Surplus is a blessing and a challenge for state budget

Rep. Froseth offers preview of 2007 legislative session

By Caroline Downs

District 6 Representative Glen Froseth (R) knows that too much of a good thing, like the $530 million budget surplus for the state of North Dakota, can create a set of problems.

"Dealing with a surplus the size we have is going to be a new challenge," he said. "Two years ago, it was $100 million. There are going to be so many demands coming out of the Governor’s proposed budget, and the legislation introduced by individual legislators. That funding itself usually amounts to $200 million."

He continued. "Everybody knows there’s a surplus, and they’re going to be looking for a share of it."

Froseth will be sworn in for his eighth term in the North Dakota House of Representatives when the 60th Legislative Assembly comes to order at noon January 3, 2007. He has put himself in the center of the budget storm by becoming a member of the Finance and Taxation Committee.

"A lot of the big tax issues will go through that committee," he said. "It should be interesting."

He joined the rest of the legislators in Bismarck the first week of December to hear Governor John Hoeven’s budget address. "The Governor’s budget made everybody feel pretty well satisfied," Froseth said. "The economy looks great and projections show it will continue to grow. But one of the main concerns of the Republicans is that we can sustain the spending levels we set during this session. If we can’t, then we’re in real trouble."

Froseth liked what he heard about the $80 million in increased funding for K-12 public education. "The Interim Education Committee originally projected $60 million," he said. "Now, it’s $80 million. I think that’s a good amount of new money to put into K-12 education and probably sustainable if we watch expenses in other areas."

He is concerned, however, about the way the new school funding formula, proposed by the Commission on Education Improvement, will be implemented. "It has some flaws for rural North Dakota and property-rich districts," he said. "It depends on what they do with the mill-levy deduct. [The new formula] will be okay if they eliminate it. If the mill levy deduct is not scrapped, rural school districts will not receive enough funding to exist. We are ‘property rich’ but ‘income poor’ in rural North Dakota."

He also agrees with the Governor’s proposed $72 million increase in higher education funds for the University System’s operating budget and the capital construction and renovation budget. An additional $20 million has been proposed for the Centers of Excellence program.

Froseth wants to make certain some of that money directly benefits students in the system and those parents who are paying college expenses. "I’d like to see something done with the cost of tuition rises and the cost of the college student loan program," he said. "I think if we could reduce the rate of interest, that would be a help."

He continued, "The colleges said this should keep their tuition increases to five percent for the biennium. I think they’ve got to be held accountable to that statement. We can’t keep doling out the increases if they don’t accomplish what the general public wants."

He approved of the Governor’s plan to boost the Budget Stabilization Fund from $100 million to $200 million. "Now that we have the resources to build it, I think we should, and maintain it at that level," he said.

He also liked the idea of using the budget surplus to make some small one-time expenditures around the state, using the International Peace Gardens as an example. "We could spend $2 million to $3 million necessary to bring the facilities there back up to shape," he said. "I’d rather do that than increase budgets that have to be sustained."

Other funding priorities for the legislature include a $71 million increase for the Health and Human Services Department that would address the costs of long-term care and other issues for the state’s population, a four percent salary increase each year of the biennium and full health coverage for public employees, and $5 million to continue the popular Veterans Bonus Program started last session to support men and women who serve in the North Dakota National Guard.

Pipelines and prisons
Froseth hasn’t drafted any particular bills to introduce this session, but he is interested in an idea to form a Pipeline Transmission Authority for the state. The Authority would be entitled to sell revenue bonds to finance construction of a pipeline to expand the capacity for transporting oil pumped in western North Dakota. Such a pipeline would benefit and even expand oil production in the state’s northwest region.

"Our pipelines are full," he said. "Just as one example, Enbridge Inc. has already increased their capacity by building pressure and forcing more oil through the pipeline, but it’s not enough. The production of oil in western North Dakota is limited by our ability to move it to markets."

He has also studied the needs of the state’s correction systems, after serving on the interim committee that recommended, on a split decision, remodeling the present prison rather than building a new one.

Froseth supported the remodeling idea, with an estimated cost of $42 million. "The state still has a lot of prison facilities that are adequate and too good to walk away from," he said.

He cited operations at the women’s prison in New England and the state hospital in Jamestown, both of which have been successfully renovated in recent years. "A lot of counties have also added to their prison bed capacity for minimum and medium security prisoners," he said.

He questioned if the legislature should favor the interests of the city of Bismarck, where residents have complained about the current prison’s location, over interests of the state institution itself. "I feel the most practical way to go is remodeling and updating the present prison system," he said.

A plan to build a new prison has been offered, at a cost of $112 million, but Froseth mentioned that no specifications or hard data were used to justify that figure. "I don’t think that’s even going to come close," he said.

Tax relief
One aspect of the proposed budget where Froseth disagreed with Hoeven’s proposal came in the area of tax relief. The Governor has suggested dedicating $116 million to property tax relief. "The Democrats are making property tax relief the main topic. Property taxes are high, but I don’t think it’s primarily the state that makes that happen," Froseth said, adding that townships, cities, counties and school districts levy property taxes.

He said the legislature is often blamed for failing to adequately fund schools and county operations, thus resulting in higher property taxes. Another contributing factor is that many school districts have chosen to offer curriculum and programs that contribute to expenses above the basic needs supported by the state, so those districts levy the maximum mills allowed by law. "The loss of student numbers contributes most significantly," he said.

The high budget surplus has spurred discussion about reducing, or refunding, property taxes, but Froseth was skeptical about the effectiveness of Hoeven’s plan. "So much of our property is owned by people who live out of state," he said. "A big part of that money will never be seen by us again."

If property tax relief is offered, he would like to see some type of accountability built into the process that would require townships, cities, counties and school districts to reduce their mill levies, or at least hold a line on them. "Otherwise, if we give a refund to property owners for two years, the legislature will get the blame again when the program ends and property owners are faced with their usual taxes two years from now," he said.

Another tax relief idea has been suggested from a study group facilitated by former Governor Ed Schafer. "This would lower the state income tax," Froseth said. "The savings would go directly to everyone who paid North Dakota income tax."

He said the state income tax serves as the second highest source of revenue for the state, followed by the oil and gas tax. Sales tax is the state’s primary source of revenue. "I think we’d be better to go in the form of income tax or sales tax relief," he said. "A lot of people don’t own property, but they have paid income tax and sales tax."

Looking forward to session
Given the healthy budget surplus and a strong outlook for the state’s economy, Froseth is looking forward to his committee assignments. "Everyone needs to sort out their priorities and needs, and the lesser priorities on their wish lists," he said. "The Finance and Taxation Committee will have an instrumental role in shaping the legislation to accomplish that this session."

He referred back to the 2005 session, when the budget was balanced as required by law. Several Democrats, the minority party in both houses, have since accused their Republican counterparts of under-spending the state’s money. "Two years ago, we funded everything and had a $10 million proposed ending fund balance," Froseth said. "The economy grew at a rate higher than projected, resulting in the surplus."

The same scenario could occur during the next biennium, but Froseth preferred to work with definite, rather than hypothetical, numbers. "We’ll have a $30 million ending fund balance after Governor Hoeven’s spending levels are met," he said. "If the economy continues the same rate of growth during the next biennium, he projects a $400 million surplus, but that remains to be seen."

During the 2007 session, Froseth will also be a member of the Government and Veterans Affairs Committee. He previously served seven sessions on Industry, Business and Labor, as well as five sessions on Political Subdivisions and one on Agriculture.

Anyone interested in contacting Froseth with questions or concerns about legislation during the session can reach him by email at gfroseth@nd.gov or by phone toll-free at 1-888-635-3447.