On this week's Legislative Review, Sen. Ray Holmberg (R-Grand Forks), chairman of Senate Appropriations, discusses budgets, the new state revenue forecast, and how the new American Recovery Act funding could be used.
Watch a video of the conversation on our YouTube channel.
Dave Thompson: This is "Legislative Review" on Prairie Public. We're on our radio service and we're also on our digital platforms. I'm Dave Thompson. Thanks for joining us. Our guest today, state Senator Ray Holmberg of Grand Forks. He's a Republican chairman of the Senate appropriations committee. Senator, thanks for being here.
Senator Ray Holmberg: You're welcome, glad to be here.
Dave: Well, let's talk about what has happened so far this week. You have adopted the, I say, official revenue forecast for the legislature based on the forecast that you heard from IHS market and from the state's consultant, correct? Moody's.
Sen. Holmberg: Yes, we've now reached the stage which I like to call the pack and play because we know how much money we now have determined that we have, how much revenue is available, and now we have to determine the priorities and fit the money into the various budgets and the various bills that we have. And then we go home.
Dave: What do you think are going to be the, I understand it's probably close to $1 billion dollars over what you'd expected at the beginning of the session. Would that be a correct statement?
Sen. Holmberg: That would be, but people have to remember that a lot of that money, that the newer money coming in, is already constitutionally mandated to go to like, the Legacy Fund, the Common Schools Trust Fund, and these things. So actually the revenue forecast from what we were working on starting at the beginning of the session, was about $276 million new dollars that became available. And then there was close to $1 billion in oil revenue, but then again, that is parsed out according to the constitution. So it doesn't add a lot of additional funding for the legislature.
Dave: But it does provide a little bit of a cushion, correct?
Sen. Holmberg: Oh, yes. It provides cushion, number one for this session. And it also provides cushion for the next legislative session, which we always have to keep in mind. How are we going to position ourselves in 2023? Will we be able to afford where we're at at that time?
Dave: So what do you feel, are there any particular spending priorities where you might see some tweaking of some of the budgets based on the new forecast?
Sen. Holmberg: Well, I think based on the new forecast, there are those that want to put some additional money into schools. The House passed us a bill that had no inflator increase for elementary and secondary education. But we're also wrestling with the hundreds of millions of dollars, in fact, well over $1 billion, about $1 billion, $9 million coming in from the federal government over the next two years that kind of skew everything. And there are strings attached. And at the same time, we know we're going to spend it, number one, but number two, the strings and the goalposts keep moving. So what is unavailable or a bad use today next month might be an approved use. So we're struggling with that. The schools are receiving, elementary and secondary receiving over $305 million of new money coming in from the federal government, actually coming in from Michael and Max, my grandchildren, because they're the ones that are paying for it because it's all borrowed money.
Dave: At this point you are talking about, I think they call it ESSER money, correct?
Sen. Holmberg: Yes.
Dave: It's more for not full time funding into the future. It's for one-time harvest type things, correct?
Sen. Holmberg: Right. And school districts would be wise to use it to make repairs. Also they'd be wise to use it on helping the students catch up because there was a great loss, I think, of learning during the past year. And they've got to do various things to help that. Bigger question, even, though, than the school's money is the other over $1 billion dollars coming into the state, with again, some strings attached. And we are going to be asked to finish our budgets within the next, you know, month. And yet we might not know exactly how that money can be invested. And again, as you mentioned, in one time kinds of funding. Because to put that money into an ongoing general fund expense would be foolish because then we'd have to keep going on that.
Dave: There is one thing, though, with that ESSER money that I'm starting to try to get my fingers around. It's called a, you know, an effort to continue, correct?
Sen. Holmberg: Yes.
Dave: Something like that. And it maybe you'll have to do something with the per-pupil payments in order to show that the state is making an effort.
Sen. Holmberg: Yeah, the federal requirement is called maintenance of effort, that if you get federal money, you can't use it to supplant what the state had already been putting in. So if the state, example, if the state was paying 30% of the cost of education, after the federal money comes in the state dollars still have to supply 30% for those, for education. The only difference is that if the entire state had put less money in other areas of the state budget, you can match that. So if every other budget went down 5%, you could reduce the education 5% and still be within the law regarding maintenance of effort. But there are so many unknowns in this whole situation. There are areas that we may not be able to finish during this specific legislative session and might have to put some of those issues off until the fall session where we know we will be working on redistricting.
Dave: And I had heard from the majority leader, Rich Wardner, who said maybe the appropriations committees can, as budget section can meet between signing guide for the session and the redistricting session to get their hands around what the rules are and to make some recommendations. Is that something you're exploring at this point?
Sen. Holmberg: Yes. It just makes sense. Because at the end of the day, when you're talking about close to $2 billion, we want to make sure that it is the legislature that has its fingers on the priority setting and the expenditure of the money, because that is the role of the legislature is to set priorities.
Dave: One thing that I know that leadership was talking about was using money to perhaps shore up the fund for retirement, the, you know, state employees fund for retirement. But it appears that may not be an allowable use for the money. Am I correct in that?
Sen. Holmberg: The rules or the guidelines constantly change. There clearly are ways where it can be done. Because you can use the federal money coming in to make up for lost revenue due to COVID. We did lose revenue due to COVID in a number of areas, including the oil industry. One can make that argument. And if, for example, you can show to the feds that you lost $500 million of oil revenue coming into the state, then the state could use $500 million of that money coming in to replace that. And that would go into what is called the SIF fund which is made up of oil revenue coming into the state. And as I like to say, the SIF fund is porous. Money can go out from there into various areas. Another simple area that we know we can do, if we decide that we want to lower the general fund budget, we can take this federal money and replace the salaries of the people in corrections. They've already approved that. And that's like some $80 million that instead of general fund money would be replaced for the next two years with this ESSER, I mean not ESSER, excuse me, that's separate, with this federal money. Meaning that you could use that money for, you know, other things including, could be the stabilization of the PERS fund. Remember we have two major retirement funds, PERS, which is the state employees, and then the TFFR, which is the Teacher's Fund for Retirement. We made changes some years ago. And even though the Teacher's Fund for Retirement needs some work, it is on a trajectory to be solvent. Whereas PERS, at the present time, is not on that trajectory and therefore needs some work. And what a better way to spend one-time money shoring up something that we as a state are responsible for.
Dave: So in other words, you're saying that it's possible. Maybe a little bit of gymnastics in terms of how budget money is used, but it is possible to do something with PERS.
Sen. Holmberg: Yes it is. And the legislature can be very good gymnasts sometimes when it comes to those kinds of things, knowing full well that you have to answer to the federal government if you misallocate the money and spend it incorrectly. So we have to be careful. That's why we may have a go slow attitude towards the utilization of the money. Another example, a big push for career academies and CTE in schools, because that's where the action is. And it appears, and we've had that from those folks that seem to know about it, you know, from education, from the career and technical people, that it would be a usable, an allowable use to utilize that money for the career academies and that whole initiative instead of using general fund money or bonding for it. Because it's a one-time investment in career academies, for example. And I think you might find that at the end of the day we will go down the path of approving the career academies but we will utilize that one-time federal money for that one-time setup of those facilities.
Dave: And that would be specifically then for bricks and mortar for the CTE.
Sen. Holmberg: It could be bricks and mortar.
Dave: I was, you know, not to put too fine a point on it but in talking again with Leader Wardner, he's got CTE money and I think it's $90 million, am I correct, in the bonding bill?
Sen. Holmberg: $60 million. And it's possible that could, entire amount, remember, there's a difference between what the House has passed on a bonding bill and what is in the Senate bonding bill. It has moved, shall we say, it's been kind of a moving target. But we will be having a hearing on it in Senate appropriations next week. And that's one of the areas where if you can utilize one-time federal money, why borrow money and pay 20 years on it when you can pay for it. In other words, you can reduce the amount of money in the budget for bonding and replace it with this other funding. But the other funding, it's a challenge because we've never had such a dump. It's 1/3 of our general fund budget all of a sudden appeared on our doorstep
Dave: Or as Senator Wardner, going back in, would like to say the Prairie Dog Bill did not come from western North Dakota. It came on a plane from Washington DC.
Sen. Holmberg: Right. A gift, again, of Michael and Max, my grandkids.
Dave: So you've got the bonding bill. It appears there's general agreement between the Senate and the House regarding finishing the FM diversion and also putting money toward the Minot flood control project, the Souris River flood control project. Some infrastructure projects, yes, but the Senate's, at least right now, with what are determined to be placeholders, is a little more expensive than the House version.
Sen. Holmberg: Right, it is. But again, it is, there are placeholders there so that there will be discussion. In the meantime, our staff, working along with the governor's office and with our federal partners, by that, I mean, you know, the legislature belongs to the National Conference of State Legislatures, the governor belongs to the National Governors Conference. Anyway, they all have input from their national organizations and all working with the treasury department to see what it is you can do, what it is you can't do with that particular funding. And it's frustrating. We found that with the money that we received during the Trump administration, those two tranches of money that came in, that there were guidelines. And then the guidelines kept changing. Typically they expanded. So we're not 100% sure. That's why I would not be surprised if some of these issues might be delayed. Final decision might be delayed 'til later, like I said, putting money into PERS but then spending some time looking exactly on how then do we configure this particular program. And there's a goal, I think, from leadership to move towards a defined contribution plan rather than our defined benefit plan, keeping everyone who's in the present plan in the plan that they are in. You would never take from folks.
Dave: And there seems to be some research out there, that younger employees like the idea of the defined contribution plan, because A, it could be portable, B, they could actually do something with it as the money was being invested to change their investments and to have more personal control over it. Am I getting that correct?
Sen. Holmberg: I think you are. We're hearing from the managers of different agencies that whereas 10, 15, well, some maybe 20 years ago, a big selling point of state employment was the various benefits, including the retirement, but clearly the health plan, which is a decent health plan. But that's becoming less and less a factor because the generations coming up now are not looking to be hired at the Department of Human Services and work here 40 years. So, yeah. It's part, I think, of a societal change. And we in the legislature aren't always adroit when it comes to recognizing and changing how society changes. And so I think you're right. I think we do hear that. And that's one of the considerations.
Dave: One thing that there seems to have been a little discussion of, but maybe there's some sub rosa discussions. There's been talk for a while about going to a self-insurance plan for state employees, since we're talking about benefits. I haven't seen really a lot of discussion on that except maybe another study. Have you heard anything about that?
Sen. Holmberg: Are you talking about the health?
Dave: [Dave] Health, yes.
Sen. Holmberg: Oh, really surprised us. The last few biennia, the cost to continue the present program was quite expensive. It would cost us $30, $40 million. This time, it was less than $500000, the change. Which really surprised everyone. I mean, when you look at agency budgets and you see that salaries, that this is the new line item for salaries and the line item for the health insurance went up $2500, you know? So it was really a welcome relief from what we've been having the last number of biennia. But, you know, as you know, the legislature, every two years everything's on the table.
Dave: Absolutely. And you're saying that we may see this again should immense costs go sky high again?
Sen. Holmberg: Yeah, oh, yes, yes. And yeah.
Dave: Let me ask you about state employee pay because the pay plan has been settled, correct? 1.5% the first year, 2% the second year. There are floors or minimum amounts of raises, and there are maximum amounts of raises. Am I correct on that?
Sen. Holmberg: Okay. You're right, you're right, you're wrong.
Dave: I'm wrong?
Sen. Holmberg: There was a lot of discussion between the Senate and the House. Some started, wanted 3%. There were folks that wanted no pay increases for the state employees. There were those that wanted 1%. Anyway, we went back and forth. The Senate started at 2% and we stayed at 2% until the end. And the House was at 1.5% and 1.5%. We both had floors. So the final product that has already passed the legislature, you know, some bills have already passed. It is 1.5% the first year of the biennium, but there is a $100 a month minimum salary increase. So over half of the state employees actually get much more, or not much, but they get more than the 1.5% the first year. There is no cap on the salary. And then the second year of the biennium the Senate position was accepted which is a 2% raise that's based on merit and performance and does not have a minimum or a maximum floor. So it ended up being a compromise. The difference between the Senate and the House and the wrangling we did was a few hundred thousand dollars. But in the legislature, we like to fight over those kinds of small amounts of cash.
Dave: And of course, this is also affecting legislators' pay. 1.5% to 2%, you're tied to the raises that you give state employees.
Sen. Holmberg: Right, all state employees, including elected officials. We went a number of years ago to just tying everyone together. The legislature will not give itself more than anyone else gets. By the way, we do not get a $100 a month minimum. We don't qualify for that.
Dave: I want to go briefly into higher education. Higher education budget, from your perspective, what kind of shape is it in?
Sen. Holmberg: Well, the Senate thinks it's in excellent shape. We passed it unanimously which is always interesting because of the wide variety of philosophical positions of senators. But we did pass it unanimously. We made just a few changes to the base budget. I was able to stand in front of the Senate when I carried the bill and said the budget you have for higher education before you today has only a couple changes from what we voted on unanimously two years ago. We used the base budget. We made changes in the formula which were fair for schools and really were helpful for our two year schools because they were the ones that had been kind of left in the dust. So we made that change. And then we made a change in the area of salaries, which we added the salaries that were in the package, the pay package. And then we added additional funding to balance out the scholarship programs that we had. Otherwise, there was very little change within the higher education budget. And I was able to say, this is what we passed last time. It's still less money than the legislature put in six years ago. But using the formula, it is fairer for all schools, number one. If a school lost revenue this time, it's because we use a formula. And if you don't produce credits that are earned by students, you get paid by the credits that are earned. So if you have fewer students or students don't earn as many credits, you get less money. So I mean, you live by the formula, you die by the formula. And the school seemed to have accepted the formula with the few tweaks we did this time. So it was happy days in Mudville, I guess. At least, so far. But the House has to do its thing and that's their role. And then we will start conference committees one of these days.
Dave: And not to put too fine a point on that, the Board of Higher Education gave their support to the Senate version of the budget.
Sen. Holmberg: Which is kind of unusual. Typically they put it out there and then I don't want to say see what happened, but they follow it. But I think the Senate did a good job. And I think the senators were proud of what we did.
Dave: Let me ask you since I've got you, and I think I'd be remiss if I didn't ask this. Because as we're recording this, the Senate has just voted to kill the recreational marijuana bill that was designed to head off a potential initiative measure. If I am remembering correct, you voted yes.
Sen. Holmberg: Yes. Not with a great deal, you know, it was, what is the saying? With the enthusiasm of a retreat from Moscow. It wasn't a great bill but I think the legislature has over the years on some of these social type issues, medical marijuana, the lottery, just the ethics commission, the legislature has been out of touch with the voters, and this was at least an attempt to have the legislature trying to reflect the wishes and the desires of the majority of the voters in North Dakota. So that's why I voted that way.
Dave: But the majority decided that, well, okay, bring on the initiative measure. Based on the vote, was it two elections ago or last election? Where voters rejected--
Sen. Holmberg: Two.
Dave: Two elections ago where voters rejected a measure that would have allowed recreational marijuana.
Sen. Holmberg: Right. And if you recall, the legislature constantly was against medical marijuana, and finally the voters did take it upon themselves to put it on the ballot. And I always challenged anyone who was running for reelection in that year. None of them, I don't believe, if they had an opponent, got anywhere near the positive percentage of vote that medical marijuana did. The legislature was totally out of sync with the voters. And then it took us an awful long time to clean up the measure that had passed. There were mistakes in it. And even those that supported it said there were mistakes in the medical marijuana measure that was passed. So the legislature, I think has, we haven't done an awesome job in that particular area. If, you know, you can talk about ethics commission. The legislature should have passed one, but did not. And now we have spent the last four years complaining about what the voters did. Well, it's our fault. If we had done our job, it would not have been in the state it is. I'll just put it that way.
Dave: Well, Senator thank you very much. We have exhausted our time. Our guest state, Senator Raymond Holmberg of Grand Forks. He's chairman of Senate appropriations. For Prairie Public and "Legislative Review,” I’m Dave Thompson.