COMMERCE COMMITTEE

The Commerce Committee was assigned four studies. Section 2 of House Bill No. 1377 directed a study of the ability of occupational and professional boards with fewer than 100 licensees to process disciplinary complaints and carry out other statutory responsibilities. Section 16 of Senate Bill No. 2019 directed a study of the availability of venture capital, tax credits, and other financing and research and development programs for new or expanding businesses, including an inventory of the programs available, a review of the difference between public and private venture capital programs, an assessment of the needs of business and industry, the research and development efforts of the North Dakota University System, and a review of the investments of the State Investment Board and the feasibility and desirability of investing a portion of these funds in North Dakota. Section 17 of Senate Bill No. 2019 directed a study of the feasibility and desirability of expanding North Dakota's economic development marketing efforts to include international markets and establishing a global marketing division within the Department of Commerce. Section 4 of Senate Bill No. 2020 directed a study of the workforce training and development programs in North Dakota, including efforts to recruit and retain North Dakota's workforce, underemployment and skills shortages, current workforce training efforts, and the involvement of New Economy Initiative goals and strategies; and the Work Force 2000 and new jobs training programs and other workforce training and development programs administered by agencies of the state of North Dakota, and the feasibility and desirability of consolidating in a single agency and funding and administration of those programs.

The Legislative Council also assigned the committee the responsibility, under North Dakota Century Code (NDCC) Section 40-63-03, to receive annual reports from the Department of Commerce Division of Community Services on renaissance zone progress; under Section 65-06.2-09, to receive a report from the Workers Compensation Bureau regarding the bureau's safety audit of Roughrider Industries work programs and a performance audit of modified workers' compensation coverage; and under Section 15 of 2001 Session Laws Chapter 109, to receive the Securities Commissioner's finding and recommendations resulting from the commissioner's review of policies and procedures relating to access to capital for North Dakota companies, with the goal of increasing North Dakota companies' access to capital investment.

Committee members were Senators John M. Andrist (Chairman), Duaine C. Espegard, Tony Grindberg, Joel C. Heitkamp, Karen K. Krebsbach, Deb Mathern, Duane Mutch, Carolyn Nelson, and Rich Wardner and Representatives Rick Berg, Byron Clark, Mark A. Dosch, Glen Froseth, Pat Galvin, Scot Kelsh, Doug Lemieux, Bob Martinson, Bill Pietsch, Dale C. Severson, Blair Thoreson, and Lonny Winrich.

The committee 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.

OCCUPATIONAL BOARDS STUDY

An informal survey performed by the Attorney General's office indicated that the following four North Dakota occupational and professional boards report fewer than 100 licensees or registrants:

1. Board of Hearing Instrument Dispensers;
2. Board of Podiatric Medicine;
3. State Board of Reflexology; and
4. State Board of Registration for Professional Soil Classifiers.

In performing its study, the committee reviewed the basic structure of occupational and professional licensing in North Dakota, South Dakota, Wyoming, and Minnesota. In addition to receiving testimony from representatives of the four boards that license fewer than 100 licensees, the committee received testimony from representatives of several professional entities, including the State Examining Committee for Physical Therapists, North Dakota Occupational Therapy Association, and North Dakota Society for Respiratory Care.

Legislative Background
2001 Legislation

House Bill No. 1259 provided that in lieu of providing for an audit every two years, an occupational or a professional board that has less than $10,000 of annual receipts may submit an annual report to the State Auditor.

House Bill No. 1262 increased the membership of the Board of Podiatric Medicine from five persons to six persons. The bill provided that the additional member on the board must be designated as a public member and may not be affiliated with any group or profession that regulates or provides health care in any form. The bill also provided that a member of the Board of Podiatric Medicine may not serve for more than two successive terms, and a member may not be reappointed to the board after serving two successive terms unless at least two years have elapsed since the member last served on the board. The bill provided that in any order or decision issued by the Board of Podiatric Medicine in resolution of a disciplinary proceeding in which disciplinary action was imposed against a podiatrist, the board may direct the podiatrist to pay the board a sum not to exceed the reasonable and actual costs, including attorneys' fees, incurred by the board in the investigation and prosecution of the case. The bill authorized the Board of Podiatric Medicine to suspend a podiatrist's license until the costs are paid to the board.

House Bill No. 1377 authorized the Board of Podiatric Medicine, subject to approval by the Emergency Commission, to borrow funds sufficient to pay for attorneys' fees and costs incurred in investigations, administrative proceedings, and litigation resulting from the board performing its duties. The bill also authorized the board to establish an annual renewal license fee for each year following the issuance of a loan and provided that the fee was to be maintained until the loan was fully repaid, including any accrued interest. The bill limited the amount of the annual renewal license fee to an amount not to exceed $1,000.

Senate Bill No. 2115 provided that under NDCC Title43 occupational or professional regulating entities, except the State Board of Accountancy, State Electrical Board, Real Estate Appraiser Qualifications and Ethics Board, Real Estate Commission, Secretary of State with respect to contractor licensing, State Board of Medical Examiners, and the State Board of Dental Examiners, may allow licensed professionals from foreign jurisdictions to practice in the state without a North Dakota license in certain situations. The bill authorized an occupational or a professional licensing board to issue a license, without examination, to any foreign practitioner who practiced the occupation or profession for which the practitioner is licensed at least two years before submitting the application to the board, or for any shorter period of time provided by law or rule, and who meets the other requirements for licensure. The bill authorized an occupational or professional licensing board to establish, by administrative rule, conditions and procedures for foreign practitioners to practice in the state pursuant to written compacts or agreements between the board and one or more other states or jurisdictions or pursuant to any other method of license recognition that ensures the health, safety, and welfare of the public.

Previous Legislation

In 1999 Senate Bill No.2190 amended the laws addressing the compensation and reimbursement rate for members of the State Board of Registration for Professional Soil Classifiers; powers of the board to negotiate and enter reciprocal agreements with similar agencies in other states; registration requirements for applicants who are licensed in another state; and registration fees.

In 1995 Senate Bill No.2533 provided that the licensure requirements for hearing aid dealers under NDCC Chapter 43-33 do not apply to certain employees of the federal government and to certain audiology graduate degree students. The bill added an additional audiologist and an additional consumer to the Board of Hearing Instrument Dispensers.

Previous Study

In 1995 Section 5 of House Bill No.1001 directed the Legislative Council to study the membership, duties, and responsibilities of all boards, councils, committees, and commissions of state government, including consideration of whether any of those entities had overlapping powers and duties; whether any of those entities should be eliminated or consolidated; whether each entity performs the functions for which it was originally created; and whether the membership of each entity was responsive to the people of the state.

When the Legislative Council prioritized the study and assigned the study to the interim Government Organization Committee, the Council indicated that the committee should base its study on the findings of the Governor's Task Force that reviewed boards and commissions in 1994. The task force recommendations included establishing a board to oversee the activities of all boards and commissions that have a licensing function, submission of financial statements by boards and commissions with a certified audit by an outside independent accounting firm, and establishing requirements to address excess funding of entities that collect fees.

The interim Government Organization Committee considered but did not recommend a bill draft that would have consolidated multiple boards.

State Laws
North Dakota

North Dakota law provides for 38 occupational and professional licensing boards as well as professional licensing by six state agencies. There has not been any recent successful consolidation of occupational and professional licensing boards in North Dakota.

Each of the four occupational and professional boards that reported fewer than 100 licensees or registrants--Board of Hearing Instrument Dispensers, Board of Podiatric Medicine, State Board of Reflexology, and State Board of Registration for Professional Soil Classifiers--is created and governed by its own unique body of law. Board membership, board powers and duties, fee structure, and particulars of the disciplinary proceedings for each board are unique to each board; however, commonalities between the boards include the application of NDCC Chapter 28-32--the North Dakota Administrative Agencies Practice Act.

The Board of Hearing Instrument Dispensers is created under NDCC Chapter 43-33. The board licenses approximately 60 to 65 hearing instrument dispenser specialists. The NDCC and the North Dakota Administrative Code (NDAC) address the board's duties, the fees charged by the board, disciplinary procedures, and grounds for disciplinary proceedings.

The Board of Podiatric Medicine is created under NDCC Chapter43-05. The board licenses approximately 24podiatrists. The NDCC and NDAC address fees charged by the board, disciplinary procedures, and grounds for discipline.

The North Dakota Board of Reflexology is created under NDCC Chapter 43-49. The board licenses approximately 43reflexologists. The NDCC addresses the issues of fees and discipline.

The State Board of Registration for Professional Soil Classifiers is created under NDCC Chapter 43-36. The board licenses approximately 35 to 40 professional soil classifiers. The NDCC and NDAC address the board's powers and duties, fees, disciplinary procedure, and grounds for discipline.

South Dakota

An informal review of South Dakota law indicated that South Dakota law provides for 22 occupational andprofessional licensing boards, which are supervised and provided administrative services by the Division of Professional and Occupational Licensing, Department of Commerce and Regulation. The Department of Commerce and Regulation publishes an annual report of the state's occupational and professional licensing boards. Research indicated that there has not been any recent movement to consolidate the state's boards; however, there has been discussion of consolidating the Board of Barber Examiners and the Cosmetology Commission. The following South Dakota occupational and professional boards license fewer than 100licensees:

Abstracters' Board of Examiners;

Board of Hearing Aid Dispensers and Audiologists; and

Board of Podiatry Examiners.

Wyoming

An informal review of Wyoming law indicated that Wyoming law provides for at least 31professional licensing boards. Thirteen of these 31 boards use support services provided through the Wyoming Department of Administration and Information. Research indicated that there has not been any recent movement to consolidate the state's occupational and professional licensing boards. Of the boards with a known number of licensees, the Board of Hearing Aid Specialists and Board of Registration in Podiatry licenses fewer than 100licensees.

Montana

An informal review of Montana law indicated that Montana law provides for at least 38 occupational and professional licensing boards under the Business Standards Division, Montana Department of Labor and Industry.

Minnesota

An informal review of Minnesota law indicated that Minnesota law provides for at least 21occupational and professional licensing boards as well as for licensing by sevenstate agencies. Although Minnesota legislators have discussed the possibility of consolidating some of the boards, there has not been any recent successful legislation consolidating these occupational and professional licensing boards. None of the Minnesota occupational and professional licensing boards license fewer than 100licensees.

Testimony
Occupational and Professional Licensure Systems

The committee compared and contrasted the structure of North Dakota's occupational and professional licensing system with the systems of other states. The committee received testimony that a commonality between North Dakota's occupational and professional boards is that they are primarily stand-alone boards in that the boards are not affiliated with a particular state agency. A commonality between North Dakota's system and the systems of other states is that it is common for professions to regulate themselves.

The committee received testimony that occupational and professional licensing boards usually have the power to discipline members of their own profession, including revocation of a license. Typically these disciplinary procedures allow for an appeal to the district court. The theory behind allowing occupational and professional boards to discipline members of their own profession is that members of a profession are best qualified and hold the necessary expertise required to make determinations on whether discipline is appropriate.

Boards of Fewer Than 100 Licensees

The committee requested information from the four boards that license fewer than 100 licensees regarding the fiscal status, disciplinary activities, and licensure activities of each of the boards. Additionally, the committee requested information regarding whether the financial status of the boards ever impacted the ability of the boards to perform their duties and whether there was a private entity that could perform voluntary professional certification instead of requiring licensure by a state board.

A representative of the State Board of Reflexology testified that the board is composed of volunteers.

A representative of the Board of Hearing Instrument Dispensers testified that the board has a two-term limit for board members. Testimony was received that the board is experiencing increasing difficulty finding members to serve on the board as the number of disciplinary complaints increases. The total number of disciplinary and other complaints the board receives annually fluctuates between 5and10. Complaints received by the board come from a variety of sources, with most complaints being contractual in nature, which the board does not typically address, or being complaints of improper advertising.

The committee received information regarding the fiscal status, disciplinary activities, and licensure activities of the Board of Hearing Instrument Dispensers for the past five years. The board's current cash and investments were $26,610.45. Over the last five years the board had not issued any reciprocal licenses. During the last five years the board received eight disciplinary complaints, all of which were settled. Testimony indicated that lack of funds has never impacted the board's ability to perform its duties. Only one complaint in the board's history progressed to the administrative hearing level and that case was settled during the course of the hearing. The cost of that one administrative hearing was approximately $20,000, and was paid from licensure fees.

A representative of the Board of Hearing Instrument Dispensers testified that the board adamantly opposed the idea of abolishing the board and allowing a private professional organization to provide voluntary certification of hearing instrument dispensers. Abolishment of the board would result in increased complaints due to uneducated individuals dispensing hearing instruments.

The committee received information regarding the fiscal status, disciplinary activities, and licensure activities of the State Board of Registration for Professional Soil Classifiers for the past five years as well as information regarding the number of licensees, the number of examinations given and the outcome, and the number of reciprocal licenses issued in the last five years. The board maintains approximately $20,000 in certificates of deposit as a reserve in the event of litigation.

The State Board of Registration for Professional Soil Classifiers has not received any formal complaint against any member in the past five years; however, the board has investigated reports of individuals performing soil classification activities without being licensed in North Dakota. Testimony indicated that lack of funds has never impacted the board's ability to perform its duties.

The committee received testimony that although the American Society of Agronomy registers soil scientists as well as other disciplines, the American Society of Agronomy examination deals with science while soil classifiers deal both in science and the practical aspect; therefore, there is not a private entity that could adequately fulfill the licensure responsibilities of the State Board of Registration for Professional Soil Classifiers.

The committee received information regarding the fiscal status, disciplinary activities, and licensure activities of the Board of Podiatric Medicine for the past five years, including the board's average annual income, annual expenses, current cash balance and investments, and current debts due and owing; the number of licenses issued; and the outcome of examinations given for the last five years. The board had not issued any reciprocal licenses in the last fiveyears.

A representative of the Board of Podiatric Medicine testified that from the years 1929 through 1993 there were no formal complaints processed by the board; however, in 1993 fiveformal complaints were processed, in the years 1994 through 1998 14 complaints were processed, and in the year 2000 six complaints were processed. Of the 25formal complaints processed in the board's history, 23complaints pertained to one podiatrist and two complaints pertained to a different podiatrist. All 25 of these complaints received by the board were submitted in writing from nonboard members and were then investigated as provided by law.

Generally, complaints received by the Board of Podiatric Medicine have equally split as originating from private citizens and from orthopedic surgeons or legal counsel for clinics with orthopedic surgeons. The board's experience had been that a typical administrative disciplinary hearing costs approximately $50,000, which does not include the costs of an appeal to the district court or the North Dakota Supreme Court. Testimony indicated that lack of funds has never impacted the board's ability to perform its duties.

The committee received information regarding the financial problems of the Board of Podiatric Medicine relating to the disciplinary actions taken by the board over the last five years. Testimony indicated that although the 57th Legislative Assembly gave the Board of Podiatric Medicine the authority to borrow money to meet the board's debts, the board did not borrow money. The financial problems of the Board of Podiatric Medicine were being resolved and the disciplined podiatrist was responsible for repayment to the board. Board members anticipated that within the next 18 to 24months, the board would no longer be in debt. Although the current podiatrist licensure fee is $500, the board members were hopeful that this fee would decrease once the board met its current financial obligations.

The Board of Podiatric Medicine opposed any plan abolishing the board in favor of a voluntary certification of podiatrists by a private professional organization. A return to pre-1929 "patient beware" status would not be in the public's best interest and would increase litigation. Additionally, the board opposed any plan to abolish the board and have the State Board of Medical Examiners license podiatrists. A representative of the Board of Podiatric Medicine testified that although it was possible the financial liability of podiatrists might decrease under the State Board of Medical Examiners, in the past, the State Board of Medical Examiners opposed expanding its jurisdiction to include licensure of podiatrists, in large part due to the Board of Podiatric Medicine's financial liabilities and because of the expenses associated with disciplinary administrative hearings.

A representative of the State Board of Medical Examiners testified in opposition to having the State Board of Medical Examiners license podiatrists, citing curriculum, licensure, and disciplinary issues that would arise with consolidation of the Board of Podiatric Medicine and the State Board of Medical Examiners. Additionally, testimony indicated that increasing the size of the State Board of Medical Examiners would result in increased board costs.

Boards of More Than 99 Licensees

A representative of the State Examining Committee for Physical Therapists testified in opposition to any attempt to merge the boards of physical therapy, occupational therapy, respiratory therapy, and reflexology. Regulation of the profession of physical therapy needs the expertise and peer review of physical therapists. Other health care providers are not qualified to regulate physical therapy and could have interests limiting or conflicting with the practice of physical therapy. The consolidation of state boards could lead to decreased oversight and peer review and could ultimately result in harm to the public.

A representative of the North Dakota Occupational Therapy Association testified in opposition to any attempt to combine the occupational and professional licensing boards serving the citizens of North Dakota. The occupational and professional licensing boards are composed of citizens who are serving citizens. The members of occupational and professional licensing boards are volunteers who are chosen for their expertise in their chosen fields who receive no pay and no benefits, and the expenses for which they are reimbursed are paid out of funds collected as fees. The representative expressed concern that every two years these volunteer boards are before the Legislative Assembly providing testimony because one or twomembers of the Legislative Assembly contend that the state has too many boards. The simple statement that "there are too many boards" is not a reason to dismantle a volunteer system that works and costs no money to the state.

A representative of the North Dakota Society for Respiratory Care testified that under the current occupational and professional licensing system the public is very well-protected. Although the committee's study came about in large part because of the disciplinary activities of the Board of Podiatric Medicine, any negative press the board licensing podiatrists received was not warranted. The fact that the Board of Podiatric Medicine brought disciplinary actions against a podiatrist indicates the board performed its duty. The committee received testimony that the committee's study charge limited the study to boards licensing fewer than 100licensees and did not direct the committee to reorganize the entire structure for occupational and professional licensing boards.

Considerations

The committee considered whether to abolish the Board of Podiatric Medicine and include podiatric licensure as a duty of the State Board of Medical Examiners; whether to make broad sweeping consolidations of several occupational and professional boards; whether lack of adequate funds detrimentally impacted the ability of occupational and professional boards to carry out their duties; and whether the risk management fund should take on the obligation of funding administrative proceedings of occupational and professional boards.

Abolishment of Board of Podiatric Medicine

The committee considered a bill draft that would have abolished the Board of Podiatric Medicine; added podiatric medicine representation on the State Board of Medical Examiners; and required that the State Board of Medical Examiners license podiatrists.

The committee received testimony that drawbacks under the bill draft would be inadequate podiatric medicine representation on the State Board of Medical Examiners, and there would be scope of practice issues for podiatrists as well as transition problems resulting from abolishment of the Board of Podiatric Medicine. Testimony indicated that the bill draft would send the wrong message to occupational and professional licensing boards that perform their disciplinary duties. The bill draft would be perceived as the committee retaliating against the board for doing the board's job.

Consolidation of Occupational and Professional Licensing Boards

The committee considered how several of the state's occupational and professional licensing boards could be consolidated in order to have fewer boards and the resulting boards would license greater numbers of professionals.

The committee received testimony that most licensing boards exist not for the benefit and protection of the public but instead for the convenience and protection of professionals who control the boards. Additionally, the laws of North Dakota and the rules of the occupational and professional licensing boards unduly restrict out-of-state professionals from entering the state, which in turn makes it difficult for residents of small towns in rural North Dakota to find certain professionals to provide needed services. The committee received testimony that many professions across the country have set uniform requirements that could apply across the country, and that in addition to considering consolidation of boards, the committee could require boards to adopt this approach.

Testimony received by the committee raised the concern that combination of occupational and professional licensing boards would result in one profession overseeing multiple professions and would result in professionals of one profession licensing professionals in different professions. However, the committee also received testimony that the state's current licensure structure includes examples of boards that license more than one profession.

The committee received information regarding how the occupational and professional licensure systems of several states provide for an "umbrella agency" to provide administrative services to and gather information regarding the occupational and professional licensing boards. Benefits of creating such an umbrella agency may include economy of scale, continuity as board membership changes, and standardization of procedure.

Funding Disciplinary Actions

The committee received information regarding an instance in which the Board of Examiners on Audiology and Speech-Language Pathology was unable to pursue disciplinary actions due to lack of the necessary funds. In March2000 the board requested funding from the Emergency Commission to cover costs associated with a disciplinary action being appealed to the district court. The Emergency Commission denied the board's request, citing concern over the idea of using general fund money to pay for self-funding boards; that the need for funds to perform a board's disciplinary duties was not an emergency; and concern that the board may have been able to access funds in some other manner.

Risk Management Fund

The committee reviewed the history and the basic provisions of the State Tort Claims Act, enacted in 1995. The Act addresses when the state and its employees, including voluntary board members, can be held liable for money damages. The coverage provided under the Act by the risk management fund is limited to payment of damages and associated costs caused by negligence or a wrongful act or omission of the state or a state employee. The fund does not finance an administrative process initiated by a board or represent or defend state entities in contract actions.

Each state agency, board, and commission is required to participate in the risk management fund by contributing its appropriate share of the fund's costs as determined by the director of the Office of Management and Budget. In the initial creation of the fund, contributions were based on the number of employees of each agency and the number of vehicles owned by the state. Beginning with the 2001-03 biennium the actuarial review factored each agency's fund loss history in determining the level of required contribution. The contribution rate for boards and commissions was set at $750 per year plus $115.60 for each full-time employee, with the contribution being waived for any board or commission that has an annual budget of less than $10,000 and no full-time employee.

The committee received testimony that it would be helpful if the Division of Risk Management would assist in paying claims arising from administrative hearings of occupational and professional licensing boards. However, to expand the role of the risk management fund to include previously excluded acts, such as paying for administrative hearings, would require amending the Act and would require an increase in the amount of the fund in order to accommodate the resulting increased use of the fund.

Conclusion

The committee makes no recommendations with respect to its study of occupational and professional boards that license fewer than 100 licensees.

WORKFORCE STUDY

The committee workforce study included receipt of an inventory of workforce training and development programs, including possible gaps in the system; a review of efforts being undertaken to identify and address underemployment and skills shortages; and a review of how workforce services are accessed.

Legislative Background
Related Studies

Section 2 of Senate Bill No. 2020 required the Department of Commerce Division of Workforce Development to prepare a report annually on workforce training and development activities of the North Dakota University System, Job Service North Dakota, Department of Human Services, State Board for Vocational and Technical Education, Department of Commerce, and other workforce partners and to present the reports to the Appropriations Committees of the 58th Legislative Assembly.

Section 5 of Senate Bill No. 2020 required 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.

Section 17 of Senate Bill No. 2003 directed a study during the 2001-02 interim of the responsibilities and functions of the College Technical Education Council and the implementation of the workforce training regions, including how the workforce training regions are functioning. This study was conducted by the Legislative Council's interim Higher Education Committee.

Section 18 of Senate Bill No. 2003 directed a study during the 2001-02 interim of the State Board of Higher Education's implementation of the performance and accountability measures report required by Senate Bill No. 2041, including information on education excellence, economic development, student access, student affordability, and financial operations. This study was also conducted by the Legislative Council's interim Higher Education Committee.

Previous Studies and Resulting Bills

During the 1999-2000 interim the Legislative Council's Commerce and Labor Committee studied economic development efforts in the state. The committee reviewed the economic development activities of the Department of Economic Development and Finance, the Division of Community Services, Job Service North Dakota, North Dakota University System, and other state agencies and public and private sector entities. The committee recommendations included:

• Senate Bill No. 2032, which consolidated the Department of Economic Development and Finance, the Division of Community Services, and the Tourism Department to create a Department of Commerce that included a Division of Workforce Development.
• House Bill No. 1043, which would have provided for state payment of certain student loans of graduates of postsecondary educational institutions in the state who were residents of the state and were employed in target industries located in the state. This bill failed to pass the Senate by a vote of 20-29; however, the Legislative Assembly did enact House Bill No.1283, which provided that the State Board of Higher Education administer a technology student internship and student loan repayment program.

Additionally, the committee worked with the National Conference of State Legislatures in compiling a state inventory of job training programs with a workforce development component. The inventory indicated that the Department of Corrections and Rehabilitation, Department of Human Services, Department of Public Instruction, Department of Transportation, Job Service North Dakota, University System, State Board for Vocational and Technical Education, Veterans' Employment and Training Service, and Workers Compensation Bureau provide approximately 40 workforce development programs.

Also, during the 1999-2000 interim the Legislative Council's Higher Education Committee studied higher education funding, including the expectations of the University System in meeting the state's needs in the 21st century. As part of this study the committee formed a Higher Education Roundtable, consisting of the 21members of the Higher Education Committee and 40representatives from the State Board of Higher Education, business and industry, higher education institutions, including tribal colleges and private colleges, and the executive branch. The committee recommendations included Senate Bill No. 2041, recognizing the institutions under the control of the State Board of Higher Education as the University System, and requiring the State Board of Higher Education to develop a strategic plan that defines the University System goals and objectives and to provide an annual performance and accountability report regarding performance and progress toward the goals and objectives. This bill passed with minor amendments. Additionally, the committee recommended several education financial and nonfinancial accountability measurements, including research and development, economic development, and system accessibility.

During the 1997-98 interim the Legislative Council's Commerce and Agriculture Committee received periodic reports from the State Board for Vocational and Technical Education regarding the agency's progress in coordinating statewide access to workforce training programs. Testimony received indicated in addition to the private sector, the following entities were involved in the coordination of access to workforce training programs: the University System, the Department of Economic Development and Finance, the Workforce Development Council, the Secretary of State, the Labor Commissioner, the State Department of Health, the Department of Corrections and Rehabilitation, the Highway Patrol, Job Service North Dakota, the Department of Human Services, the Superintendent of Public Instruction, the Agriculture Commissioner, the Department of Transportation, the Indian Affairs Commission, the State Board of Plumbing, and the Public Service Commission.

Testimony
Inventory of Workforce Development System

The committee reviewed the federally funded workforce programs available in the state, which are primarily participant-focused; the state-funded workforce programs, which are primarily employer-focused; and the infrastructure workforce training programs, which are state-funded. Workforce programs are offered through a broad range of providers, including the Department of Commerce, the Department of Human Services, Job Service North Dakota, the State Board for Vocational and Technical Education, and the University System. The state-funded workforce programs help fill gaps that exist in federal workforce programs.

Although the state is very close to having a model comprehensive workforce development and training system, testimony was received that the system has gaps within the comprehensive workforce system which would warrant discussion and consideration of new legislation, including funding assistance for the underemployed, warehousing of data and information, community labor availability, fees for services, permanent fund sources for incumbent worker training, and new Americans initiatives.

Testimony indicated that the Workforce Development Council, Department of Commerce, and partners of the workforce delivery system are working to address gaps in the workforce system and to address issues of workforce shortages and training needs. A workgroup is identifying core data elements to create a community labor availability survey; the Workforce Development Council is working with partners to develop a process to get timely local information on current vacancies, skill shortages, and work and skill requirements to support expansion and business attraction; the Department of Commerce is pursuing a cost-effective on-line employment and resume management system to offer to employers in the state; the Workforce Development Council is creating a data warehousing workgroup to explore the creation of a single point of contact for all core data information on the state's labor force, workforce availability, and job skill requirements; the Workforce Development Council is working with the North Dakota Long Term Care Association on a project designed to identify career ladder training options that could take individuals from entry-level positions in the health care field and provide a career path leading to high-skill and high-pay opportunities; and the Workforce Development Council is involved with New Economy Initiative.

The state has a shortage of accessible short-term training options to allow employed and unemployed workers the opportunity to train for higher-skill opportunities. The committee received testimony that the state had taken some positive steps to address these gaps by coordinating partnerships and coordinating the use of existing funds. The continuation of the public-private partnership grant funds allocated to the Workforce Development Division will help to provide the match funding necessary to continue these coordinated partnerships.

In looking at the gaps in the workforce development services, the committee received testimony that one area of possible consideration would be the provision of a mechanism to create community workforce training foundations. A community workforce training foundation could accept donations and use the donations to establish short-term training programs, develop training and technology centers that could support distance learning, and pay tuition costs for underemployed workers or youth who may want to train for higher-skill jobs available in the community and wish to continue living in the community. The idea of creating a foundation would require further study and may require some startup funding to develop a pilot program.

Testimony received by the committee indicated that employment and underemployment data needed by the North Dakota workforce development system is either nonexistent or is not readily available in large part because the data is not tracked in a centralized and an accessible data base. Accurate data is necessary for federal grant applications as well as for appropriate utilization of state programs. The data warehouse concept was being explored and developed by the North Dakota Workforce Development Council and partner agencies. This group was working with the Information Technology Department on this issue, and did not yet have recommendations for legislation relating to data collection.

The committee received testimony that the workforce system has failed to adequately provide vocational and workforce training for school-age children. Vocational and workforce training should begin in primary and secondary education and continue with the University System. Concern was voiced that the University System graduates students who do not meet the regions' workforce needs. There is a critical need in the state for primary sector jobs, and workforce training should focus on this primary sector. The committee received testimony that the Career Development Council is currently addressing the issue of career guidance and the need to inform young people of job opportunities in the state. There is a need for vocational education programs and a need to better inform students of vocational job opportunities. National statistics indicate that only 30percent of jobs require a four-year degree, underscoring the need for vocational training.

The director of the Department of Commerce Division of Workforce Development requested that the committee consider a bill draft to allow the Department of Commerce to retain any fees collected as part of the Internet web site for job opportunities and career guidance. The Department of Commerce provides workforce services through an on-line web page at www.northdakotahasjobs.com.

The Department of Commerce proposed a continuing appropriation of the fees collected through the on-line service to allow the site to be self-funded. The major use of funds collected from the subscriptions would be to pay the salary of a full-time administrator of the site, in addition to paying for solicitation of the subscriptions and marketing and advertising the site to North Dakota alumni and people from out of state who are trying to recruit employees for openings within the state. The department's three-year goal is to have $100,000 in annual subscription fees for the on-line service.

Four Workforce Training Regions

The committee received a status report of the four workforce training regions, including a review of the history and implementation of the laws creating the regions and a review of the workforce training results and accountability measures for workforce training. Testimony was received from representatives of the University System, the Greater North Dakota Association, businesses that have used the services of the regions, the Department of Commerce, individuals who participated in the information gathering as part of the creation of the program, the Economic Development Association of North Dakota, and the universities with primary responsibility for workforce training under the four workforce training regions system.

One strength of the four region workforce training system is that the involvement of several agencies promotes communication between these agencies. Each agency involved in the four region system offers special expertise.

The six key components of the workforce training system are:

1. Creation of four workforce training regions;
2. Assignment of primary responsibility for workforce training in each region to a corresponding two-year college;
3. Creation of a workforce training division within each of the four colleges;
4. Creation of a private sector local advisory board in each of the four regions;
5. Creation of a funding mechanism consisting of fees from training, state funds, and institution in-kind support; and
6. Formation of partnerships with state and local agencies involved in workforce training, public and private education institutions, and private sector training providers.

Testimony indicated that the growth of the program will continue to increase because the program has become a core component of the community colleges, and there is a high demand for program services. Testimony from representatives of businesses that have used the services of the regions supported the program and viewed the program as one way the state can continue to be a good partner with business. Benefits recognized by the businesses in using the workforce training region program include affordability, convenience, flexibility, effectiveness, and responsiveness.

The committee received testimony that one reason for the success of the workforce training region program is that the program is outer-driven. The workforce training region program is very connected with primary sector businesses and primary sector businesses are represented on the board in each of these four regions. Workforce training is part of the economic development package and is included as part of state and local economic development efforts. Using the program as part of the economic development efforts helps to establish trust upfront that workforce training will be available to meet the needs of prospective businesses.

Because all four regions utilize the private sector for providing training services, the program is not competing with private sector workforce training. The University System works closely with New Economy Initiative and the Department of Commerce to better identify workforce needs of the state. Testimony was received that the four workforce training regions help fill the gaps in the workforce training system and therefore are important pieces to the state's entire workforce training system.

The committee received testimony regarding the use of distance learning to provide nurses training. There is a natural link between distance learning and the workforce training regions program. Although distance learning may not be feasible for all fields, the experience of the distance learning for the licensed practical nurses program provided the state a successful model to use in other areas of worker shortage. Individuals working in distance learning and the workforce training regions program look for ways to increase sharing of information and to recognize ways in which they can improve effectiveness and efficiency.

The presidents of the four institutions of higher education assigned primary responsibilities for workforce training support the repeal of Sections 6 and 7 of Chapter 45 of the 2001 Session Laws. These sections require that effective July 1, 2003, to be eligible to receive state funding for the second fiscal year of each biennium, each institution of higher education assigned primary responsibility for workforce training shall certify that at least 50 percent of the regional funds included in the approved business plan for the biennium have been received or are pledged to be received before the end of the biennium.

Workforce Training and Development Point of Contact

The committee received testimony that there is good communication and cooperation between Job Service North Dakota, the Department of Commerce, and other state agencies. There is a unified state workforce training and development effort. The committee received testimony that North Dakota compares favorably with other states in the offering of a seamless workforce training and development system.

Representatives of the workforce training and development system testified that rather than creating a single point of contact for programs and services delivered through the state's system, the preferred system is a "no wrong door" system, through which the customer may access the entire system through the customer's desired point of contact. Under a no wrong door system, wherever the customer chooses to access the system, that point of contact should develop a coordinated and timely response from the appropriate system partners. In order for a no wrong door system to work, there needs to be formal points of contact identified for each partner and open communication between the partners, something that is already occurring formally in some areas of the state. However, in order to be successful, the partners of the workforce development delivery system will also need to have constant interaction among themselves in order for the system to evolve. Catalysts to create this interaction may include the North Dakota Workforce Development Council, the Department of Commerce Cabinet, and the quadrant interagency councils.

In addition to the no wrong door system, the federal Workforce Investment Act supports the concept of both a physical and a virtual Internet one-stop system in which workforce development partners collaborate and come together to serve the customer with as little disruption and repetition by the customer as possible. North Dakota's one-stop is found at www.crisnd.com. In addition to the virtual one-stop, there are physical one-stop centers in the state.

Recommendation

The committee recommends Senate Bill No. 2030 to allow the Department of Commerce to retain any money received as subscriptions, commissions, or fees from the department's career guidance and job opportunities Internet web site. The bill provides that the funds are appropriated on a continuing basis to fund this Internet web site.

BUSINESS PROGRAMS STUDY

The committee received extensive information and testimony regarding state programs that assist in economic development, including an inventory of programs in the state classified by the appropriate developmental stage of the business for which the program applied. Through this inventory, the committee discussed possible gaps in economic development services available in the state. Additionally, the committee reviewed the investments made by the State Investment Board.

Legislative Background
2001 Legislation

House Bill No. 1042 decreased from $500,000 to $250,000 the minimum capital requirements for venture capital corporations and increased from 20to 25 percent the maximum amount of capital a venture capital corporation may invest in any one qualified entity.

House Bill No. 1052 extended through June 30, 2002, the 1.5percent sales and use tax rate for used farm machinery and irrigation equipment and farm machinery repair parts and provided that effective July1, 2002, used farm machinery and irrigation equipment and farm machinery repair parts are exempt from sales and use taxes.

House Bill No. 1400 required the Department of Commerce to manage and administer a rural growth incentive program through which a city with a population of less than 2,500 may be designated as a rural growth incentive city.

House Bill No. 1413 allowed the seed capital investment tax credit to be claimed on the short-form return. The bill reduced from 25 to 10 the number of employees a business must employ and reduced the annual sales requirement from $250,000 to $150,000 for a business to qualify for investments under the credit. The bill allowed an organization to be a qualified business if it attracts investments to build and own a value-added agricultural processing facility that it leases with an option to purchase to a primary sector business. The bill eliminated the limitation that the seed capital credit may not exceed 50 percent of the taxpayer's tax liability. The bill increased the aggregate amount of allowable seed capital investment tax credits from $250,000 to $1,000,000 through calendar year 2002 and to $2,500,000 after calendar year 2002.

House Bill No. 1417 authorized the issuance of revenue bonds or other evidences of indebtedness by the Industrial Commission for the establishment of meatpacking plants.

House Bill No. 1460 provided that if the aggregate limit of $2.5 million in renaissance zone tax credits is exhausted, an additional $1 million is available for investments if more than 65 percent of the organization's net investments has been invested as permitted under the renaissance zone law or the organization is established after the exhaustion of the initial limit.

Senate Bill No. 2033 revised the renaissance zone law. The bill authorized a city to apply to the Division of Community Services at any time during the duration of a zone to expand a previously approved renaissance zone that is less than 20 square blocks to not more than 20square blocks. The bill provided that the use of grant funds as the sole source of investment in the purchase of a building or space in a building does not qualify a taxpayer for a tax exemption or credit available to renaissance zone investments, and grant funds may not be counted in determining if the cost of rehabilitation meets or exceeds the current true and full value of a building. The bill also authorized a city to request the Division of Community Services to permit deleting a portion of an approved renaissance zone that is not progressing after five years and make a one-time adjustment of the boundaries to add another equal, contiguous area to the original zone. The bill allowed an income tax exemption and property tax exemption for a taxpayer who rehabilitates residential or commercial property as a zone project. The bill provided that if the cost of a new business purchase or expansion of an existing business, approved as a zone project, exceeds $75,000, and the business is located in a city with a population of not more than 2,500, an individual taxpayer may elect to take an income tax exemption of up to $2,000 of personal income tax liability in lieu of the exemption on income derived from the business. The bill removed the December31, 2004, expiration date for the historic preservation and renovation tax credit for investments made in historic preservation or renovation of property within a renaissance zone. The bill also reduced the credit for historic preservation and renovation from 50percent of the amount invested to 25percent of the amount invested, up to a maximum of $250,000. The bill provided that a taxpayer may not be delinquent in payment of state and local tax liability to be eligible for a tax benefit with respect to investments in a renaissance zone. The bill provided that the provisions relating to the income tax exemptions and property tax exemptions apply to zone projects approved after December31, 1999, and the provisions relating to the historic preservation and renovation tax credits apply to zone projects approved after July31, 2001.

Senate Bill No. 2194 provided that in addition to making loans to North Dakota beginning farmers, the Bank of North Dakota may participate in loans to North Dakota beginning farmers and expanded the types of loans covered under the beginning farmers loan program to include loans for the purchase of agricultural equipment and livestock.

Senate Bill No. 2349 increased from $75,000 to $100,000 the maximum amount of a loan for which a beginning entrepreneur loan guarantee may be allowed and increased from $500,000 to $4,000,000 the maximum amount of loans that may be outstanding under the program.

Senate Bill No. 2352 provided a sales tax exemption for the purchase of computer and telecommunications equipment that is an integral part of a new primary sector business or a physical or an economic expansion of a primary sector business.

Senate Bill No. 2379 established a value-added agricultural promotion board.

Senate Bill No. 2386 allowed a long-form and short-form individual income tax credit for investment in a cooperative or limited liability company organized to process and market agricultural commodities, having an agricultural commodity processing facility in this state, and having a majority of its ownership interests owned by producers of unprocessed agricultural commodities.

Previous Legislation

In 1999 House Bill No. 1019 appropriated $750,000 to the Department of Economic Development and Finance for the North Dakota Development Fund, Inc., and provided for ethanol incentives.

In 1999 House Bill No. 1141 eliminated the requirement that the Department of Economic Development and Finance have a division of science and technology.

In 1999 House Bill No. 1492 allowed the establishment of "renaissance zones" in cities. The bill provided an individual taxpayer who purchases single-family residential property as a primary residence as part of a zone project with an exemption from up to $10,000 of personal income tax liability on the long-form or short-form return for five years beginning with the date of occupancy. A business that purchases or leases property for a business purpose as part of a zone project is exempt from income tax for five taxable years for income derived from the business locations within the renaissance zone. An individual, partnership, limited partnership, limited liability company, trust, or corporation that purchases residential or commercial property as an investment as part of a zone project is exempt from income tax for five taxable years for income earned from the investment. A historic preservation and renovation tax credit is provided against financial institutions' taxes, corporate income taxes, and individual income taxes on the long-form or short-form return for investments in historic preservation and renovation of property in the renaissance zone during the years 2000 through 2004. The credit for historic preservation and renovation is 50percent of the amount invested and any excess credit may be carried forward for up to five taxable years. The bill provided a credit against state tax liability for financial institutions, corporate income taxes, and individual long-form or short-form returns for investments in a renaissance fund corporation. The credit is equal to 50percent of the amount invested and excess credit may be carried forward for up to five taxable years. The total amount of credits for investments in renaissance fund corporations in the state may not exceed an aggregate of $2.5 million for all taxpayers for all taxable years. The bill allowed a city to grant a property tax exemption for single-family residential property in a renaissance zone purchased by an individual as a primary place of residence. The exemption may not exceed five taxable years after the date of acquisition. A city may grant a partial or complete exemption for a building purchased by a business for a business purpose as part of a renaissance zone project. The exemption may not exceed five taxable years. A city may grant a partial or complete exemption for up to five taxable years from property taxes for buildings and improvements to residential or commercial property in a zone project purchased solely for investment purposes.

In 1999 House Bill No. 1456 allowed an addition to a residential or commercial building to qualify for the property tax exemption for building improvements and extended from three to five years the time for which the city or county governing body may grant an exemption for building improvements.

In 1999 Senate Bill No. 2096 provided new jobs training and education program services developed and coordinated by Job Service North Dakota must be provided to primary sector businesses that provide self-financing as funding for new jobs training programs, and these employers may be reimbursed in an amount up to 60 percent of the allowable state income tax withholding generated from the new jobs positions.

In 1999 Senate Bill No. 2137 repealed the law relating to the participation by the Bank of North Dakota in loans to nonfarming small business concerns.

Senate Bill No. 2242 provided for a beginning entrepreneur loan guarantee program.

In 1997 Senate Bill No. 2019, the appropriation for the Department of Economic Development and Finance, repealed Technology Transfer, Inc., as of July 1, 1999.

In 1997 Senate Bill No. 2019 included a provision stating that a political subdivision or economic development authority may adopt a minimum wage requirement for any new business or business expansion in which a majority of the capital is provided by the North Dakota Development Fund, Inc., and its own local development funds. The bill also provided that the Agricultural Products Utilization Commission is now a division of the Department of Economic Development and Finance.

In 1997 Senate Bill No. 2373 provided a framework for investment in community development corporations by banks.

In 1997 Senate Bill No. 2398 provided that the Industrial Commission, acting as the Farm Finance Agency, may establish the first-time farmer finance program to encourage first-time farmers to enter and remain in the livelihood of agriculture and to provide first-time farmers a source of financing at favorable rates and terms generally not available to them.

In 1997 Senate Bill No. 2396 allowed a corporation or a limited liability company to own and operate the low-risk incentive fund, which makes loans to primary sector businesses.

In 1997 House Bill No. 1401 amended the seed capital investment credit provisions to eliminate the requirement of gross sales receipts of less than $2,000,000 in the most recent year and to allow the credit to apply for a business that does not have a principal office in the state but has a significant operation in North Dakota or more than 25 employees or $250,000 of annual sales in a North Dakota operation.

In 1995 House Bill No. 1021 replaced the regional rural development revolving loan fund and the North Dakota Future Fund with the North Dakota Development Fund, Inc.

Previous Studies

During the 1999-2000 interim, the Legislative Council's interim Commerce and Labor Committee studied the economic development efforts in the state, including the provision of economic development services statewide and related effectiveness, the potential for privatization of the Department of Economic Development and Finance, and the appropriate location of the North Dakota Development Fund, Inc., including potential transfer of the fund to the Bank of North Dakota. While conducting this study, the committee received extensive testimony from a broad range of state, local, regional, and private sector parties interested in economic development, including the Bank of North Dakota, the Department of Economic Development and Finance, the Division of Community Services, the Indian Affairs Commission, Job Service North Dakota, the University System, the Workforce Development Council, local development associations, the Economic Development Association of North Dakota, the Greater North Dakota Association, job development authorities, regional planning councils, and the Small Business Center. The committee considered the issues of venture capital, privatization and consolidation of state economic development efforts, population retention and demographics, and workforce development. In performing this study, the committee surveyed state agencies to determine the amounts of money being spent for economic development efforts. The committee recommendations included House Bill No. 1039, House Bill No. 1040, House Bill No.1042, and Senate Bill No.2032.

During the 1997-98 interim the Legislative Council's interim Commerce and Agriculture Committee studied economic development functions in North Dakota, including the Bank of North Dakota programs, Technology Transfer, Inc., the North Dakota Development Fund, Inc., the Department of Economic Development and Finance, and other related state agencies. The study included a review of the most appropriate, effective, and efficient method for the state to deliver economic development assistance in light of changing economic conditions and considerations. While conducting this study the committee received reports from representatives of the Department of Economic Development and Finance regarding the restructuring of the department, loan performance, and the programs administered by the department. The committee received testimony from representatives of the Bank of North Dakota regarding economic development programs administered by the Bank. The committee received testimony from individuals involved in economic development activities at the local level. The committee made no recommendation with respect to its study.

During the 1993-94 interim the Legislative Council's Jobs Development Commission studied methods and coordination of efforts to initiate and sustain new economic development in this state. The commission made no recommendation with respect to its study.

In 1989 House Concurrent Resolution No. 3004 directed the Legislative Council to establish a jobs development commission to study methods and coordinate efforts to initiate and sustain state economic development and to stimulate the creation of new economic opportunities for the citizens of the state. The Jobs Development Commission worked closely with the North Dakota 2000 Committee, which was formed by the Greater North Dakota Association, and the Governor's Committee of 34, which was a committee of 34 members selected by the Governor for the purpose of developing and implementing a comprehensive economic development legislative program for 1991. The commission recommended several bills relating to economic development, including Senate Bill No. 2058, which provided for a comprehensive economic development program now known as the "Growing North Dakota" program.

Testimony
Department of Commerce - North Dakota Development Fund, Inc.

The committee reviewed fiscal information for the North Dakota Development Fund, Inc., including a projection of the future benefit the state will reap from Development Fund, Inc., projects in 2001 and including the projected rate of return on investments for the current year and preceding three years. The North Dakota Development Fund, Inc., reported a 6 to 7 percent return on investments.

An important element in evaluating the success of North Dakota Development Fund, Inc., is consideration that even if the fund has a 35percent chargeoff after five to seven years and even if a business does not succeed after five to seven years, the business was in the community and thereby helped the community for those five to seven years.

Department of Commerce - Community Development Block Grant

The committee reviewed fiscal information pertaining to the community development block grant program and the community loan fund. In calendar year 2001 the community development block grant program funded 22economic development projects for a total of $3,200,000 with an average of $145,454 per project. The total capital investment in all projects was in excess of $31million. Of the 22projects, 12were business startups, 6 were expansions, 2 were purchases of existing businesses, and 2 were designated as job retention. Additionally, the committee reviewed forecasts on the effect these 22projects will have on the state's economy over the next four years.

Department of Commerce - Manufacturing Extension Partnership Program

The committee reviewed the economic development services offered through North Dakota's manufacturing extension partnership (MEP) program. The committee received testimony that with the $400,000 of state funding originally put into the state's program, an additional $600,000 in federal and private funds had been leveraged. To date, the program had touched 90companies within the state, with at least 800employees in the state having seen direct benefit from the program.

The state's MEP program is a nonprofit organization with the mission to "grow North Dakota manufacturing." The North Dakota MEP program is a partnership of federal, state, local, and private sector resources and is one of 70centers in the MEP program system. The North Dakota MEP program targets its services to help manufacturers and focuses on companies that will create new wealth and opportunity in the community and in the state.

Companies pay for the services they receive through the MEP program and public sector funds provide for the system infrastructure needed to identify and ready manufacturers for improvement. The National Institute of Standards and Technology MEP program and the 70centers work together to ensure that services provided to manufacturers are of the highest quality. Because the National Institute of Standards and Technology MEP program is a system, North Dakota manufacturers benefit not just from locally available services but from services from the entire system.

The MEP program helps companies with:

• Employee recruitment and selection.
• Employee relations.
• Business and strategic planning.
• Global business development.
• Succession planning.
• Financial services.
• Quality assurance and production control.
• Product design and development.
• Procurement.
• Supply chain management.
• Energy conservation.
• Plant maintenance.
• Lean enterprise.
• Plant layout and design.
• Environment, health, and safety issues.
• Market development, planning, and selling strategies.
• Customer, market, and competitor analysis.
• Information systems planning and software selection.
• E-business.

The North Dakota MEP program submits quarterly reports to the national system and the national system provides for followup with businesses that have received MEP program services. The data reported from the previous year indicated the average program project results in increased sales per company of $470,000, cost-savings of $99,000, new client investment of $180,634, and the creation or retention of five jobs. Based on this information the Department of Commerce calculated the following additional benefits to the state as a result of the North Dakota MEP program:

North Dakota MEP Program Additional Benefit to State of North Dakota
Number of company projects	30	40	50
Total employment	626	831	1,039
Total gross state product	$29,500,000	$39,100,000	$48,900,000
Personal income	$17,000,000	$22,800,000	$28,500,000
State tax revenues	$3,600,000	$4,800,000	$6,000,000

Additionally, the committee received testimony from a representative of a business that used the services of the North Dakota MEP program. The lean enterprise services the company received through the MEP program focused on how to increase the manufacturing of products with the minimal amount of resources. With the lean enterprise assistance, the business was able to increase the number of employees and the number of actual manufactured products as well as operate with less waste and more production, thereby becoming more competitive.

Department of Commerce - Agricultural Products Utilization Commission

The committee reviewed fiscal information pertaining to the Agricultural Products Utilization Commission. The commission administers four grant programs, including basic and applied research, marketing and utilization, farm diversification, and agricultural prototypes. In 2001 the commission received 73applications requesting a total of over $3.1million. Of those 73applications, 37projects were funded at a total of $944,142.

Tax Programs

The committee reviewed the history and use of state taxincentive programs that assist in economic development, including:

1. Venture capital corporation investment tax credit;
2. Small business investment company investment tax credit;
3. Certified nonprofit development corporation investment tax credit;
4. Seed capital investment tax credit;
5. Agricultural commodity processing facility investment tax credit;
6. Renaissance zone;
7. Beginning farmer income tax deduction;
8. Beginning businessperson deduction;
9. Exemption of gain from sale of stock of relocated corporation;
10. Income tax exemptions;
11. Research expense credit;
12. Wage and salary credit;
13. Jobs training assistance;
14. Manufacturing equipment sales and use tax exemption;
15. Agricultural processing plant construction materials sales and use tax exemption;
16. Power plant production equipment and construction materials sales and use tax exemption;
17. Wind-powered electrical generating facilities sales and use tax exemption;
18. Computer and telecommunications equipment sales and use tax exemption;
19. Property tax exemption; and
20. Seed capital investment tax credit.

Bank of North Dakota Programs

The committee reviewed the history and use of Bank of North Dakota programs that assist in economic development, including:

1. Startup entrepreneur program (STEP);
2. Business development loan program;
3. Beginning entrepreneur loan guarantee program;
4. Agriculture partnership in assisting community expansion (AgPACE) program;
5. Partnership in assisting community expansion (PACE) program; and
6. Match loan program.

The Bank of North Dakota reported a default on loans of approximately $1.2million, which is approximately equal to one-tenth of 1percent of the Bank's loans. This rate of loss is very low compared to the default rate for private banks. This low default rate is due in part to the fact that a majority of the Bank's loans are commercial and that residential loans are largely federally guaranteed.

New Economy Initiative

The committee received testimony regarding the activities of New Economy Initiative. The overall theme of New Economy Initiative is to generate initiatives, each with a champion who establishes a game plan for achieving the initiative. Testimony indicated that New Economy Initiative had more than 70action initiatives under way to address major challenges such as talent recruitment, capital formation, supporting entrepreneurs, technology training, improving on-line government services, increasing research and development, increasing connections between businesses and universities, and community development.

The organizational structure of New Economy Initiative includes six industry organizations called clusters. The goal of these clusters is to drive growth in the areas in which North Dakota has natural advantages. The 70 existing action initiatives fit within the four broad goals of:

1. Growing competitive clusters;
2. Building strong and responsive economic infrastructure;
3. Creating effective collaboration and dynamic leadership; and
4. Promoting global market focus and openness to change.

New Economy Initiative is developing initiatives to address entrepreneurialism and capital, including:

1. One hundred new economy business challenges;
2. Idea Fest;
3. Statewide talent pool strategy;
4. Investment capital; and
5. University research and technical education.

New Economy Initiative is a project coordinated by the Greater North Dakota Association with the goal to complement the work of the government and help identify ways to make North Dakota a more profitable, dynamic, and desirable location for business and people. As a result of the work being performed by New Economy Initiative, New Economy Initiative will be offering additional initiatives to the Governor and the Legislative Assembly to help make North Dakota more competitive. Additionally, New Economy Initiative has been working with the Department of Commerce to determine how to best coordinate efforts in various areas, including marketing and attraction of workers and companies.

Champion/REAP Alliance

The committee received information regarding the activities of the Champion/REAP Alliance, including receiving testimony from representatives of Champion/ REAP alliance communities. The Champion/REAP Alliance is a combined effort of volunteer leaders from the southwestern, southeastern, northern border, and Native American regions of North Dakota. The alliance assists its membership with community and economic development projects, provides a source for regional communication, and helps each area meet obligations as a designated United States Department of Agriculture Champion Community or REAP zone. The primary goal of the alliance is to address outmigration.

Statistics presented to the committee indicated that during the past five years Champion communities leveraged financial resources totaling $4.2 million, and during the last eight years REAP zones leveraged financial resources totaling $136.8 million. In 1999 the Legislative Assembly provided $50,000 in matching funds, and in 2001 the Legislative Assembly provided $75,000 in matching funds to assist the program.

Business Financing Gaps

The committee reviewed an inventory of economic development programs available in the state to better understand what economic development program gaps might exist in the state. The committee received testimony that the Department of Commerce is working on creating a measuring tool to measure the effectiveness of the economic development programs.

The committee was informed that business funding can be broken up into different stages, such as:

1. Early-stage financing.
   1. Seed financing.
   2. Startup financing.
   3. First-stage financing.
2. Expansion financing.
   1. Second-stage financing.
   2. Third-stage financing.
3. Later-stage financing.
   1. Bridge financing.
   2. Open market.
4. Acquisition and buyout.
   1. Acquisition financing.
   2. Management buyout and leveraged buyout.

A review of the state's economic development programs indicated that the biggest needs in the state are seed financing and startup financing. This lack of funding is a universal problem and is not unique to North Dakota. Testimony indicated there are problems creating investment funds or getting venture capital corporations to invest in the state in part because of the low volume of projects in the state. The committee received testimony that there is not a lack of venture capital funds in the state, but instead the lack of investment is a result of the shortage of "deal flow."

The committee considered whether a large venture capital corporation would be successful in this state, or whether regional funds such as those in Minneapolis would adequately meet the needs in the state. The Department of Commerce created a list of venture capital corporations willing to invest in North Dakota; however, in order to fill the financing gap in North Dakota, the state may need an equity fund and a program to provide startup funds. If the state pursued a program to provide early-stage financing, the program could be administered through a new program or through an existing program such as the North Dakota Development Fund, Inc., or the community development block grant through the community development loan fund.

The North Dakota Development Fund, Inc., has the flexibility to provide funds in the form of loans, equity investments, stock purchases, grants, and guarantees. Reviewing the startup efforts taken by the Department of Commerce, the committee was informed that in 2001 the North Dakota Development Fund, Inc., provided funds for 19primary sector startups. Of those 19primary sector startups, seven startups were projects with which both the North Dakota Development Fund, Inc., and Division of Community Services were involved. Of the 19startups, the Department of Commerce provided nine equity investments.

The North Dakota Development Fund, Inc., worked with some success to try to fill the financing gap, and there is a public role to fill this gap; however, in order to be successful the state needs to be willing to accept the high risks associated with early-stage financing. If the state makes equity investments, the state should be eligible to receive a higher return to reflect the increased risk.

In order for the North Dakota Development Fund, Inc., to be successful in providing early-stage financing, it should be understood and accepted that not every application for funds is appropriate for funding. The Department of Commerce will continue to provide assistance to projects in order to get to the point when it makes good business sense to provide funding; however, there are times when the answer to the request for funding should be no. Additionally, equity and startup funds are the most risky financing available, so it follows there will be a higher loss associated with these types of financing.

The North Dakota Development Fund, Inc., reported a loss rate of approximately 16percent, and the community loan fund reported a loss rate of approximately 35percent. The nature of venture capital funds is that a private fund would expect a rate of return between 25and 35percent due to the high risk of loss. A state-administered early-stage financing program could target equity and startups with an understanding that the loss in this account could be as high as 50to 80percent. If a company were to accept early-stage financing from the state, one requirement that would be essential to this fund is that the company receiving funds agree to professional management assistance, including a specific amount of advice and counseling during the startup of the company.

State Investment Board

The committee reviewed the composition of the North Dakota State Investment Board; the board's duties; the investment goals, objectives, and asset allocations of the board; the prudent investor rule; and the Teachers' Fund for Retirement and Public Employees Retirement System exclusive benefit requirement, which provides that investments be for the exclusive benefit of the beneficiaries.

The committee received testimony that the State Investment Board supports the advancement of development in the state in several ways, including the Lewis and Clark Private Equities, L.P., in the amount of $7,500,000; Bank of North Dakota demand deposit in the amount of $30,438,000; and Bank of North Dakota match loan program with a $100,000,000 commitment.

Each of the funds managed by the board creates its own investment policy, and the board implements these policies. In addition to investment policy created by the funds, some investment policy is statutory, such as the exclusive benefit rule and prudent investor rule. Occasionally the prudent investor rule complements economic development, such as the MATCH loan program with the Bank of North Dakota. Additionally, the board has $30million to $40 million in a demand deposit account with the Bank of North Dakota and participates in a private equity program with the Public Employees Retirement System and Teachers' Fund for Retirement.

Conclusion

The committee makes no recommendations with respect to its business programs study.

INTERNATIONAL MARKETING AND EXPORT STUDY

In the course of the international marketing and export study, the committee reviewed export statistics for North Dakota and the midwest region, and the committee received testimony from representatives of the Department of Commerce; the Agriculture Commissioner; a representative of the National Association of State Development Agencies; and representatives of North Dakota businesses that are involved in international marketing and exportation. Additionally, the committee requested that the Department of Commerce spearhead an effort to compile an inventory of international marketing and export services available to North Dakota businesses and that the Department of Commerce present to the committee a unified strategic plan for providing international marketing and export services to North Dakota businesses.

Legislative Background
Legislation

In 2001 Senate Bill No. 2032 consolidated the Department of Economic Development and Finance, Department of Tourism, and the Division of Community Services to create a Department of Commerce. This bill was recommended by the Legislative Council's interim Commerce and Labor Committee. As introduced, the bill would have required that the Department of Commerce include a division of international trade; however, this provision was removed from the bill before final passage.

In 1993 Senate Bill No. 2021 removed the requirement that the Department of Economic Development and Finance include a division of marketing and technical assistance.

Previous Studies

During the 1999-2000 interim the Legislative Council's interim Agriculture Committee studied the feasibility and desirability of forming a multistate agricultural marketing commission for the purpose of marketing agricultural products on behalf of agricultural producers.

Testimony
National Association of State Development Agencies

A representative of the Department of Commerce testified that the work the department has done with the National Association of State Development Agencies has resulted in a recommendation from the association that the department include services in the area of international trade.

A representative of the National Association of State Development Agencies testified that the association assisted the Legislative Council's 1999-2000 interim Commerce and Labor Committee in the design of the Department of Commerce and, in doing so, identified areas in which the state could do more with the state's limited resources. Possibilities for increasing export services range from adding a full-time employee to providing these services with existing staff.

The committee received testimony that small- and medium-sized companies tend to have the greatest potential for increasing exports; however, these same companies are also in need of the most assistance. North Dakota could benefit from a workplan that identifies public and private resources available for these exporters. For purposes of the committee's study, the representative of the National Association of State Development Agencies testified that it would be helpful for the committee to review the existing infrastructures of export service providers in the state and then strengthen these relationships.

Exporters

The committee received testimony from representatives of businesses regarding barriers to international trade and how these businesses have succeeded in overcoming these barriers.

A representative of a North Dakota business testified that North Dakota government agencies can help exporters best by:

1. Financially facilitating agriculture exports by means of tax breaks;
2. Enhancing access to federal low-cost export financing;
3. Providing funding for innovation incubators and business centers;
4. Providing subsidized brick and mortar financing for export products;
5. Funding appropriate market feasibility studies more aggressively; and
6. Providing an information clearinghouse that would include resources concerning domestic and foreign laws and regulations that directly affect exporters.

A representative of a North Dakota business testified that although the state can provide some international trade and marketing assistance to businesses via the Internet, personal contact between the buyer and the seller is very important, and this is especially true in the case of international marketing and exporting.

Agriculture Commissioner

The Agriculture Commissioner testified that the international marketing services offered through the Department of Agriculture and Department of Commerce do not duplicate each other. Although both agencies do have some overlap in the companies with which they work, the agencies offer these companies different services. The commissioner did not support creation of a new board or new agency to head global marketing but instead supported improving coordination between the existing agencies and organizations.

The Agriculture Commissioner testified that the bulk of export activities in the state is in the area of agriculture. These agricultural export activities are primarily in the form of raw agricultural commodities, processed foods, and agricultural equipment. International trade activities of the Department of Agriculture are centered in the marketing services area, and include:

• Partnership with Mid-America International Trade Council (MIATCO), which is primarily composed of 12state departments of agriculture in the midwest region. In addition to the contacts and special relations gained through MIATCO, MIATCO provides an export hotline, Food Show Plus, and a branded program.
• Close relationships with the state commodity councils and funds.
• Membership of the commissioner as MIATCO president, as a member of Agricultural Products Utilization Commission; as a member of the Northern Crops Institute Board of Directors; as a member of the State Seed Commission; and as a member of the Industrial Commission, which oversees the State Mill and Elevator Association.
• Provision of direct services with North Dakota companies, including conducting educational seminars, researching potential markets, providing financial assistance for companies to attend international trade shows, encouraging and hosting reverse trade missions, organizing North Dakota companies for foreign visits, following up on international trade inquiries, and providing networking services between North Dakota companies and export providers.

The Agriculture Commissionerreported there are several ways the Department of Agriculture and the Department of Commerce can work together on international trade, including improving coordination of services; sharing information between agencies; and creating some type of international marketing and export relationship between the Department of Agriculture, the Department of Commerce, and the University System.

Department of Commerce

The committee received testimony from representatives of the Department of Commerce regarding the international marketing and export services provided through the department. Under the current system, international trade is an area that is grossly underdeveloped in North Dakota's economic development services. Testimony was received that although the Department of Commerce has tried to take an active role in international trade, when the department receives requests for international marketing and export services, one of the main roles the department plays is to act as a clearinghouse in referring callers to other service providers, including the United States Department of Commerce office in Minneapolis and the North Dakota District Export Council. Requests for international marketing and export information received by the Department of Commerce include requests for background information on specific countries, assistance in completing paperwork, information regarding international trade brokers, North Dakota export statistics, and due diligence information.

Inventory and Unified Strategic Plan

With the assistance of the District Export Council, the Department of Commerce compiled an inventory of public and private export service providers available to North Dakota businesses. At the request of the committee the department formed the following departmental strategic plan for unified international marketing and export services:

1. Coordinate and cooperate with all current international program service providers within the state.
2. Act as a liaison to companies wanting information on international business and to the providers of those services.
3. Work closely with the United States Department of Commerce and provide knowledge of programs and assistance.
4. Provide hands-on assistance to private businesses to get these businesses "export-ready."
5. Work closely with the North Dakota Export Council to find prospective companies that need export assistance.
6. Work with other Department of Commerce programs, such as the Agricultural Products Utilization Commission and the Manufacturing Extension Partnership, to provide education on international markets and products.
7. As needed, work with all entities to provide educational opportunities for companies that choose to consider the possibility of exporting.
8. Work with businesses on international business investment.
9. Work closely with other entities, such as the State Board of Higher Education, MEP, United States Department of Commerce, District Export Council, and others to:
   1. Determine international customers' wants and needs.
   2. Gather competitor intelligence.
   3. Identify new markets.
   4. Assist with customer-driven product development.
   5. Select the most effective distribution channels.
10. Market the Export-Import Bank of the United States programs to North Dakota exporters.

The commissioner of the Department of Commerce testified that a person with international experience must provide the leadership and focus necessary to implement the strategic plan and move North Dakota exports forward. The estimated biennial costs for hiring a global business and marketing director and one full-time employee to provide support services would be $336,997, providing for an annual director's salary of $45,000, and an annual administrative support salary of $25,824.

Conclusion

The committee makes no recommendations with respect to its international marketing study.

REPORTS
Department of Commerce Division of Community Services Renaissance Zone Annual Reports

The committee received annual reports from the Department of Commerce Division of Community Services on renaissance zone progress. The committee received updates on:

• The status of the approved renaissance zones and the projects within each of these approved zones;
• The activities of renaissance fund organizations;
• The status of zones in the process of receiving renaissance zone approval; and
• Communities that may be applying for renaissance zone status in the future.

The Division of Community Services did not recommend any changes to the renaissance zone program.

Securities Commissioner's Access to Capital Report

The committee received a report from the Securities Commissioner on the commissioner's findings and recommendations resulting from the review of policies and procedures relating to access to capital for North Dakota companies. The commissioner reported that the commissioner's primary charge is protection of North Dakota investors through four functional areas:

1. Investor education and financial literacy initiatives;
2. Investigation and enforcement;
3. Registration of securities industry firms and professionals; and
4. Regulation of the capital formation process.

The commissioner reviewed amendments made to the North Dakota Securities Act of 1951 over the last three legislative sessions and provided the committee with a summary of the filing activities addressed by the commissioner's office for the first half of the current biennium.

The commissioner will introduce during the 2003 legislative session a bill to expand an exemption from the registration requirements to allow companies to offer and sell securities to any government or political subdivision or instrumentality and to small business investment corporations.

Workers Compensation Bureau Roughrider Industries Safety Audit and Modified Workers' Compensation Coverage Performance Audit Report

The committee received a report from the Workers Compensation Bureau on the safety audit of Roughrider Industries work programs and the performance audit of the modified workers' compensation coverage program. The modified workers' compensation program was established in 1997 to allow Roughrider Industries to continue receiving federal funding through the prison industry enhancement certification program.

As the result of a June 2002 safety audit of Roughrider Industries, the Workers Compensation Bureau found that Roughrider Industries was in compliance with all components of the workers' compensation risk management program. Additionally, the audit showed that Roughrider Industries had incorporated modern safety devices at the manufacturing plant to provide the greatest protection to workers when utilized properly. However, the internal audit indicated that Roughrider Industries had not been providing the Workers Compensation Bureau with documentation of reinsurance coverage. Procedures have been established to ensure receipt of this documentation.

The Workers Compensation Bureau did not recommend any changes to the modified workers' compensation program in place at Roughrider Industries.

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