BUDGET COMMMITTEE ON GOVERNMENT SERVICES

The Budget Committee on Government Services was assigned responsibilities in six areas. Section 6 of Senate Bill No. 2380 provided that the Legislative Council study programs dealing with risk-associated behavior. Section 2 of Senate Bill No. 2380 directs the State Health Officer to provide reports to the Legislative Council regarding the implementation of the community health grant program.

North Dakota Century Code (NDCC) Section 54-06-31 directed the Legislative Council to receive periodic reports from the Central Personnel Division on the implementation, progress, and bonuses provided to classified state employees under state agency recruitment and retention bonus pilot programs. Section 6-12-05 provides that the Legislative Council is to receive financial statements and a report from the governing board overseeing any housing development fund established in the state. Section 54-40-01 provides that between legislative sessions a committee of the Legislative Council may approve any agreement entered into by a state agency with the state of South Dakota to form a bistate authority to jointly exercise any function the agency is authorized to perform by law. These responsibilities were assigned to the committee. Based on Legislative Council directive, the committee was also assigned the responsibility of monitoring the status of state agency appropriations.

Committee members were Representatives Jeff Delzer (Chairman), Ron Carlisle, Rachael Disrud, Mark A. Dosch, James Kerzman, Frank Klein, Matthew M. Klein, Myron Koppang, Clara Sue Price, Dave Weiler, and Robin Weisz and Senators Duaine C. Espegard, Ralph L. Kilzer, Gary A. Lee, Judy Lee, Elroy N. Lindaas, and Harvey Tallackson.

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.

RISK-ASSOCIATED BEHAVIOR PROGRAMS

Pursuant to Section 6 of Senate Bill No. 2380, the committee studied programs dealing with the prevention and treatment of alcohol, tobacco, and drug abuse and other kinds of risk-associated behavior. Various state agencies, including the Department of Corrections and Rehabilitation, the Attorney General, the State Department of Health, the Department of Human Services, the Department of Public Instruction, the Department of Transportation, the National Guard, the Children's Services Coordinating Committee, and the Supreme Court, were reviewed to determine whether better coordination among the programs within those agencies may lead to a more effective and cost-efficient way of operating programs and providing services. The committee received a Legislative Council staff survey of state agencies' alcohol, drug, tobacco, and risk-associated behavior programs. Agencies surveyed provided the following information:

• Description of the program.
• Funding sources and restrictions.
• Anticipated uses of funds.
• Length of time funding may be available.

Total funding for the 2001-03 biennium for various alcohol, drug, tobacco, and other risk-associated programs is:

Agency	General Fund	Federal and Special Funds	Total Funds
State Department of Health	$0	$7,429,934	$7,429,934
Attorney General's office	1,276,176	6,210,001	7,486,177
Department of Corrections and Rehabilitation	4,870,593	5,045,242	9,915,835
Department of Human Services	9,105,623	14,762,035	23,867,658
Department of Transportation	0	984,000	984,000
Department of Public Instruction	0	3,428,692	3,428,692
Supreme Court	22,222	289,895	312,117
National Guard	0	1,764,000	1,764,000
Children's Services Coordinating Committee	0	250,000	250,000
Total all agencies	$15,274,614	$40,163,799	$55,438,413
Less duplicated agency passthrough funds	0	(2,436,822)	(2,436,822)
Net total all agencies	$15,274,614	$37,726,977	$53,001,591

The committee received additional testimony from the Children's Services Coordinating Committee on grants to the eight regional and four tribal affiliates for risk-associated behavior programs. The committee learned the total grants awarded to regional and tribal affiliates for the first year of the 2001-03 biennium was $627,680.

Tobacco Settlement Trust Fund Collections

The committee received status reports from the Legislative Council staff on tobacco settlement trust fund collections for the 2001-03 biennium. The committee learned as of October 2002, $79.7 million has been received by the state and deposited in the tobacco settlement trust fund. During the first 15 months of the 2001-03 biennium, $26.8 million of tobacco settlement collections had been received by the state. Tobacco settlement trust fund collections are allocated among the community health trust fund, the common schools trust fund, and the water development trust fund pursuant to NDCC Section 54-27-25 as follows:

Fund	1999-2001 Actual Transfers	2001-03 Transfers as of October 1, 2002	2001-03 Projected Remaining Transfers
Community health trust fund (10%)	$5,290,078	$2,678,072	$2,653,645
Common schools trust fund (45%)	23,805,353	12,051,320	11,941,399
Water development trust fund (45%)	23,805,353	12,051,320	11,941,399
Total transfers from the tobacco settlement trust fund	$52,900,784	$26,780,712	$26,536,443

The committee learned many states, because of budget problems, have sold the right to future tobacco settlement collections at a discounted value of approximately 50 percent.

Community Health Grant Program

Pursuant to Section 2 of Senate Bill No. 2380, the committee received reports from representatives of the State Department of Health regarding the implementation of the community health grant program. The committee learned the State Department of Health established a Community Health Grant Program Advisory Committee and a community health grant program with the primary purpose of preventing or reducing tobacco usage in the state. The program must, to the extent funding is available, follow the Centers for Disease Control and Prevention guidelines for tobacco prevention. A total of $4.7 million was appropriated from the community health trust fund for the community health grant program for the 2001-03 biennium. The funds for the program must be allocated pursuant to Senate Bill No. 2380, as follows:

1. Student tobacco programs - 40 percent ($1,880,000) for grants to the public health units for programs to reduce student tobacco use.
2. County tobacco programs - 40 percent ($1,880,000) for grants to public health units for programs to reduce tobacco use by residents living in the counties served by the public health units. A program may address other chronic diseases.
3. State aid - 20 percent ($940,000) for grants to public health units to supplement existing state aid from other sources.

The committee learned all 28 local public health units applied for and were awarded community health grant program funds. Grants awarded totaled $4,689,279--$1,878,718 for student tobacco programs, $1,870,561 for community tobacco programs, and $940,000 for state aid payments. The $10,721 of unallocated funds is a result of one local public health unit not applying for its full allocation. The unallocated funds will be made available to other local public health units.

In addition Senate Bill No. 2380 provided $350,000 from the community health trust fund; $100,000 for funding the Community Health Grant Program Advisory Committee and $250,000 for funding grants to cities and counties on a dollar-for-dollar matching basis for city and county employee tobacco education and cessation programs. The advisory committee has spent $3,246 as of October 2002, and the remaining funds will be used to develop an information data base for the community health grant program and to provide technical assistance to local public health units in implementing programs. Five city-county employee education and cessation programs have been approved as of October 2002 with total funding of $59,212.

The committee learned the role of the Community Health Grant Advisory Committee is to advise the State Department of Health on program implementation. The advisory committee includes the State Health Officer who serves as the chairman; the state tobacco control administrator; one high school student; one student of a postsecondary institution in the state; one representative of a nongovernmental tobacco control organization; and one law enforcement officer. In addition the committee includes various representatives of state government and the private sector who are appointed by the State Health Officer.

The committee received testimony from a representative of the Community Health Grant Program Advisory Committee regarding the implementation of the community health grant program who stressed that an actual measurable reduction in the incidence and prevalence of tobacco use or in the expenditures for tobacco-related illnesses and diseases will not be realized in the short term.

The committee received testimony from representatives of Minot area local public health units on activities in the First District Health Unit as a result of the funding received from the community health grant program. The committee also received information from a representative of the American Heart Association regarding other states' activities that includes increasing cigarette taxes. The committee learned cigarettes can be purchased on reservations without being subject to taxation and cost as much as 44 cents less per pack. Based on a behavioral risk factor survey conducted in North Dakota in 1999 and 2000, smoking rates among American Indians over age 18 is 45.4 percent, which is twice the rate for the rest of the age group.

Centers for Disease Control and Prevention Funding

The committee learned the Centers for Disease Control and Prevention will maintain North Dakota's matching requirement at a $1 state to $10 federal "hard" or "soft" match through May 31, 2003. A "hard" match requires the expenditure of funds while "soft" match allows indirect costs and donated time. A representative of the State Department of Health informed the committee the Centers for Disease Control and Prevention is likely to increase the matching requirement to a dollar-for-dollar "hard" match requirement after that period. The Centers for Disease Control and Prevention allows a 1-to-10 match for states that do not have existing tobacco control and prevention funding because the Centers for Disease Control and Prevention believes those states would not be able to provide program funding on a dollar-for-dollar matching basis. During the 2001-03 biennium the State Department of Health used approximately $367,000 of the $2.3 million Centers for Disease Control and Prevention grant for the cost of five full-time equivalent (FTE) positions relating to tobacco prevention and control.

Dental Loan Repayment Program

Senate Bill No. 2276 provides $180,000 from the community health trust fund to the State Health Council for a dentists' loan repayment program. The State Health Council is to annually select up to three dentists who agree to provide dental services to communities in the state. The dentists are eligible to receive funds for the repayment of educational loans. The funds are payable over a four-year period and may not exceed $80,000 per applicant. The Legislative Assembly included intent in Senate Bill No. 2276 that the 2003 Legislative Assembly provide sufficient funds for the continuation of the program. The selection of the dentists is to be based on the size of the community that will be served:

• One dentist serving a community with fewer than 2,500 residents.
• One dentist serving a community with fewer than 10,000 residents.
• One dentist serving a community with 10,000 or more residents.

The committee learned three dentists have been selected for the dental loan repayment program as of October 2002, serving the following communities:

• Minot (over 10,000 residents) - First year of biennium.
• Larimore (less than 2,500 residents) - First year of biennium.
• Minot (over 10,000 residents) - Second year of biennium.

Conclusion

The committee learned the State Department of Health intends to submit legislation to make changes to NDCC Chapter 23-38, as created by Senate Bill No. 2380, and the community health grant program that could include:

• Clarification of the "minimum base" funding language in NDCC Section 23-38-01(1)(b), regarding whether all counties with a population of fewer than 10,000 are to receive a $5,000 grant, regardless of whether the county meets the other requirements regarding submission of a qualifying plan.
• Expansion of tobacco cessation and education program opportunities to individuals who are not city and county employees or reduction of the required one-to-one match for the programs.
• Increased funding support for the department to administer the community health grant program and provide technical assistance at the local level.
• Increased funding of approximately $800,000 from the community health trust fund for a statewide quit smoking line.

The State Department of Health plans to provide a community health grant program expense report, including the amount spent for face-to-face counseling, when the data is available. The committee does not make any recommendations regarding the community health grant program.

RECRUITMENT AND RETENTION BONUS PILOT PROGRAM

North Dakota Century Code Section 54-06-31 created by Section 1 of House Bill No. 1120 directed the Central Personnel Division to report periodically to a legislative committee designated by the Legislative Council on the implementation, progress, and bonuses provided under state agency recruitment and retention bonus pilot programs. The Budget Committee on Government Services was assigned this responsibility for the 2001-02 interim. The bonus pilot programs may be established to recruit or retain classified state employees in hard-to-fill occupations. The pilot program is effective from March 15, 2001, through June 30, 2003. In order to participate in this pilot program an agency must:

• Have a written policy in place identifying the eligible positions or occupations that may receive the bonuses and provisions in place for providing the bonuses;
• File the written policy with and report each bonus provided to an employee under the program to the Central Personnel Division; and
• Fund bonus pilot programs with the agency's existing salaries and wages budget.

The bonuses provided under this pilot program are not considered a fiscal irregularity under NDCC Section 54-14-03.1.

Testimony

The committee received information from a representative of the Central Personnel Division regarding the model policy, which includes a description of NDCC Section 54-06-31, definitions of recruitment and retention bonuses, an explanation of types of circumstances and positions that may receive bonuses, a sample service agreement, and reporting requirements of the agency. The model policy does not limit the dollar amount of the bonuses provided or the length of required employee service. The agencies generally require a complete or prorated payback of bonuses provided if the terms of the service agreement are not met.

The committee received testimony from agencies that have implemented recruitment and retention bonus pilot programs. The agencies supported continuation of the programs as a way to compete with private industries, to use as an incentive for individuals to relocate to the state, and to financially assist individuals who are relocating. In addition several agency representatives were in favor of expanding the program to nonclassifed employees. As of October 31, 2002, recruitment and retention bonus pilot programs have been implemented by the following agencies:

Agency	Number, Type, and Total Amount of Bonuses Obligated
Department of Human Services	8 recruitment bonuses ($9,251) 9 retention bonuses ($20,000) Primarily awarded to registered nurses and addiction counselors
Highway Patrol	10 recruitment bonuses ($3,500) Primarily awarded to current patrol officers for referring a patrol officer applicant who is hired and makes it through the academy training No retention bonuses
Department of Transportation	45 recruitment bonuses ($181,777) No retention bonuses Primarily awarded to engineers
Bank of North Dakota	No recruitment bonuses 2 retention bonuses ($6,500) Awarded to programmers
Department of Corrections and Rehabilitation	3 recruitment bonuses ($3,487) No retention bonuses Awarded to registered nurses and a probation officer
Information Technology Department	7 recruitment bonuses ($18,000) No retention bonuses Primarily awarded to programmers
Job Service North Dakota	Recruitment and retention bonus program but no bonuses provided yet
Total	73 recruitment bonuses ($216,016) 11 retention bonuses ($26,500)

Recommendation

The committee recommends House Bill No. 1032 to continue the recruitment and retention bonus pilot program through June 30, 2005.

HOUSING DEVELOPMENT FUND REPORT

North Dakota Century Code Section 6-12-05 provides that the governing board overseeing a housing development fund provide to the Governor and the Legislative Council annual financial statements and a report for the first four taxable years beginning after December 31, 1998, on the housing development fund. The report is to analyze the impact of the fund on the state's economy, business and employment activity generated by loans from the fund, and the effects of that activity on state and local tax revenues. The bill allows a financial institution or group of financial institutions to establish a corporation or limited liability company to operate a housing development fund. The fund may be used for making loans for any housing project in the state, but the primary focus for loans from the fund must be to provide funding for multifamily housing projects in rural areas that are experiencing or expecting a shortage of housing as a result of economic development. The section allows a credit against a financial institution's taxes equal to the difference between the participating financial institution's share of interest earned on the loan from the fund and the amount the institution would have earned by applying an interest rate of 300 basis points more than the comparable treasury security rate. The section is effective for four taxable years and will expire on December 31, 2002. The housing development fund program would allow a higher percentage of the cost of a housing construction project in rural North Dakota to be financed than would be available through traditional financing programs. Traditional financing programs generally provide financing based on the appraised value of each housing unit. Because in rural North Dakota the cost of new housing construction generally exceeds the housing's appraised value, it is difficult to obtain an adequate amount of financing for new construction in these areas. This program would provide the financing for the cost of construction which exceeds the appraised value and is intended to make housing construction projects more feasible in rural areas of the state.

The committee received information from a representative of Lewis and Clark CommunityWorks, a nonprofit corporation created in 1995 with the primary goal of creating a revolving loan fund to provide affordable single-family housing for individuals who do not qualify for government housing development programs. Lewis and Clark CommunityWorks anticipates lending $3 million to $6 million in the next three to four years. The committee learned Lewis and Clark CommunityWorks is a congressionally chartered nonprofit organization and has access to a secondary market that purchases the types of loans made by Lewis and Clark CommunityWorks.

The committee also received information from representatives of the North Dakota Bankers Association and Independent Banks of North Dakota regarding the background of the housing development fund legislation. The committee learned multifamily housing units generally require a minimum of 12 to 18 units to generate sufficient cashflow for financing. In small towns a home can often be purchased for $20,000 to $25,000. The rent on a new housing unit would be more expensive than the payments made to purchase a home in these markets.

Since enactment of the legislation no housing development funds have been established, so no reports were provided to the committee.

Conclusion

The committee does not make any recommendation regarding continuation of the housing development fund legislation, which will expire on December 31, 2002.

BUDGET MONITORING
Status of the State General Fund

The committee received reports from the Office of Management and Budget regarding the status of the state general fund. Based on the July 2002 revised 2001-03 forecast, revenue collections, excluding the beginning balance, are estimated to be $1.64 billion, $65 million less than the $1.71 billion forecasted at the end of the 2001 legislative session. Pursuant to Section 12 of House Bill No. 1015, the Budget Section approved in August 2002 a contingent transfer from the Bank of North Dakota to the general fund, not to exceed the lesser of $25 million or the actual shortfall as compared to the March 2001 legislative forecast. The committee learned as of September 30, 2002, the projected June 30, 2003, general fund balance prior to the Bank of North Dakota transfer is estimated to be ($14,711,812), which reflects the July 2002 allotment savings of 1.05 percent or approximately $18.3 million. The projected ending general fund balance after the Bank of North Dakota transfer is zero, or $12 million less than the projected ending general fund balance made at the close of the 2001 legislative session.

Actual revenue collections through September 2002 were 1.4 percent or $13.6 million more than the July 2002 revised revenue forecast, and 3.9 percent or $37 million more than the same period during the 1999-2001 biennium.

The committee learned 2001-03 biennium deficiency or supplemental appropriations requests identified as of October 2002 total $28 million. This includes an estimated $14 million request from the Department of Human Services due to a Medicaid program funding shortfall, a decrease in the federal medical assistance percentage (FMAP), and an increase in the number of eligible recipients; and an estimated $12 million request from the Division of Emergency Management for disasters occurring between 1997 and 2001. In addition the Department of Transportation is anticipated to request a $12 million deficiency appropriation from the highway fund relating to federal emergency relief projects.

Oil Revenues, Oil Production, and Oil Market Prices

The committee received status reports from the Legislative Council staff on oil tax revenues, oil production, and oil market prices for the 2001-03 biennium. The committee learned that for the period January through August 2002, 74 oil wells were drilled in North Dakota, 63 of which were producing wells. The market price per barrel of oil in September 2002 was $24.53, or $3.86 more than the projected price per barrel of $20.67.

Through August 2002 general fund revenues from oil and gas production taxes were $23.9 million, or $2.4 million below the March 2001 forecast. General fund revenues from the oil extraction taxes were $12.4 million or $3.6 million below the March 2001 forecast for the same period. Oil and gas production taxes through August 2002 were $973,469 more and oil extraction taxes were $228,954 less than the revised revenue forecast for the period. The committee learned, based on the revised revenue forecast for the 2001-03 biennium released by the Office of Management and Budget in July 2002, oil tax revenues are estimated to be $61 million. Pursuant to NDCC Section 57-51.1-07.2, oil tax revenues in excess of $62 million are to be transferred to the permanent oil tax trust fund. Approximately $13 million was transferred into the permanent oil tax trust fund at the end of the 1999-2001 biennium. The original estimate at the close of the 2001 legislative session anticipated $9 million to be deposited into the fund at the end of the 2001-03 biennium. Based on current estimates no amount will be transferred on July 1, 2003.

Agency Compliance With Legislative Intent

The committee received a report from the Legislative Council staff on state agency compliance with legislative intent for the 2001-03 biennium. The report is based on information gathered by the Legislative Council staff during visitations with agency administrators and fiscal personnel in early 2002. The report contains information on agency compliance with legislative intent, agency changes, budget concerns, staff changes, and other areas regarding agency operations and appropriations. In addition the report includes a number of analyses of special funds.

Status of Appropriations of Major Agencies

Since the 1975-76 interim, a Legislative Council interim committee has been assigned the responsibility of monitoring the status of major state agency and institution appropriations. The Budget Committee on Government Services was assigned this responsibility for the 2001-03 interim. The committee's review emphasized the expenditures of major state agencies, including the charitable and penal institutions, the state school aid program, and major program appropriations of the Department of Human Services.

In summary the Legislative Council staff reports given to the committee regarding budget monitoring indicated:

1. Actual expenditures for the Department of Human Services through August 2002 for the temporary assistance for needy families (TANF) program were $16.4 million, $2 million or 13.9 percent more than estimated expenditures of $14.4 million.
2. Actual Medicaid expenditures, excluding intergovernmental transfer payments, through August 2002 were $787 million, $30 million more than the original appropriation estimate of $757 million and $3 million more than the June 2002 projection. The 2001-03 biennium general fund share of Medicaid expenditures is projected to be $14.3 million more than the original appropriation.
3. The Department of Public Instruction's current estimate for unspent state school aid funds at the close of the 2001-03 biennium is $597,915. This estimate is based on the actual number of weighted student units during the first year of the biennium which was 113,172, or 97 more than the original estimate of 113,075, and the original estimate of 110,791 for the second year of the biennium. Any funds remaining unspent at the end of the biennium are by law to be distributed as follows:
   1. The first $2 million to assist school districts that have experienced declining enrollment during the periods 1997-98 to 2000-01.
   2. The second $2 million as hold harmless payments to school districts for state aid and teacher compensation payments.
   3. Any remaining amount as additional per student payments.
4. The 2001 Legislative Assembly appropriated $35 million for teacher compensation payments of $1,000 the first year of the biennium and $2,000 the second year of the biennium to approximately 8,884 instructional personnel. Due to changes in the actual number of qualifying personnel from year to year, approximately $245,000 in teacher compensation payments is anticipated to be unspent at the end of the 2001-03 biennium.
5. House Bill No. 1301 provided a general fund appropriation of $1.7 million for bonus payments to school districts that reorganize with one or more contiguous school districts pursuant to NDCC Section 15.1-12-11.1. The portion of the appropriation not used for reorganization bonus payments, estimated in October 2002 to be $456,000, will be returned to the general fund at the end of the biennium.
6. Total expenditures at the charitable and penal institutions for the first year of the 2001-03 biennium were $81,813,493, which is $3,088,220 or 3.6 percent less than estimated. Total revenues for the period were $26,132,975, which is $3,781,206 or 12.6 percent less than estimated primarily due to timing of Medicaid collections at the Developmental Center ($1 million) and underfunding associated with vacant positions at the State Hospital ($1.1 million).

Status of State Investment Board Investments

The committee received a report from a representative of the State Investment Board on the status of investments, earnings, and future investment plans for the State Investment Board. Pursuant to NDCC Section 21-10-06, the State Investment Board is responsible for 10 separate funds. The funds are combined into two trusts--the pension trust for qualified plans and the insurance trust for nonqualified investments. The committee learned the historical market value of the pension trust was $2.2 billion on August 31, 2002, as compared to $2.5 billion on June 30, 2001. The historical market value of the insurance trust was $987 million on August 31, 2002, as compared to $966 million on June 30, 2001. The health care trust fund, however, was added to the insurance trust portfolio in July 2001 with an initial contribution of $53.5 million. The fiscal yearend 2002 market value-based return was a negative 7.77 percent for the pension trust and a negative 1.8 percent for the insurance trust.

Status of Bank of North Dakota Investments

The committee received a status report from a representative of the Bank of North Dakota on investments, bank profits, and transfers to the state general fund. The committee learned the Bank of North Dakota's calendar year 2002 profit is forecasted to be $32 million, $1.1 million less than the $33.1 million earned in 2001. The Bank's forecasted 2001-03 biennium profit is approximately $62 million.

Pursuant to Section 11 of House Bill No. 1015, the Bank of North Dakota is to transfer up to $60 million to the general fund during the 2001-03 biennium. The Bank transferred $30 million to the general fund during the first year of the biennium and anticipates transferring the remaining $30 million before the end of the biennium.

Section 12 of House Bill No. 1015 provides for a contingent Bank of North Dakota transfer to the general fund of the lesser of $25 million or the revenue shortfall of actual collections compared to the March 2001 legislative forecast. Based on actual revenue collections through September 30, 2002, and the July 2002 revised revenue forecast for the remainder of the 2001-03 biennium, this transfer is estimated to be $14.7 million. The contingent transfer from the Bank will primarily consist of accumulated earnings.

The committee learned the Bank of North Dakota investment portfolio had a December 31, 2001, market value of approximately $329.6 million. The average yield on the investments is 3.1 percent. The majority of the investment portfolio is in short-term money market investments.

Status of Land Department Investments

The committee received a report from a representative of the Land Department on the status of the 13 permanent educational trust funds. The committee learned that as of June 30, 2002, total permanent trust assets were $652.9 million, $14.5 million or 2.17 percent less than the balance of June 30, 2001. The June 30, 2002, balance included additions from mineral royalties ($7.1 million), oil extraction taxes ($1.7 million), and tobacco settlement lawsuit proceeds ($12.1 million), all of which were not enough to offset the negative return posted by the combined equity and convertible securities portfolio.

The projected 2001-03 biennium total distributions from the 13 permanent educational trust funds is $63 million, including $57.8 million from the common schools trust fund. The total Board of University and School Lands-approved distributions for the 2003-05 biennium is $64.5 million, including $60 million from the common schools trust fund.

Distributions from the permanent educational trust funds are based on the funds' projected income earned during the biennium from mineral and surface rentals and investment income. Pursuant to NDCC Section 15-03-05.1, the capital gains earned on the permanent trust investment portfolio are also available for distribution but must be amortized in equal annual installments over a 10-year period. Total permanent educational trust fund capital gains distributions for the 2001-03 biennium are anticipated to be $6.6 million, or 39.5 percent of total amortized capital gains, including $5.6 million or 35.8 percent of amortized gains, from the common schools trust fund. The Board of University and School Lands-approved 2003-05 capital gains distributions for the permanent educational trust funds are $7.0 million, or 46.3 percent of the total amortized capital gains, including $6.5 million or 46.8 percent of amortized capital gains from the common schools trust fund.

Status of the Public Employees Retirement System Investments

The committee received information on the status of the Public Employees Retirement System investments. The committee learned the net market asset value of the Public Employees Retirement System on July 1, 2002, was $1,028,897,932, which equates to a funded ratio of 103.9 percent; in comparison the balance on July 1, 2001, was $1,134,178,963, which equates to a funded ratio of 112.4 percent. The funded ratio is calculated by dividing the actuarial value of assets by the accrued liability of the fund, unless the market value exceeds the actuarial value, in which case the market value is divided by the accrued liability.

Status of Capital Construction Bonding

The committee received information from a representative of the Industrial Commission on the status of capital construction bond payments, as compared to the statutory sales tax limitation, and outstanding debt balances, including an analysis of various types and corresponding balances of capital construction bonds issued. Pursuant to NDCC Section 54-17.2-23, the general fund portion of capital construction bond payments is limited to 10 percent of the equivalent of 1 percent sales, use, and motor vehicle excise tax. The Industrial Commission indicated the projected amount available for debt service payments for new capital construction projects is $1,431,662 for the 2005-07 biennium. Sales tax collections anticipated for periods after the 2003-05 biennium are based on 4 percent increases each subsequent biennium.

AGREEMENTS BETWEEN NORTH DAKOTA AND SOUTH DAKOTA

North Dakota Century Code Section 54-40-01 provides that an agency, department, or institution may enter into an agreement with the state of South Dakota to form a bistate authority to jointly exercise any function the entity is authorized to perform by law. Any proposed agreement must be submitted to the Legislative Assembly or, if the Legislative Assembly is not in session, to the Legislative Council or a committee designated by the Council for approval or rejection. The agreement may not become effective until approved by the Legislative Assembly or the Legislative Council. The Budget Committee on Government Services was assigned this responsibility for the 2001-02 interim.

The committee received information regarding the history of the bistate authority legislation. The 1996 South Dakota Legislature enacted a law creating a legislative commission to meet with a similar commission from North Dakota to study ways North Dakota and South Dakota could collaborate to provide government services more efficiently. As a result of the joint commission, the North Dakota Legislative Assembly enacted legislation relating to higher education and the formation of cooperative agreements with South Dakota. The South Dakota commission proposed several initiatives, but the South Dakota Legislative Assembly did not approve any of the related bills.

During the 2001-02 interim, no proposed agreements were submitted to the committee for approval to form a bistate authority with the state of South Dakota.

BUDGET TOURS

During the interim, the Budget Committee on Government Services functioned as a budget tour group of the Budget Section and visited the West Central Human Service Center, International Peace Garden, North Central Human Service Center, and State Fair Association. The committee heard about facility programs, institutional needs for major improvements, and problems institutions or other facilities may be encountering during the interim. The tour group minutes are available in the Legislative Council office and will be submitted in report form to the Appropriations Committees during the 2003 legislative session.

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