the June 2002 storms. On June 9, 2002, the Fargo/Moorhead area received three to four inches of rain in approximately two hours. The lower level of the Memorial Union sustained extensive water damage as the result of muddy water coming into the building from uncapped holes located in the bottom of steamline trenches and a claim was filed with the contractor's insurance for an estimated $200,000 in damages to Memorial Union. Water from the steamline construction trenches also entered Ceres Hall through uncapped construction pipes and a claim for the damage was filed with the contractor's insurance for the damages. Churchill Hall sustained damage from roof drain runoff, with estimated damages of $75,000, and a claim was filed with the state fire and tornado fund. A federal or state disaster was not proclaimed as a result of the storm, therefore, Federal Emergency Management Agency (FEMA) coverage is not available.

The Budget Section received a report on the Veterans Home performance audit. The Administrative Committee on Veterans Affairs agreed with the auditor's findings in almost every recommendation, and the committee outlined corrective action for each recommendation.

This report presents Budget Section activities through October 2002. Because one of the major responsibilities of the Budget Section is to review the executive budget, which by law is not presented to the Legislative Assembly until after December 1, a supplement to this report will be submitted for distribution at the beginning of the 2003 Legislative Assembly in January.

APPENDIX

Pursuant to NDCC Sections 54-16-04, 54-16-04.1, and 54-16-04.2, the Budget Section considered 56 agency requests that were authorized by the Emergency Commission. All requests were approved by the Budget Section. The following is a list of agency requests approved through October 2002:

1. Adjutant General
   • June 14, 2001 - To increase other funds spending authority and the capital improvements line item by $100,000 to accept federal funds from the Division of Emergency Management for the completion of the addition to the Fraine Barracks Emergency Operations Center.
   • October 8, 2002 - To increase spending authority by $5 million to accept federal funds from the National Guard Bureau for Army Guard contracts line item for maintenance and repair projects at federally supported assets located at the Camp Grafton Training Facility, Devils Lake, and the Raymond Bohn Armory Complex, Bismarck.
2. Aeronautics Commission
   • June 26, 2002 - To transfer $562,000 of spending authority from the grants line item to the operating expenses line item for expenses associated with airport maintenance projects at 10 general aviation airports ($112,000), security analysis at four air carrier airports ($68,000), airport master plans at four commercial service airports ($200,000), updating the state's air service report ($106,000), and safety inspections at 85 general aviation airports ($76,000).
3. Department of Agriculture
   • June 14, 2001 - To increase federal funds spending authority by $393,000 to accept funds available from the Environmental Protection Agency 319 nonpoint pollution prevention program to accelerate the completion of digitized soil maps used to assess potential ground water contamination from agricultural pesticide uses.
   • October 9, 2001 - To increase federal funds spending authority by $180,000, the operating expenses line item ($150,000), and the State Board of Animal Health line item ($30,000) to promote specialty crops and value-added agriculture projects.
   • April 17, 2002 - To increase other funds spending authority by $113,228 for salaries ($35,000) and operating expenses ($78,228) to accept federal funds from the Environmental Protection Agency for pesticide storage security education, to convert state pesticide labels to electronic format, and to monitor the pesticide products sold in North Dakota for proper registration.
   • April 17, 2002 - To authorize one FTE position and increase other funds spending authority and the State Board of Animal Health line item by $101,394 to accept passthrough funds from the State Department of Health relating to the federal bioterrorism grant for an animal disease outbreak rapid response program.
   • April 17, 2002 - To increase other funds spending authority and the State Board of Animal Health line item by $80,000 to accept federal funds from the United States Department of Agriculture national scrapie eradication program to provide resolution of cases when animals have been infected and exposed to scrapie and to minimize the impact on producers.
4. Bismarck State College
   • June 14, 2001 - To increase other funds spending authority from higher than anticipated fiscal year 2001 tuition collections and the operating expenses line item by $75,000 for increased utility costs.
5. Children's Services Coordinating Committee
   • June 14, 2001 - To increase the grants line item by $750,000 of special funds from "refinancing" activities (federal funds received through the Department of Human Services) to be provided to the regional and tribal children's services coordinating committees.
6. Department of Commerce
   • October 9, 2001 - To increase federal funds spending authority and the Agricultural Products Utilization Commission line item by $700,000 to provide grants for value-added businesses, exploration of nontraditional crops and livestock, and foreign trade missions.
   • January 16, 2002 - To increase federal funds spending authority by $2,114,313 for salaries ($255,497), operating expenses ($22,500), equipment ($8,000), and grants ($1,828,316) for a technical skills training project addressing shortages in health-related occupations.
   • October 8, 2002 - To increase spending authority by $117,595 to accept federal funds from the United States Department of Health and Human Services (state commission administration and professional development assistance training) for salaries line item ($45,720); operating expenses line item ($63,875); equipment line item ($8,000); and one FTE position for the North Dakota State Commission on National and Community Service, created by Executive Order 2002-02.3 (revised July 19, 2002) and as authorized by the federal National and Community Services Act of 1990, to develop and communicate a statewide vision to encourage citizen engagement in service to youth and community.
7. Department of Corrections and Rehabilitation
   • June 14, 2001 - To transfer $150,000 from the program services line item and $500,000 from the security and safety line item to increase the support services line item by $650,000 for increased inmate medical costs.
   • January 16, 2002 - To accept federal passthrough funds of $67,920 from the Attorney General's office for inmate treatment programs at the James River Correctional Center ($40,320), for the Prisons Division cognitive program ($21,600), and for bulletproof and stabproof vests ($6,000).
   • October 8, 2002 - To increase spending authority by $125,000 to accept federal funds from the United States Department of Justice, Office of Justice, Victims of Crime Act (VOCA), for crime victims services line item to passthrough to local agencies that assist crime victims.
8. Council on the Arts
   • April 17, 2002 - To increase other funds spending authority by $107,400 to accept federal funds from the National Endowment for the Arts for support of various art organizations as well as educational and arts programming in underserved areas.
9. Division of Emergency Management
   • June 14, 2001 - To increase spending authority by $14,841,660 to accept federal funds ($13,071,870) from FEMA and from a loan from the Bank of North Dakota ($1,769,790) for salaries ($136,800), operating expenses ($27,360), equipment ($15,000), and grants ($14,662,500) for expenses associated with flooding during the spring of 2001.
   • June 14, 2001 - To increase spending authority by $868,216 to accept federal funds ($766,759) from FEMA and from a loan from the Bank of North Dakota ($101,457) for salaries ($6,850), operating expenses ($9,920), equipment ($5,200), and grants ($846,246) for expenses associated with severe weather during November 2000.
   • April 17, 2002 - To increase other funds spending authority and the grants line item by $777,000 to accept federal funds from the United States Department of Justice state domestic preparedness equipment program for grants to be distributed primarily to local government units and other state agencies to purchase first responder equipment.
   • June 26, 2002 - To increase other funds spending authority by $2,794,000 for salaries and wages ($207,500), operating expenses ($66,500), and grants ($2,520,000) to accept federal funds from the United States Department of Justice state domestic preparedness program for equipment grants to be distributed primarily to local government units and other state agencies.
   • October 8, 2002 - To increase spending authority by $265,000 to accept federal funds from FEMA for grants line item for predisaster mitigation program to conduct local and regional mitigation planning activities to meet the requirements of the Disaster Management Act of 2000.
   • October 8, 2002 - To increase spending authority by $1,955,000 to accept federal funds from FEMA ($1,725,000) and to accept other funds ($230,000), from the proceeds of a loan from the Bank of North Dakota (borrowed in accordance with the provisions of NDCC Section 37-17.1-23) for salaries line item ($65,400); operating expenses line item ($21,110); and for grants line item ($1,868,490) for expenses related to the spring 2002 flooding disaster declaration.
10. Department of Financial Institutions
    • January 16, 2002 - To increase special funds spending authority by $52,627 relating to the licensing and regulation of deferred presentment service providers for salaries and wages ($41,659), operating expenses ($10,968), and authority for a .5 FTE position.
11. Game and Fish Department
    • January 16, 2002 - To increase federal funds spending authority by $324,000 for salaries and wages ($200,000), operating expenses ($24,000), and grants ($100,000) to develop a nongame wildlife conservation strategy and gather information on nongame wildlife species in North Dakota.
    • April 17, 2002 - To authorize three FTE positions and to increase other funds spending authority and the private land habitat program line item by $1.5 million to accept funds from the game and fish fund for the accelerated access program to increase the amount of private land open to sportsmen.
12. State Department of Health
    • January 16, 2002 - To increase federal funds spending authority by $823,878 and the capital improvements line item for higher than anticipated costs per square footage ($338,817) and an additional 1,700 square feet ($485,061) to the Laboratory Building additional project.
    • January 16, 2002 - To increase spending authority by $5,445,230 to accept federal funds ($5,245,230) and passthrough funds from the State Water Commission ($200,000) from the water development trust fund as approved in 2001 House Bill No. 1023 for salaries and wages ($158,573), operating expenses ($809,937), and grants ($4,476,720) for bioterrorism efforts, the national pharmaceutical stockpile program, emerging diseases, immunization programs, women, infants, and children (WIC) program, breast and cervical cancer screening, leaking underground storage tank (LUST) cleanup in Mandan, non-point source water projects, and family violence services.
    • April 17, 2002 - To authorize 10 FTE positions and increase other funds spending authority by $6,319,495 to accept federal funds from the Centers for Disease Control and Prevention bioterrorism supplemental grant ($5,826,910) and the Health Resources Services Administration bioterrorism grant ($492,585) for salaries ($519,702), operating expenses ($3,338,251), equipment ($424,632), and the grants line item ($2,036,910) for bioterrorism response programs.
13. Department of Human Services
    • June 14, 2001 - To increase the federal funds spending authority and the grants line item by $3,806,147 for providing grants to individuals under the low-income home energy assistance program (LIHEAP).
    • June 14, 2001 - To increase the federal funds spending authority and the grants line item by $2,125,000 to be provided to counties for reimbursement of child welfare-related administrative costs ($1.6 million) and to the Children's Services Coordinating Committee for assistance to regional and tribal children's services coordinating committees ($525,000).
    • June 14, 2001 - To transfer $250,000 of general fund appropriation authority from the State Hospital to the grants line item of the medical services program to provide additional general fund money to use as state matching funds under the Medicaid program if needed to cover the costs of the program for the 1999-2001 biennium.
    • October 9, 2001 - To increase federal funds spending authority by $1,128,600 to accept Older Americans Act funds for operating expenses ($497,784) and the grants line item ($630,816) to analyze the needs of family caregivers in North Dakota and to develop a service delivery system to address identified needs.
    • April 17, 2002 - To increase other funds spending authority by $244,346 and the operating expenses line item ($54,520) and the grants line item ($189,826) to accept funds from a Bush Foundation grant for providing professional development training for early childhood education personnel in the state.
    • June 26, 2002 - To increase other funds spending authority and the grants line item by $457,000 to accept federal funds for the family nutrition program of the food stamp program to pass through to the NDSU Extension Service, which administers the family nutrition program.
    • October 8, 2002 - To increase spending authority by $18,839,639 to accept federal funds ($18,172,779) from the United States Department of Health and Human Services ($10,598,175) and the United States Department of Agriculture ($7,574,604) and other funds from the agency's child support collections ($666,860) for grants - assistance payments line item ($18,839,639) to be used for temporary assistance for needy families (TANF) ($3,130,404); for child care assistance ($1,053,433); for low-income home energy assistance (LIHEAP) ($7,081,198); and for food stamp - electronic benefit transfer ($7,574,604); resulting from increased caseload and because of changes to federal regulations that will provide funding for additional benefits being available to recipients.
14. Information Technology Department
    • June 14, 2001 - To increase other funds spending authority by $3.5 million to accept funds from other state agencies and allow for payment for various services contracted by the Information Technology Department on behalf of state agencies, with outside vendors for software development, consulting services, and related technology.
    • January 16, 2002 - To increase federal funds spending authority by $310,000 and the operating expenses line item to develop technical architecture, data standards, and implement high-priority criminal justice information-sharing projects.
    • April 17, 2002 - To increase the other funds spending authority and the enterprise resource planning system line item by $5,000,000 and to approve a financing proposal of $4,896,053 to purchase software for the ERP system.
15. Labor Department
    • January 16, 2002 - To accept federal funds ($51,288) and use carryover federal funds ($28,926) from the 1999-2001 biennium for a total of $80,214 for operating expenses associated with fair housing enforcement ($61,554) and equal employment ($18,660).
16. Mill and Elevator Association
    • October 8, 2002 - To increase special funds spending authority by $3,500,000, for salaries line item ($300,000) and for operating expenses line item ($3,200,000) for insurance premiums ($1,100,000); overtime ($300,000); repairs and utilities ($1,150,000); demurrage ($150,000); laboratory supplies and fumigations ($300,000); and interest expense ($500,000) because of higher than anticipated expenses resulting from the aftermath of September 11 events and the Mill and Elevator Association's record production and shipment volumes.
17. North Dakota State University
    • June 14, 2001 - To increase spending authority ($12.5 million) for a line of credit from the Bank of North Dakota to pay expenses relating to the 2000 flood disaster pending receipt of funds from FEMA and/or insurance carriers.
18. Parks and Recreation Department
    • October 9, 2001 - To transfer $715,000 from the grants line item to the equipment line item ($215,000) to purchase snowmobile trail grooming equipment and to the capital improvements line item ($500,000) for flood damage repairs and construction of Devils Lake and Turtle River State Parks.
    • April 17, 2002 - To transfer $1,261,063 from the grants line item to the operating expenses line item ($115,063), equipment line item ($200,000), and capital projects line item ($946,000) to reflect anticipated expenditures for FEMA construction projects and recreational trail program projects.
    • April 17, 2002 - To establish a $1.4 million line of credit at the Bank of North Dakota pursuant to NDCC Section 54-16-13 to pay the required match for FEMA reimbursement and other expenses relating to June 2000 flood damage at Turtle River State Park.
    • April 17, 2002 - To increase other funds spending authority by $850,000 and the salaries line item ($69,850), operating expenses line item ($100,150), equipment line item ($35,000), and the grants line item ($645,000) to accept federal funds for the On-A-Slant Mandan Indian Village reconstruction project and for land and water conservation projects.
    • October 8, 2002 - To increase other funds spending authority by $150,000 for operating expenses line item ($135,000) and extraordinary repairs line item ($15,000) for expenses related to park operations, moving, and geothermal lighting.
19. Department of Public Instruction
    • October 9, 2001 - To increase federal funds spending authority by $5,483,750 ($49,350 for salaries and wages, $5,488 for operating expenses, and $5,428,912 for grants) for school repairs, renovations, and technology costs.
20. Public Service Commission
    • October 8, 2002 - To increase other funds spending authority for the operating expenses line item by $69,000 from the Public Service Commission valuation fund to pay expenses related to the analysis, research, and hearing for a telecommunications utility's request for a proposed fee schedule for interconnection, unbundled network elements, and resale.
21. Securities Commissioner
    • June 26, 2002 - To increase other funds spending authority and the operating expenses line item by $200,000 from funds in the investor restitution fund for repaying investors.
22. University of North Dakota
    • June 14, 2001 - To increase spending authority ($12 million) for a line of credit from the Bank of North Dakota to pay expenses relating to the 1997 flood disaster pending receipt of funds from FEMA and/or insurance carrier reimbursements.
23. Department of Transportation
    • October 9, 2001 - To transfer $392,000 of federal funds from the grants line item to the operating expenses line item relating to the development of an intelligent transportation system - commercial vehicles operations deployment.
    • October 9, 2001 - To increase federal funds spending authority and the equipment line item by $104,100 to accept funds from the Federal Highway Administration to provide an anti-icing system for the Buxton overpass.
    • October 9, 2001 - To increase federal funds ($59 million from federal emergency relief funds) and special funds ($12 million from a Bank of North Dakota loan for the state matching requirement) spending authority by $71 million and the operating expenses line item ($4 million), the capital improvements line item ($50 million), and the grants line item ($17 million) for emergency grade raises in the Devils Lake Basin.
    • April 17, 2002 - To transfer $70,000 from the grants line item to the equipment line item to purchase a computer server for use in the department's geographic information systems (GIS) applications.
24. State Board for Vocational and Technical Education
    • April 17, 2002 - To increase the operating expenses line item by $230,000 to accept federal funds from the United States Department of Education ($65,000) for the development of a curriculum to be used for vocational education finance career programs and approval for a line item transfer ($165,000) from the grants line item to the operating expenses line item for assuming administrative responsibilities for the school-to-work initiative previously with the Bismarck Public Schools.

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