Rep Mike Nathe (R-Bismarck) discusses Legacy Fund investments, the bonding bill, redistricting, and the Legislature going into its final weeks.
Dave Thompson: This is Legislative Review on Prairie Public. We're on our radio service and also on our digital platforms, which include YouTube and Facebook. Today I'm joined by Bismarck Representative Mike Nathe. He's a Republican and a member of the House Appropriations Committee. Representative Nathe, thanks for being here.
Representative Mike Nathe: You bet, Dave, thanks for having me on. I appreciate it.
Dave: Yeah, I wanted to start out by talking about one bill that you've really been shepherding through the session, and it has to do with the legacy fund and investments. Can you explain that?
Rep. Nathe: Yeah, it's House Bill 1425, and passed the House in the first half of the session 8Dave: seven, passed the Senate 47-zero just last week. It's going to the governor's desk as we speak. What 1425 does is takes care of, it addresses the legacy fund investments. There's roughly about $8 billion right now in the legacy fund. The state investment board invests that money all around the world, all over the country. And what the bill basically says, Dave, it's pretty simple, basically says we would like to have at least 20% of those invested funds invested into the state of North Dakota. And then it directs them to say 10% of that goes into a couple funds that deal with infrastructure issues, and then the other 10% goes into the equity. And that's what has everybody pretty excited, equity being into stocks and into businesses, those sorts of things that they fund all over the place. And so that's created a lot of excitement with the bill. We have some challenges. We had to overcome some things as far as prudent investor rules and those kind of definitions. But yeah, it's very exciting, and it's been really interesting, Dave, since I dropped the bill in January, the number of companies that have reached out to me and others that are very interested in this fund and utilizing this fund to possibly come to North Dakota and either expand their business or startup businesses. So as right now, I know of at least over $100 million worth of business deals that people are talking about, most possibly utilizing this bill. And we did a financial run to see what the impact would be on the state. It's thousands of jobs, increase in GDP, increase in state income taxes. So we felt that 20% of this fund, again, you invest all over the country, but you don't invest in North Dakota prior to this. And currently it was about 1% of the legacy dollars were invested in the state. This will bump that up to 20%. From talking to the public, it's amazing. A lot of the public thought we're already doing this. So the support for the public has been off the charts. We've seen a couple polls in the 70% range in support of this. But it took some work. We had to make sure we had everything covered, but I'm excited, and I think it's one of the bigger bills in the session, one of the bigger ones I've done in a while. And I think this could really help the development and the economic development of the state going forward.
Dave: Not to put too fine a point on it, a lot of businesses said venture capital and that kind of thing is a little hard to find. This is probably why it kind of looks pretty enticing to companies.
Rep. Nathe: Yeah it does, North Dakota always ranks near the bottom or at the bottom for venture capital money, for money like this for businesses. And you know, again, state investment board will vet all these companies as they come forward with their proposals. And if they meet that vetting process, if they meet all their due diligence, and the state investment board says, hey, this is an investment, we want to put our money in, they will then do it here in North Dakota, no different than what they're doing all over the country. Right now there's 32 fund managers that manage the legacy fund dollars. They will hire a 33rd to do the same thing. So this bill does not get in the way of their processes or any of that sort of stuff. All we're saying is, hey, we want 20% over here and just give them direction and let them do what they do.
Dave: Now, you said there is a loan part of this too, or just the venture capital?
Rep. Nathe: Yeah. On the first 10%, it has to do with some infrastructure. So there's a infrastructure loan fund that would provide money out to the cities and counties for their infrastructure needs at a 2% rate. It's cheap money, but it also means lower taxes for the property tax owner when they do their infrastructure build-outs in those communities. Then there's another fund called the CD-Match program. That's a program that's been around for a while and still has the infrastructure loan program by the way. And that is for more mature businesses that are looking to expand around the state, and the Bank of North Dakota takes care of both those programs. Again, the infrastructure loan program and the CD-Match program through the Bank of North Dakota have been around for a while. So this bill just capitalizes those two programs. And like I said, the other 10% in equities is the new part, and that's the part that has everybody excited.
Dave: And, of course, we've been talking for years about diversifying the economy of North Dakota away from just commodity-based. This is probably going to help in that regard too, right?
Rep. Nathe: Most definitely, Dave. We have a couple other programs out there, this LIFT program that I'm also a part of. We're an ag-based economy, energy-based economy. I think with bills like 1425, this will help develop the other legs, mainly tech. I think the tech industry in this state, especially out in the valley, is just starting to go, and this will help. This seed money for companies that want to move here, that want to develop here. And we've seen companies do that already, take advantage of some of our other programs that have moved in from other states because they have high taxes. They have social unrest. They're looking to come to North Dakota where our regulations are less, taxes are low. Social unrest is pretty low. So again, I think it speaks volumes to not only the country, but to the world, that North Dakota is serious about developing their economy and providing that capital out there to attract these businesses to come. Because if we can invest in the whole world, we can also invest in our own state.
Dave: Well, since you're part of House Appropriations, I have to ask this question about bonding because that I think may be one of the defining issues of the session, if not the defining issue. 680 million out of the House?
Rep. Nathe: Correct.
Dave: The Senate wanted to bump it up back to 1.1 billion. Where is that right now?
Rep. Nathe: Well, as you speak, Dave, just within the last hour or so, I know you're in your studio, but the Senate has knocked that back down to the House version. And so I'm not sure exactly what's going on or some things here that's going on. Maybe we can use some COVID money to pay for some of the things that they backed out of the, that the Senate wants. So that is very fluid, as you know how these things go. The bonding bill is very fluid right now, but as far as I understand it, as you and I are speaking today, it is back to the original House version, and where it goes from there, I'm really not sure. Both leaderships are working together on that.
Dave: You know, I heard the talk about the COVID money, the new American Rescue Act stuff, that that might be coming, that some of this could be used for, maybe a clean energy fund might be a possibility. But there seems to be the one unknown is that we really don't have our rules yet. We know approximately how much money we're getting from the federal government, but we don't know what it can be used for yet.
Rep. Nathe: Yeah, and it's really caused us to be wrapped around the axle on some of these budgets. I carry the commerce bill, where some of this COVID money could really help. We could increase some of these programs, do some of these sort of things. So the previous two batches of COVID money that we got, there was turn-back money that's come back, and we can use some of that money. And I think that's what they're thinking about using right now. The COVID money that was out of the $1.9 trillion budget bill that was passed in January, we still have not received that money. We still not have received the guidelines to that money. And we've heard that we may get half this spring and maybe half next fall, where we may have to meet next fall to appropriate it. We don't know when we're going to get the guidelines on this. We keep hearing different timeframes on that also. So it really keeps some of our budgets in flux because we would like to, there are areas where we could use that money to really help these budgets out. But right now we're just kind of in a holding pattern and really not quite sure what to do as right now. And as you know, we're getting near the end of the session, and we would like to save some days. So we are kind of in a time crunch with that.
Dave: Yeah, because you're going to get a double hit perhaps in December. You're going to be possibly dealing with the COVID relief money and redistricting, which is going to be an interesting session.
Rep. Nathe: It's going to be very interesting. And when we come back to approve the redistricting plan, we will also be taking up the second batch of COVID money that the state received. And definitely by that time, we will know the requirements or the strings that are attached with this. So we'll have a much better handle on that.
Dave: In talking to leadership, the plan, I think, is to have the appropriations committee look between adjournments, assigning dime when you come back. You're going to be part of that. You're going to be looking at that. You'll probably be meeting. Your part of the budget section.
Rep. Nathe: Correct.
Dave: So that's intact too.
Rep. Nathe: Yes, and so, there's a couple of bills going on right now in the legislature world, where we will be appropriating these new dollars versus the first two batches that the governor and the emergency commission took care of. So yeah, I think, Dave, we'll be meeting quite often between now and the fall when we take up redistricting because this is definitely a fluid situation that we're going through.
Dave: Well, to also build on that, there've been bills in the session that say that the legislature should really be in more control of the COVID money because legislators appropriate. The governor suggested legislators appropriate. And in this first batch that came through, it was the budget section as suggested by the governor and the emergency commission. So it's going to be a little bit of a different process.
Rep. Nathe: Yeah, quite frankly, budget section was just a rubber stamp. We couldn't change anything, and I found out the hard way. I tried to make an amendment in August on one of the batches of money that came through and found out, no, we couldn't do it. So that's one of the reasons why you see both bills where now the legislature will take control as the money comes in. I think it should be because, as you say, we appropriate the money. We are closest to the citizens. And there's a lot of programs that need to be taken a look at, and we need to help out because some of these industries in our state have taken a big hit. And people do need help. Even as it looks like we're kind of coming out of this, there's still a lot of people hurting from the pandemic.
Dave: Did you have problems with what the emergency commission recommended? You said you had an amendment in August to do something, but what do you think about the process and how they handled it? Did they handle it okay?
Rep. Nathe: Well, I think they handled it okay, and when you're in middle of an emergency, as we are with the pandemic, I am not one to sit back and second-guess everybody. Everybody's trying to do the best job they can under the circumstances that we see before us. As far as the monies, where the monies were going, I had no problem with a lot of that. My issue was when they were sending the monies to the counties and cities, that that money was used to pay for their salary. So basically it paid for all the county and city employees' salaries from March to December. Well, they were making their budgets up at the time. And I wanted to see that money that was being supplanted given back or at least the meals reduced or at least make sure that that money has come back to the property tax owner in a reduction or at least a no increase in taxes. Now to the credit a lot of these political subdivisions, these cities and counties, a lot of them did do it. Some of them did not do it, and I wanted to make an amendment to make sure that in order to do it, they had to have a relief of some sort, and they did not. So that was my frustration. But other than that, as far as how they doled the money out, went to certain things, overall I was pretty pleased with it.
Dave: In terms of going forward then, one of the things that had been talked about, and we don't know if this is going to be allowed yet, the indications are it may not be, to use some of the money to help out with the retirement fund, your state employees, and try to get that healthy again. And then eventually when you get that fully funded, then to go from defined benefit plan to a defined contribution plan. How do you feel about that?
Rep. Nathe: Well, we did get kind of an overview of some of the guidelines for this new batch of money that's coming. And it says plainly right in there, cannot be used-
Rep. Nathe: For pension funds. You cannot do that. But what we can do is if we use some of this COVID money to offset, so maybe supplant some of the general fund expenditures, saving that money, and then putting that general fund money that we've saved into a pension plan, I can see that happening. And I do think we need to address it. I know some people want to be very aggressive with that, talking three, $400 million. I think that's a little too aggressive because we do have other programs that need to be taken care of at this time. But maybe a smaller number I could live with to go forward. So, 1380, as you know, is called the streams bill, having to do with the legacy fund dollars being distributed out. I do know there is one of those streams in there that will be used to help get the pension fund up to where they should be. Now, it will take many years to do, but we would have a funding source then to put towards the pension fund and get it on the road to recovery.
Dave: And also you call it a streams bill instead of, what, the bucket-type bill.
Rep. Nathe: We have too many buckets up here, the way it is. So we came up with a new term, streams. So it seems to be a little bit more palatable.
Dave: But in terms of buckets, there was a change the House made to the order of buckets and that the SIF Fund, on the Strategic Infrastructure and Investment Fund, is now before any Prairie Dog money, correct?
Rep. Nathe: Yeah, yes. Yeah, and the way it was before, we had the first startup money for the cities prior to SIF. And then after that, we had the counties after that. And then that was a battle I lost last session. I think that's going to have to be played out, Dave. A lot of people like myself would like to at least see those first two buckets, the city and county, above the 400 million, fill the 400 million, and then go to the rest of the Prairie Dog bucket. So, but yes, you're right. That's exactly what happened, but there's some of us that are still want to, we're still working on trying to correct that. But we may or may not win that battle, who knows. But being the prime sponsor of that bill, I'm a little partial to where those buckets are right now because they do, the cities and counties do need this. And you hear about another batch of money coming out of DC in regards to infrastructure. So obviously we don't know what that is, but that may also help alleviate the infrastructure needs that we have and maybe help with Prairie Dog, who knows.
Dave: And at the same time this week, that group trip, which is kind of like the non-profit to look at our transportation infrastructure, they said North Dakota is, about 44% of our roads are in poor condition. Another 30% are in fair condition. Bridges about, I think it's two in 10 may need to be replaced. So the need is there is what I'm trying to say.
Rep. Nathe: Absolutely, and I'm not surprised to hear that at all. We were told last session during Prairie Dog, we have billions of dollars of infrastructure needs that need to be met here. And, you know, that's where I think a lot with 1425 and with Prairie dog and those sorts of things, I think will definitely step in and help alleviate a lot of that problem.
Dave: I wanted to ask you briefly about a couple other things. Higher education budget, where do you think that's at right now, just overall?
Rep. Nathe: Well, I just came from the higher education hearing in our section. It's pretty much done. We're just waiting for a couple little things. I think, Dave, we either kicked that out today, or we'll kick it off by the end of the week. In our section, we have two budgets left, that and the commerce bill. But the higher ed budget is pretty much all done right now. And we have this issue with the Challenge grant and then with this Planned Parenthood amendment that was on a different bill. We just put that amendment for just a Challenge grant program and money only into the higher ed budget, not knowing what's going to happen in 2030, which is the Challenge grant and the Planned Parenthood amendment that's caused a lot of ruckus there. But I think the overall higher ed bill, budget bill, is in pretty good shape right now. Obviously, we'll be going to conference, working with the Senate on some of the different changes. We have a new, a higher ed formula program that's in place, and it's caused an increase for most of all the schools with the exception of one, I believe. The new formula, it's going to be a good, good thing for the schools and for the state going forward.
Dave: All right. On K-12 funding, which is another thing, at first, it seemed like the House was going to go along with the governor's recommendation, which does not increase funding in the per-pupil payment formula. The Senate went with a 1 and 1% increase. And there's been all this talk about the ESSER money, about money specifically going to schools. But there seems to be some strings attached to that where it's couldn't go to a per-pupil payment formula, correct?
Rep. Nathe: Absolutely right. So ESSER, much like the other federal money, there was two batches of ESSER money, which goes to all the schools, and it's based on the number of free and reduced meals for students in each district. So that's how they get to the number. Those two batches have been sent out. The schools have used them, but now they're sitting on about $125 million in turn-back, 125 million that they didn't use. And quite frankly, I think some of these schools are trying to figure out how to spend this money because they don't know where to spend this money. And there is strings on that. Now the third batch of money just came through. The state just received the money a couple weeks ago, $305 million for all 187 school districts. And there's strings on, kind of the same strings. So we, as a legislature, cannot tell them how to spend it. We cannot say you have to spend it over here. They are tied down to that. But there are certain things where we can pull back the funding, knowing full well those schools will use that ESSER money to pay for it. So we want to do that for more, for one-time projects because if we do ongoing projects, and we have to come back next session, fill that, and the increase on top of that. But, you know, be quite honest with you, Dave, these schools are sitting on over, probably well over $400 million. And we know a lot of them are trying to figure out how to use it. Don't know how to use it. The last batch, they have to use by 2024. Now they can use it to pay off their building mills and pay off some building. They can use it to build schools. They can use it for many different things. So it's kind of the embarrassment of riches right now for the schools because I jokingly say every school in the state now should have a gold-plated computer because they got more than enough money to buy all the IT and all the computers they want. But I would just hope the taxpayers will see some of that relief come back next fall when it comes for their property taxes.
Dave: Now, that's the other part of the equation that came to my mind, is that if you're paying off school debt, construction debt, if you're building new schools without having to go to the construction debt, maybe that is an indirect or maybe even direct benefit to property-tax payers.
Rep. Nathe: Yeah, absolutely. So the property-tax payers do see it on their tax form. At least hold property taxes steady. Every district is different. Bismarck is looking at getting $35 million in this latest batch of money. They were sitting at about nine or $10 million that they hadn't used yet. So they have, say, roughly around $45 million that they have to figure out. Now, they're the biggest school district in the state, and they can probably find some areas for that. But there's some very small school districts who have a high number of children on free and reduced meals who are getting a very, very big check from the federal government. So they're going to have to figure out how they can spend that wisely so their community can feel those effects and provide a top-notch education for those kids.
Dave: Now here comes where budget writers at the school districts will probably earn their keep because I believe, and correct me if I'm wrong, in the ESSER money, there's a maintenance-of-effort clause. And that appears to be, we can't take that federal money and put it into a per-pupil payment. But maybe you can put it something else. Maybe you can put some of that money for a per-pupil payment or something like that.
Rep. Nathe: Right, and it kind of has a chain effect. I mean, they could put it in a different program, save their general fund money, and then use that general fund money into a per-pupil payment or into teachers' salaries, those sorts of things. But we, as appropriations in our section, because we have both K-12 and higher ed, we made it very clear if they put it in these ongoing expenses, somehow it works its way back to put in an ongoing expense, do not expect a legislature to come there and fund it at that exact level. We'll go back to the prior COVID money and fund it from there. I don't know if that makes sense, but if they get general fund money by supplanting, they can then add money to a teacher's salary. Don't come back to the legislature and say we now need more money for teachers' salary. Nope, you've used federal money for that.
Dave: It is a complicated process.
Rep. Nathe: It is.
Dave: For the greater good perhaps, but yeah, a lot of things have to be figured out on what you can, what you can't, where you can move money. But for sure, it cannot directly go to paying teachers' salaries.
Rep. Nathe: Right, and you know, Dave, they have hundreds of millions of dollars right now. We heard a lot about the loss of learning that the children in K-12 have suffered because of the pandemic. And we had a lot of discussion early on in the session about having that extra month of school in the summer. You could call it summer school or an extra month, but we have a number of kids that have been affected and have severe learning loss. That staying at home, doing a Zoom like you and I are doing today was not very good for them at all. Some students could handle it. Some students could not. And very good students, I've seen their scores go down because of that. So K-12 has a lot of money to hopefully implement a program like this for these districts to get these kids back up to speed. Because if not, we're going to have a whole generation of students that are going to be behind. I've heard from parents say, "My child has actually gone backwards staying at home." So we have the funds in K-12 to address this problem. And I know Kirsten Baesler, Superintendent Baesler, is working on the program and working up a program to address that very need. So the funding is there for it. We need to have K-12 and the educators of the state step up, and let's address this problem.
Dave: And talking to the superintendent, she said it's not going to be a one-size-fits-all program. It's going to be tailored to each district. I guess there are, what, 12 or 13 options which they can pick from in order to best serve their students.
Rep. Nathe: Absolutely, and obviously local control, the teachers in those communities know best how each student will react to whatever program they pick. So again, funding is not a problem. So I just hope they put it to good use.
Dave: I'm going to put you on the spot for just a second. We talked about the bonding bill, probably going to end up on a conference committee, about maybe they'll, and we know the Office of Management and Budget bill, OMB bill, is going to end up in a conference committee because it always does. Are there other particular sticky wickets that might be out there?
Rep. Nathe: Well, I think you're going to see the streams bill, 1380, that we talked about, that will definitely be in conference. And if you think about it, Dave, we have three bills this session that are dealing with the legacy fund. We have been criticized in the past, and I think rightfully so, for not doing enough with the legacy fund. So we have the bonding bill, as you say, will be in conference. We have 1380, that streams bill dealing with the interest, legacy fund earnings interest, how we deal with that and putting that to good use. And then obviously, 1425 that we talked about earlier. So those two bills will definitely be, Higher ed is always a big conference to do. The commerce budget that I have right now will have several items in there that I'm sure we will, we will definitely be going to conference on the commerce budget and taking care of that. So I think those are probably the four or five big budgets as I see going forward that we're going to have conferences on.
Dave: You see any other potential landmines among policy bills or anything like that?
Rep. Nathe: I'm sure I'll think about it after you and I get done with this interview, but, you know, there's the oil well straddle bill that they're taking care of right now in the Senate. That is a very hot topic. I think that's going to be, This clean energy, clean coal sort of bills that are out there right now, I think there's some disagreements how that works or how that goes along. So I think just, again, I think some policy bills having to do with energy definitely are going to be hot topics in conference.
Dave: Quickly on redistricting, are you going to be part of the committee, or are you not?
Rep. Nathe: I was part of the committee 10 years ago. I've been told I am. I am not officially on it, but I've been told I've been on it. So I'm looking forward to doing that. It was quite the experience when I was on it 10 years ago. I'd only been here for two sessions, but yeah, so there's been a lot of talk about that going on. And the census not coming out till September is going to, it's going to condense everything for us. It's going to really shorten our timeframe up to do that. I'm just concerned about the West. I think when the pandemic hit, people left, and I think some of the census numbers out there might be lower than, say, they were in February before the census hit. But we are growing as a state. Bismarck has grown, Fargo, a lot of the big cities, areas. Even smaller communities are growing. So it's going to be a challenge. We have to figure out how many districts do we stay at as a committee. What does that number entail in how we do all these things? And you've seen this process happen many times. So it's quite an interesting process. We could do something down in Bowman, and it has a butterfly effect. By the time it gets to Cavalier in the Northeast part of the state, it changed all the lines. It's a constant motion. It's constantly whack-a-mole, if you want to say, 'cause we trying get everything set up. And there's no shortage of suggestions what a person should do when it comes to drawing some of these lines.
Dave: Right. So just very briefly, 47 or a different number?
Rep. Nathe: I'd like to stay at 47 districts to be honest with you. I don't want to see us growing anymore. But if we go up, I'd have to be really sold on that to be honest with you, Dave. I'd like to stay right at 47 where we're at, and I think we do a great job with that.
Dave: Right. Representative Nathe, we've run out of time. Thank you very much for taking the time to do this.
Rep. Nathe: Thanks, Dave, it's been a pleasure as usual. Thank you.
Dave: Thank you. Our guest, Representative Mike Nathe of Bismarck, he's a Republican member of the House Appropriations Committee. And for Prairie Public and Legislative Review, I'm Dave Thompson.