(fife and drum music) - This is a special edition of Legislative Review on Prairie Public.

I'm Dave Thompson.

Thanks for joining us.

Legislative Review is heard on radio.

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Glad to have as our guest today, Governor Doug Burgum.

Governor, thank you for being here.

- Great to be with you, Dave, always.

- Since we're talking about the legislative session which just wrapped up a little over a week ago.

What do you think overall, in terms of your agenda, what you wanted to accomplish?

- I think before we get into that cause there was so much accomplished by the legislators.

They're helping advance and move the state forward, but I do want to share gratitude.

I mean, this has been an historic legislative session and out of the silver linings of COVID, one of the things, of course, comes is transparency and access.

The Legislature did a fantastic job of for the first time ever being able to provide online all of their committee meetings, the conference meetings, of course the general session floor debates, and providing access for citizens that who in the past, perhaps, couldn't have traveled the three or four hours to get the Bismarck to be able to do testimony online.

I think, one important part of any legislative process is citizen engagement and transparency.

I think both of those advanced and took big steps forward, so kudos to legislative management, legislative leadership, for all the great work on that front.

Then, the other piece, of course, is COVID created a number of other interesting challenges for legislation because last year with the first the oil price collapsed, then the economic collapse.

North Dakota's GDP dropped by 28% from Q1 to Q2, right when we were putting together the budget and all the strategic planning that we present to the Legislature in December.

So, that created one of the most challenging operating environments ever for preparing a budget.

Then, along when we were working on that, we didn't know what the federal stimulus was going to be.

Then, we had record historic amounts of federal stimulus that were coming in both from the Trump administration last year up through Christmas, and then, with the Biden administration now.

So, that creates a challenging piece for the important part of the legislative process, which is appropriating dollars.

So, through all of this difficulty, and then also, working to make sure that we kept legislators and the team members of Team N-D that work in the Capitol, keeping everybody safe during this timeframe, navigating all of that, the Legislature was able to not have any break or suspension in their meetings.

Many other States either had to cancel for several weeks.

All these problems that were overcome, here, seamlessly.

So, and then at the end of the day, coming through all of this, we ended up with a budget, a fantastic budget.

We've worked to keep general fund spending in check.

We have not raised taxes.

We have provided tax relief.

We advanced important agendas around healthcare, education, infrastructure, and accomplished a number of historic things there that we hadn't been able to accomplish before as a state.

Then, we're going to end, in spite of all that economic uncertainty, we're going to finish with, likely, the highest ending balance ever coming out of any session.

We never had to touch the budget stabilization which is our rainy day fund.

At the end of the day, the revenue forecast is going to come in ahead of schedule.

So, when I take a look around and, this year more than any other year perhaps in the history of our country, governors have been in direct contact with other governors.

You've got a weekly White House call around coronavirus task force.

With both administrations, we were having weekly calls with Republican governors, from Arizona to Massachusetts, to Florida, to Texas, talking about important issues that our states were facing.

Then, during the pandemic, I started out as Chair of Western Governors' and that term ended.

Now as immediate past year, Western Governors', from both parties, meeting to talk about things that are important to us on everything from wildfires to managing with COVID and budgets, et cetera.

So, with all this interaction between governors, the point of this is bringing it home for North Dakotans, we have so much for which to be grateful not only for the work the Legislature did, but the work that the citizens have done.

We're in a position with our kids in school, our businesses open, with excellent work on a vaccine administration, all of these things happening that allowing us to return, to normal.

Then, finding ourselves in a position where our future, when we look into the years ahead, both for energy, for agriculture, and all the other industries in our state is very, very bright.

The state itself is in outstandingly strong financial position going forward.

So, we've just come through navigating what I was calling not just one black swan event which is the sort of once-in-a-lifetime event, but we had a flock of black swans that were landing.

Whether it was a pandemic or economic flaps or wildfires or floods.

We've gone through so much in the last 15 months and coming out of that in the position we are, nothing but gratitude.

So, again, I want to thank all the legislators, legislative leadership of both parties, but also thank the citizens of our state for doing their part, to getting us through all this.

Looking forward to talking about some specific highlights, but right off the bat, I just want to say North Dakota is in great shape and I'm super optimistic about our future.

- When you started the budget process, did you think we would end up this well at the end?

- When we started the process, actually in January of 2020, it was about a month before the price collapse of oil and two months before our first COVID case.

We had instituted a strategic planning process.

We were heading into that with a lot of optimism in those first months.

We completed about a third of the 57 strategic meetings we have with agencies and with departments across the state, from, again, education to healthcare, all the way down to the arts council and highway patrol.

We had individual strategic planning meetings, but a third of the way through not only did the price drop, but the North Dakota oil production also dropped in half.

So, when you take price times production, the numbers were absolutely collapsing, in terms of revenue coming into the state of North Dakota.

It's so important.

That's important revenue for us.

Represents over 50% of the total revenue that comes into the state comes from the oil and gas industry.

So, we had to shift.

Then, we started putting together a budget, which was one that was really looking in terms of more dire financial situations and not knowing whether there would be a vaccine, not knowing what the path forward would be forward.

A lot of that was reflected in the budget address that we gave in December that was developed in October, November.

By March, when the Legislature was putting together their final forecast, a lot more reason for optimism.

We saw the economy rebounding.

We saw COVID, at least for our state at that time, being in the rear view mirror.

So, there was a lot of optimism.

When we looked from March till now, heading into May, June, we have even more reason to be optimistic.

Oil prices are back up in the mid sixties and lots of exciting announcements, like earlier this week, a new $350 million soybean crush plant coming into Spiritwood, by Jamestown, by a global company ADM. Again, a lot of positive things, a lot of positive momentum.

I have a feeling that the twenties that we're heading into might be like the roaring twenties of the 1920s, coming after the 1918 Flu Pandemic.

So, a lot of reason for North Dakota to be optimistic.

- One of the things that you were championing early on was bonding because the cost of money is cheap.

They came up with a $680 million bonding bill.

You had proposed 1.2 billion, at one point.

Republicans were at 1.1 and they reduced it to 680.

Looking back on it, are you happy with where that came out?

- Well, actually, Lieutenant Governor Brent Sanford and I are very happy.

If I had one do over...

In December when we did the budget regress, we got tagged with this 1.25 billion number.

550 of that was bonding, 700 million was to create a permanent, revolving loan tool that we could use to do low-interest loans to local political subdivisions to build infrastructure in the state.

We should have introduced those as two ideas.

We want a $700 million revolving loan fund and we want to do 550 million in bonding.

So, when we ended up with $680 million of bonding, Brent and I'll call that a victory because it's not...

Bonding, in this environment is fiscally conservative, borrowing money at these rates which are among the lowest they've been in history and us advancing infrastructure projects which have a return for those communities, whether that return is in tens of thousands of homeowners, no longer having to pay flood insurance, or whether that's protecting entire communities from catastrophic risk or whether it's building water systems or roads, et cetera.

There's a return to that.

So we have an economic return when we build infrastructure and building it now, as quickly as we can when we're borrowing money at low interest rates that's that saves the taxpayer money.

The other thing, which is why bonding makes sense now where it wouldn't have made sense in the 1980s when interest rates were high, but the thing we have now that we've never had before is an earning stream coming off the Legacy Bond.

So, that earning stream can be used to pay down on these low interest bonds very quickly.

The Legacy earnings, while they are dollars being appropriated by the legislature, those are not tax dollars that have come from from our citizens.

The entire Legacy Bond was built with 10% of oil and gas revenues.

Those deposits were made.

That represents over $5 billion of principal deposits in the fund.

That fund has been held and it's been growing.

Now, it's $8.6 billion.

So in the market, it's earned money on its own.

We take just a small portion of earnings.

There could be eight to $900 million of earnings coming off the Legacy Fund.

We will make the loan payments off that Legacy Fund with perhaps as little as a hundred or $110 million.

It might be one seventh or one eighth of the earnings can go towards paying down these bonds.

Yet, we can go today and do $680 million of construction that will advance the state.

So we're very excited about this fiscally conservative approach.

We would say in the private sector, it's making great use of our strong balance sheet in a way that makes sense for all the citizens.

- Not to put too fine a point on the bonding bill, but one of the things that was a big accomplishment, a lot of people are seeing as a big accomplishment, you get FM diversion off the books, basically.

So, that frees up money in the Water Resources Trust Fund, which comes from oil, that can be used for other projects.

- You're absolutely a great, and that's a great insight.

It's one of the reasons why the bonding bill, in the end, got such widespread support.

Bipartisan and and super majority support from Republicans because not only we take care of the state portion of the funding for the FM diversion, but another 74 and a half million that's going to go to help WAZ.

Then, when WAZ debt gets paid off, then that money comes back and there's 74 and a half million that can go to the Minot flood protection.

So, it takes two big flood protection projects out and that will open up for every small community, whether it's a water tower or a rural water project, it'll free up that competition for dollars in the Water Resources Trust Fund, leaving almost $300 million for water projects for the rest of the state.

Again, it had a multiplier effect and you're so right about that, Dave.

- And given the fact that the demand for water is still there and keeps growing, basically, from what I'm seeing.

It is a good news for a lot of the smaller communities.

- Absolutely.

- Let me ask you about some of the other things that happened.

Number one, were you in favor of changing the governance, so to speak, of the water commission to a water department?

Was that something that you did support?

- Yeah, absolutely.

I think that one of the challenges that we face as a state, of course, as we build bigger enterprises, when the whole water commission governance structure was created, the idea that you'd have the state engineer, who's required to be an engineer, a professional engineer, have that person, also, leading the department.

It requires two things.

You've got to be a regulatory leader called the state engineer, but you also have to be essentially the CEO of the of the water commission.

It gets increasingly hard to find those capabilities, someone who can be a fantastic administrator who's also got the bandwidth to manage hundreds of millions of dollars of engineering projects.

So, just like any organization where you might say, Hey we need a...

When you're a small business, the owner manager can be the Jack of all trades.

When you get to the larger business, then pretty soon you might need someone who's the chief operating officer, but you also need someone who's the chief technical officer, the chief engineering officer...

So, this to me is a natural progression because when the governance was created decades and decades ago, I don't think they ever imagined that you'd be overseeing hundreds of millions of dollars of water projects and in some cases, some of those projects, like in Minot, being 700 or $800 million projects, the diversion, multi-billion dollar project protecting $25 billion of property value, protecting 25% of the hospital capacity in the state, protecting over 20% of the sales tax and 20% of the school kids in the state.

These are really incredible projects that might not have been imagined.

So, splitting those two duties between an engineer and an administrator, I think makes a ton of sense.

Credit to Representative Jim Schmidt and others who are very involved in this.

Senator Ron Sorvaag, others that were really involved in the water projects did a great job of guiding this.

We were fully supportive.

- What about the idea of merging health with human services into one department?

- Well, this has been an idea that's been around for a number of years and this one was debated in the legislature more closely.

It came down to, I think, one vote in the Senate.

I think it was 24, 23 in the Senate whether to keep them apart and study it or to put them together.

When the bill came to my desk, we listened to both sides.

We thought about and carefully considered... We signed the bill which will initiate this merger or unification.

I think in the end of the day, what we want to do is be really focused on the services we deliver to, in some cases, the most vulnerable, the most needy in our state and there are many programs.

There's a lot of federal dollars that come into these programs, both in the health and human services.

It's the reason why approximately two thirds of the states and the federal government do have these two agencies as one.

I think it really comes down to the continuum of care.

In some cases we would have situations where prevention say for something like suicide and suicide awareness, the prevention aspects were in one agency, the behavioral health remediation and work was in another one.

Then, how do you create seamlessly across a continuum of care?

Whether it's tobacco or mental health, or managing nursing homes, one organization licensed nursing home, the other one regulated them and inspected them.

I think we have some opportunities.

I think the key thing here is this isn't about one agency winning or losing.

This is really about how do we make the citizens, and the state, all winners?

How do we take this opportunity to create more meaningful and purposeful jobs for the people that are dedicated civil servants working in state government?

How do we cut red tape to make their jobs easier?

How do we make these connections work?

We talked a lot when we were running about re-inventing state government.

I think when you take these two together, they will be the largest agency in the state.

When you take the federal dollars, this is going to be an organization with more than $4 billion of appropriations and thousands of the team members from the state of North Dakota working.

So, this is going to be a major priority.

The date for when the merger is supposed to be effectuated is September one of 2022, but we've already started, immediately after the bill was signed, the leaders of those organizations have started putting out videos to everybody in the organization, holding leadership meetings, start working on integration and change management because having done merger integration in the private sector, this is not just changing the letterhead on the letter.

This involves people and systems have to change or all the goals and objectives I've described won't be achieved.

I know that the legislative leadership, Robin Weisz on the house side, Senator Judy Lee, they've been working on this for a long time, kudos to them for pushing this thing forward.

We think that there's a big opportunity to create some, not just efficiencies, and they're not even asking us to look for efficiencies, but I think we can create more effectiveness, in terms of how we serve our citizens and that's our goal.

So that's going to be a big project and it's already started.

- Since you mentioned reinventing government.

I was going to ask this anyway.

There was talk before the session.

You talked about, maybe, some state employees could continue working from home even after the pandemic eases and they can use technology.

Where is that?

Where is that in terms of people working from home, maybe, reducing the footprint of state government at the Capitol and grounds?

- Well, Dave, I thought we had a big opportunity to reduce the footprint of state government before COVID.

Now, I really believe we have a big opportunity to reduce it.

When I say footprint, meaning the physical footprint, when we came into office there wasn't one place you could go and say, "Gee, how many buildings does the state own and how many square feet do we manage?

That wasn't even in one centralized location because it was stuck between multiple different agencies, higher education, across the whole state.

When we got it all inventoried, it turned out the state of North Dakota owns and manages 24 million square feet of space.

24 million square feet, that's a lot of space.

We also lease a lot of space.

Sometimes we are leasing space because we think that we don't have enough.

We got support from the legislature two years ago to do a study.

Of a portion of that, Joe Morissette from the Office of Management Budget, we hired a professional outside contractors.

We looked at 3.7 million square feet.

We concluded that, not surprisingly, among that we had a lot of maintenance issues.

So, one of the things we didn't get accomplished this budget session is we didn't get money.

We got 19 million for maintenance for higher ed buildings.

We got $0 in for state buildings.

That's one thing we're going to have to look at hard when the legislature comes back because we want to maintain the buildings we have, but we also probably could be eliminating or selling a number of those buildings.

We probably could be getting out of a number of the leases that we have because we just have more space than we need.

Now, with the advent of co-working, it's not just about where do the existing workers want to work.

It's about, we have thousands of state team members that will be retiring in the next few years that are all baby boomers.

When you're trying to replace them with workers that are in their twenties and every other company in the market is offering flexible work, particularly when you get into knowledge-worker jobs or IT related jobs.

IT companies all over the world are letting people work from anywhere.

So, the competition for talent, isn't like can we hire somebody in Bismark?

It's like we need to hire the best IT people that live across the state of North Dakota and, in some cases, we may need to hire talent that doesn't even live inside the state.

Cause that's what everybody's competing for these jobs and around.

So, we have to be a competitive employer.

One of the ways we're competitive employer is by making sure that we've got flexibility, in terms of where we work and great IT systems allow people to do that.

As we saw with the legislature, connecting with citizens, the amount of productivity that occurred among state employees, of being able to work and connect across offices, across the state, through tools like the Executive Branch is using Microsoft Teams.

The Judicial Branch is using zoom, but the amount of productivity gains, the drop in travel expenses that the state had, I mean, there's all kinds of savings that can be had when we can get people out of cars and driving three hours to Bismarck for a one hour meeting when they can be productive connecting by video.

So this is not just government.

Every corporation in our state that had office space is probably thinking about, do I need that much space?

So there's going to be a permanent dislocation of the amount of space needs, even as people return to work.

I think that represents, again, opportunity for savings for taxpayers.

- Let me ask you about an issue.

That's going to probably come into play over the next several months.

And that was the idea that the budget section legislature would have a little bit more control over recommendations by the emergency commission on certain expenditures that come from the federal government, and that might come in play as we see more COVID relief dollars.

It was something that you vetoed, if I remember correctly.

Is that correct?

- That's correct, Dave.

- Have you thought about whether or not that this might be the subject of a lawsuit, which had been talked about?

- This was part of a lawsuit partially two years ago.

I think the Supreme Court was very clear in its answer.

The reason in my veto message, I described that the bill appeared to not stand the test of constitutionality as recent as a vote by our very own Supreme Court, just last session.

So, it seemed like it kind of flew in the face of what the Supreme Court had said.

I think separate from that, the mechanisms that we had in place, the emergency commission, the budget section, operated as they were designed during that emergency.

We got money to people quickly and efficiently and smartly, compared to almost any other state.

And so that was...

So, those are two reasons.

One is the system was working and B, what's described in that bill, I think, is clearly unconstitutional, but that's for the course that decide.

If there would be a lawsuit or not, that could result if somehow you got in a situation where emergency commission made a decision, the budget section vetoed it.

That's not allowed in the current rules or in the constitution.

So then, if that were to happen, that's when that would, probably, then trigger some legal action, if that happened at that time, but right now, not worried about that.

We're worried about serving the citizens of the state.

I think one option the legislature has, they've got some days that they didn't utilize and they've got an option to come back if they want appropriate dollars.

They've got some days to do that.

- You expect that probably that session's going to happen, oh, toward the end of July, August when we get more guidance on the new COVID relief money?

- When they would reconvene, is certainly up to the legislature.

We did get some initial guidance yesterday which is helpful, but we know from what happened last year on the Coronavirus Relief Funds, we got the initial guidance in April, May.

We got the final guidance in June Then, the final guidance changed every month, all the way up until Christmas, including major changes coming with the bill that was passed right around Christmas time.

So, it is likely that even though we've started receiving guidance that guidance will continue to change.

And I do want to say, again, with the fiscally conservative budget that we had, with the way we've executed it and keeping no increase in taxes, general fund spending in check, the overall budget is increased because the legislature has to appropriate those federal dollars, those pass-through grants.

So there's a couple of billion that have been pass-through, whether it's the unemployment fund, whether it's to direct to programs that supported businesses All that shows up in the, in this once-in-our-lifetime, there'll always be an asterisk on that for every state on the budgets, having all these pass-through dollars that normally wouldn't have been there in any other year, but we got all this accomplished and the the Biden rescue dollars, over a billion dollars, aren't included in anything that you're seeing in the budget.

There's a billion dollars that have been directed towards our state, which we have yet to spend going forward.

The guidance will help influence that.

If the legislature's back, I think they should have a say in how those dollars are spent.

- Sounds great.

Governor, thank you very much.

We have run out of time.

- Great.

Well, Dave, always great to be with you.

I want to give you a special thanks.

I don't think you missed one of the 85 press conferences we had last year during the emergency and always there great questions and getting solid, accurate information out to the citizens.

You're an important player during the last 15 months.

So, again, thank you.

Thanks everyone in your organization for the great work you do.

- Thank you.

Governor Burgum, our guest on a special Legislative Review, here, on Prairie Public.

Thanks for tuning in.

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