On this week's Legislative Review, House Appropriations Committee chairman Jeff Delzer (R-Underwood) discusses the new state revenue forecasts, pending COVID-19 federal relief money, the bonding bill and other spending priorities.
Watch a video of the conversation on our YouTube channel.
Dave Thompson: This is "North Dakota Legislative Review" on Prairie Public. It's on our radio service and on our digital platforms. Our guest today is Underwood Republican Representative Jeff Delzer, longtime chairman of the House Appropriations Committee. Representative Delzer, thanks for being here.
Representative Jeff Delzer: Thank you for the invitation.
Dave: It's a good time to talk because you've just received some updated revenue forecasts from IHS Markit, which is a legislative consultant, and of course, we have Moody's, which is the executive branch consultant. What was your impression of the two revenue forecasts that have been updated?
Rep. Delzer: Well, they were about what I expected, with the exception of maybe the oil. I think the oil might be a little on the aggressive side, but as far as the ongoing side, it was actually about fairly close to what we had forecast in January with a little bit of an upside on both this biennium and the next one.
Dave: So you're going to be using those forecasts to do some tweaking for a legislative forecast that will talk about spending going forward. Am I correct in that?
Rep. Delzer: That's what I believe. On Monday, we'll be ready to adopt the forecast, and that's what will be used for the rest of the biennium, the rest of the legislative session for next biennium.
Dave: Do you expect any major changes in the forecasted numbers, then?
Rep. Delzer: You know, I think we'll be up a little bit this time, and probably maybe even twice what we're up for the rest of this biennium, for next biennium, and then we have to look at whether or not we wanna adjust what we're expecting from the earnings of the Legacy Fund, but that's the biggest change I think there might be. Certainly, the price of oil is up, so we'll probably adjust the price. I don't know that we'll adjust the production a whole lot in the end because we're concerned about meeting 65 to 70 to 80 completions a month is pretty aggressive.
Dave: And that is completions per month. That does not take into account any drilling rigs at this point, correct?
Rep. Delzer: Well, that would be the stuff that's drilled, and then the drilled and uncompleted wells is, both of them, considering both of them.
Dave: And we have to just kind of mention why this is important is because these are the number of wells needed to take over from wells that have dropped in production, or who basically have come to the end of their useful life, correct?
Rep. Delzer: Well, and I don't know about the end of the useful life. Most of the Bakken wells come on, and they have a high decline rate for the first two, three years, and then, after that, they kind of flatten out, but that's what we've been told by Mineral Resources and by the industry, is you pretty much have to have 70 completions a month to hold production.
Dave: Now, what about the agriculture sector? There's been a lot of talk about we're in a drought situation right now, and the drought may not break, some forecasters say, until maybe early June. What do you think about the estimates for the agriculture sector?
Rep. Delzer: Well, I think farming's always something where most farmers are pretty optimistic. They put their seed in the ground and expect it to grow. The good Lord usually takes care of the farmers, and the prices are gonna be up some. If you have less production, you usually get a little more money for it. As far as the economy, if farmers are doing well, the state does well. That's pretty much the way it is, and I don't know that that's so much in tax dollars to the state as it is in just the overall economy rolling along well.
Dave: And we're coming off a few years where prices were a little low and input costs were high, but that seems to have turned around a bit.
Rep. Delzer: Well on the price sides it has. Now, to be honest about it, this last year, there was quite a bit of government help to farmers along with the pandemic and the trade war that was going on with China, and so there was a good share of the profit level was actually from government payments these last couple of years, or last year especially. Next year, it looks like it should come from the production side of the crops that are grown with the price.
Dave: And you mentioned about federal side. We've just had a new pandemic relief package that's passed Congress coming to North Dakota, and I think I saw the estimate was about 1.2 to $1.3 billion. Am I correct in that?
Rep. Delzer: Well, I think that's the main number coming in is I think the number I've seen is like 1.1 then plus another 112 million for capital construction related to that, but then, I think there's a number of different agencies that have things as well so, you know, that the problem is we don't have the numbers or all the guidelines yet. We're hoping we have them before the end of the session. If we don't, we'll put things in place so that when we come in for redistricting, we can work with some of that as well.
Dave: Any thoughts about what might or might not be allowed in those federal dollars?
Rep. Delzer: You know, this time it's probably just too early to say. We've heard some rumors on what could be allowed and what could not be allowed, but you seem to get different information every other day, so we just got to wait, and try to get something out of Treasury, and so we have a better knowledge of what we're doing.
Dave: Not to put too fine a point on it, but how does this affect your budgeting discussions going forward? Does it affect it very much at all?
Rep. Delzer: I don't think it affects it a whole lot for this by any of them. I think what we need to do is set up... One of the big things we have to do is make sure that we don't become reliant on federal money for ongoing expenditures. If we can free up some general fund money and use it for one-time expenditures that improve the state or cover things, that's fine, but we don't wanna be in a position where we expect federal money and not get it because that creates lots of problems, and that's not where we wanna go. That's not how we should be using that money.
Dave: I've heard that a lot, that it should be geared toward one-time harvest things.
Rep. Delzer: One-time harvest things are making up, taking care of the people that have had the real problems from the pandemic, and we've done a lot with that with the December and the March, the March money, especially, and then we've got two bills that deal with the March money, that there might be some coming back that we can reallocate somewhere else, and the December money, and then you've got the January one, and then, even in the forecast from Moody's, they were talking about another one, and frankly, I don't know how the federal government can afford to keep just printing money and sending it out, but it's gonna cause some inflation and things in the future.
Dave: That caught me off guard when I looked at Moody's report, that they're talk about another stimulus package maybe later this year, and I'm just kind of wondering, do you know where that might be coming from, or where that decision-
Rep. Delzer: No, that's the first I had heard of that as well. I think part of it is they're talking about doing something with infrastructure, roads. I don't know if there's, how much of that would be related to gas tax, whether they're gonna get the money from federal gas tax or whatever. We don't know any of that. I had not heard anything about another package coming.
Dave: So you're thinking that way things go, that if you get guidelines in the next few weeks, then you can work during the session to see where the money's going to go, how you spend the money, but if not, it might be delayed till the reapportionment session, which might come as like December now is what I understand.
Rep. Delzer: Yeah, part of the issue is my understanding, and could be wrong, but my understanding is part of this money will come, supposedly, within 60 days, and then the rest comes. They don't have any solid clue, exactly, when it'll come, and till you have the money on hand, you shouldn't be spending it, so you can set up guidelines of how, but the legislature will be back in, and then, hopefully, they would have some time that they could work on doing that at that time.
Dave: One of the other big issues that seems to be out there in terms of money is the bonding bill. Now, the House came up with a $680 million plan specifically toward a couple of big water projects, FM Diversion and the Minot, the Souris River or Mouse River flood control project. I know that the Senate may wanna put some of the money back in. Have you looked at what they might be proposing?
Rep. Delzer: I've seen what they're proposing. I haven't seen what they've adopted, so until we see that, we can't say for sure. Personally, I'm not sure that I, matter of fact, I do not agree with the bonding, even the way the House sent it out because it's 20 years you're paying for that, 20 sessions, or 20 years, which is 10 sessions. They'd be paying close to $100 million a year to do stuff that we have been doing with our Resources Trust Fund. Now, what it does is it does free up that money so it can be spent on other projects, but I have a hard time tying that many years for future legislatures, and if they raise it up to 900 million or a billion, that increases that number a lot, and that's all. It depends on what they're bonding for, but we certainly should not bond for ongoing expenses.
Dave: One thing I heard when it came out of the House at 680 is they get the FM Diversion off the books, and that's the big thing. Pay for it. Get it done. It's off the books. The Souris River/Mouse River flood control project's still going to a little time, but if they go into a bonding with more buildings or whatever into it, that might be something that might cause an interesting conference committee. Let's put it that way.
Rep. Delzer: Oh, I would think so. Interesting conference committee, interesting floor session when it comes back out, if it comes out, and depending on how it comes out, of course, but yeah, the Souris River one will take a little more work on top of that. There is some money in the bonding in the way it went out from the House for roads, and there's some for Harris Hall, which we dealt with last time. Did not get it finished, but that is in there as well. Those are things that seem to have a lot of support. It passed pretty well. You add much to it, I don't know what kind of support there'll be.
Dave: Now you talked Harris Hall. Can we just remind everybody what Harris Hall is?
Rep. Delzer: Harris Hall is the ag situation. I think it deals with the research on the ag side at NDSU. It deals with Northern Crops Institute, I think the trade office, and the meat slab, it's called, which is something to do with how, getting the best value out of animals when they're slaughtered and butchered, but it's a fairly expensive building, but it would, the current one is in pretty tough shape, and they're having a hard time doing what they need to do with it.
Dave: And it's been proposed in a couple of sessions, I think, correct?
Rep. Delzer: Yeah, last session we actually proposed 20 million of cash, 20 million of bonding, and then we had hoped that the industries and the universities could raise 20 million, and they did not manage to do that, so it's come back in again on this side.
Dave: Let me ask you about something else regarding buildings. One of the things that might be coming from the Senate version of the bill is Centers for Technical Education, CTEs. Is this something that you looked at, and what do you think about the idea of spending some bonding on CTE programs?
Rep. Delzer: I don't think we should bond for that at all. That's something, and part of this federal money is there's an awful lot of money coming out. It's called ESSER funds, which is secondary or school funding, and there's a lot of that that could be available. I mean, the state can't tell the districts how to use it, but it'd be available that they could use that to get together with other districts and set up CTE programs, which are good programs, but to me, they should be set up such that they're working with the industries out there to get people involved in the industries that are there, and let the industries help it as much as trying to hire another high school teacher that tells them a little bit about how they could go at it. I would like to see a change along that line more than just putting money into buildings for CT&E programs.
Dave: So the ESSER money that you're talking about is another pile of federal relief dollars, and you have no control, as appropriations committees or legislature over that?
Rep. Delzer: We have a little bit of control over a small portion of it that resides in the Department of Public Instruction, but as far as the rest of it, it is up to the schools, and there's guidelines for what they can use it on. A certain portion of it can be used for school construction, or CTE buildings or whatever, and then the rest can be used to help with more teachers, or keeping classrooms smaller, or social distancing, or whatever. It's supposed to be related to that. Now, this new money that's coming out in the January one, we haven't seen much of that at all, and it, I think, goes clear through 2024, and the guidelines on that, I can't tell you. I have not seen them. I don't know if they change from what the current guidelines are or not.
Dave: But it is money that will go pretty much directly to schools.
Rep. Delzer: Yeah, it's based on the number of free and reduced students, school lunch students that they have in their schools, so it's different for each school, depending on how many of those individuals they have in their schools.
Dave: Representative Delzer, since we're talking about education, in the governor's executive budget he talked about flat funding in the per-pupil amounts. With a little bit brighter revenue forecast, do you think the legislature will be akin to maybe bumping that up a bit, per-student payments?
Rep. Delzer: I think some legislators will, and some will not. Personally, I think that it probably should stay the same, especially with the ESSER money that's out there, because a lot of that can be used for things like that. We do have a maintenance of effort issue that we have to deal with, which means that on our education funding, it's supposed to be the same percentages it was I think in '17, '18 and '19, as far as how much of the overall state budget is spent on education, and that's something we'll still have to deal with before the end of the session.
Dave: In one of the bills that passed, and I think it had to do with allocation of oil money and what to do with the Legacy Fund earnings, am I correct in saying that the buckets changed a little bit? The buckets where oil money flows in, it was supposed to go into one of the Prairie Dog buckets, and then into the Strategic Investment and Infrastructure Fund and that's changed, that's kind of reversed. Am I correct-
Rep. Delzer: Well, what we did last session when they put the Prairie Dog in place, we knew we needed to get at a minimum of 400 million into your CIF fund to help fund everything this time and next time, so what we did is we put that in front of most of the Prairie Dog, but they did put 30 million up there for the large cities, and what we did is we changed that so that that goes below the 400 million per sale, and is done in conjunction with what would go to the counties and the smaller cities, so that not just the big cities would get something, but everybody would get something if there is any money flows into the Prairie Dog at all.
Dave: That may be an if at this point, but as we said-
Rep. Delzer: It's very much an if, yeah.
Dave: But as we said earlier, there's a little bit more optimistic forecast on oil tax.
Rep. Delzer: Yeah, the Moody's forecast was a billion more. IHS, I think, was even a little more than that. They were a little lower on the price, but I'm not sure that the legislature has that kind of confidence to be quite that much. I think we'll be somewhere in the middle on that.
Dave: You're being cautious on that at this point.
Rep. Delzer: Well, certainly, I mean, a lot of these communities thought, when the Prairie Dog was passed two years ago, that they'd be getting that money, and they did not receive any of it, except the big cities will receive a portion of it, and we don't wanna be in a position where people think they're gonna get something and don't get it. We'd much rather be in a position where if things get that much better in the oil fields, and the revenue from oil, that then they get something that they didn't know they were gonna get.
Dave: That makes sense. Well, about the, 'cause there's another piece, and we started to talk about it: what to do with the Legacy Fund earnings. You've seen the bill. I think the House got the bill first. Are you-
Rep. Delzer: It did.
Dave: Are you satisfied with the way that bill's come out?
Rep. Delzer: I pretty much am. What we did is we set that up so that we funded what we had to fund to cover the cost of if the bonding bill passes. We also put 40 million into what we call the ESG, which is the Environmental and Social Governance, and it's a case of trying to keep so that the fossil fuels industry, the energy industry, which North Dakota is quite reliant on, has some backing and ways to move forward in the current administration and climate that's in the public. We also put some money to Revolving Infrastructure Fund, which is meant for small cities to do repairs and, not maintenance, but repairs, and sewer lines, and things such as that that they need to do, and then the rest of it we put into, flowing into a fund that the legislature will control, and then we had legislative intent of what we think the next legislature should look at. Now, legislatures are not supposed to tie the hands of future legislatures, and anything we do is a 50% vote, so it can be changed by the next legislature, and then, the issue with it is we wanna use 3% per year or 6% of the last five-year average value of the principal of the Legacy Fund, and we hope that the earnings are more than that, but that's what we wanna say we expect to get, and then we set up so that, the House set up so that if there was more than that, 40% of it would be returned to the Legacy Fund to keep our purchasing power the same as because of inflation, your dollars don't buy as much, and then 40% to CIF, the fund you were talked about earlier. Then 20% we wanna put towards lowering income tax because that's the only thing we can lower that the citizens actually get a break from, even though it's not one that bothers people as much as most things, but if we lower property tax any further, or sales tax, the cities, counties, and schools, and the locals control those taxes, and we don't, so in the end, the people don't receive something from it.
Dave: And it's interesting, that little bit of a dichotomy here is that you hear a lot of complaint about local real estate taxes, and you don't hear a lot of complaint about income taxes, but really, income tax is the only tax that you really can do something with. When it comes to local property taxes, that's a local decision.
Rep. Delzer: It is. We've tried many things to do, and we continue to try to do things that help them so they don't have to raise taxes as much as they are. We try not to send down unfunded mandates and things that way, but in the end, it has happened that their taxes evaluations go up, taxes go up, and we can't control that. We could put a flat cap on them, but that's not really right 'cause the only cap we have is the fact that the people can refer any kind of tax increase the legislature would do, and it'd be real nice if we could refer local taxes, but that we haven't been able to get that passed.
Dave: I'd like to just switch gears for just a moment, and it has to do with a couple of things. Number one, there's been a lot of talk about putting some money toward the retirement fund for state employees and converting that into a defined contribution fund from a defined benefit fund. Can you give us a quick update where we're at on that particular bill?
Rep. Delzer: Well, that's what there's been discussion about. That would be one of the best uses we could use if we could free up money with this federal money, and then turn around and put that, what we freed up, into the retirement fund to do away with some of the unfunded liability, set us up so that we're in a position where we can cover the unfunded liability, and then switch to defined contribution because in the end, when you're in a defined contribution, and you get rid of the defined benefit, then that does do away with the unfunded liability-
Dave: But that has a-
Rep. Delzer: and frankly, for most young individuals, the portability's much better on a defined contribution, and if the last study I seen, which was in 2013, they said anybody who was under 35 and went to work was much better off in a defined contribution than in defined benefit.
Dave: Now, the only thing is, if I remember correctly, the price tag to do all the unfunded liability in the fund would be about a billion dollars. Is that true?
Rep. Delzer: I think that's somewhere around the number that we're looking at, and that number seems to grow a little bit, even though we are putting a substantial amount of money into our benefit package and the retirement package, but the issue on that is it doesn't have to all be paid at once. You could pay a good share of it, and then you'd set up some sort of fund, streaming fund off of the earnings, or off of the oil, or whatever, and I know when I came in, we were still putting general fund money into covering the Oasis plan, which was the plan that was there before the defined benefit plan, so you have to cover anybody who's on defined benefit has the right to stay there, and you have to cover those obligations, but when you go to the defined contribution, then those people will be covering themselves along with the contributions from the state, and the state contributes a good share of what they put into their retirement funds.
Dave: Now, another thing that I just wanted to get into briefly, we have state employees pay, which is still being debated. The Senate did a 2% and 2%, if I remember correctly. Now, with the new revenue forecast, what do you think might be the possible outcome of that for state employees?
Rep. Delzer: Well, I think what the Senate had proposed was 2% and 2% with a $80 minimum. The House was in at 1 1/2% and a 1 1/2% with a $100 minimum and a $250 maximum, and frankly, that gives more people a better pay raise than the 2% and 2% does. What we come up with is compromise. I really can't say at this time, but we're still working on that.
Dave: Yeah, I'm sure that once you get into the adoption of the budget, the legislature's budget forecast, that'll happen next week. Maybe we can get some definitions and some-
Rep. Delzer: I would think by the end of next week, we'll know where we're at, and we'll have taken it to both floors, and seeing whether or not the floors accept what the Appropriations Committee come up with.
Dave: So I have one other quick question for you. There's been talk, and there are bills about annual sessions. Is it time to go to annual sessions, or do you want to continue with the biennial sessions?
Rep. Delzer: I would wanna continue with biennial sessions. I think we do a very good job. It's a citizen legislature. If you go to annual sessions, it gets harder to encourage people to run. It's harder for the people that are in the workforce to run. That's one of the things that we need is people that are in the workforce to be part of the citizen legislature, and the more we keep it a citizen legislature, I think the better we do.
Dave: Real quick thing. How many days do you think you'll save for the redistricting session this fall?
Rep. Delzer: Well, we're hoping to save eight to 10. Now, the issue with that, though, is that in the past, and I've been, this will be my fourth redistricting. The governor has always called the special session for the redistricting, and when the governor calls it, it does not count against our 80 days. The 80 days are something that we have to have as a legislature if we wanna call ourselves in, and that's why we're trying to keep the eight to 10 days just in case we have to call ourselves in.
Dave: Well, Representative Delzer, thank you very much. Thanks for taking the time.
Rep. Delzer: Thank you. I hope everybody has a good day.
Dave: Thank you. Representative Jeff Delzer was our guest on "Legislative Review" on Prairie Public. I'm Dave Thompson.