BISMARCK — North Dakota Gov. Doug Burgum released a $15 billion budget proposal on Thursday, Dec. 3, that would raise state spending by 2% over the next two years while attempting to absorb recent economic blows brought on by the COVID-19 pandemic.

Burgum said during a presentation to the North Dakota House and Senate that his plan for record state spending would continue to fund top priorities, like K-12 education and social services, amid a rocky patch for the state's oil industry.

"New challenges create opportunities and demand fresh ideas and approaches, and our proposed budget charts a course for North Dakota agencies and institutions to overcome these challenges and emerge stronger than ever before," Burgum said.

In 2019, lawmakers passed a $14.7 billion overall budget, including federal funds — about $400 million higher than the budget Burgum proposed prior to that legislative session.

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The recently reelected Republican said his plan does not raise taxes on North Dakotans and avoids major cutbacks at the state level, though it relies on two rainy day funds to make up for anticipated shortcomings in revenue. The budget assumes that the state will only receive about $2.9 billion in oil taxes over the next two years, marking the lowest amount since the early days of the industry boom a decade ago.

Senate Majority Leader Rich Wardner, R-Dickinson, said the Senate and governor are starting from similar places heading into the session.

House Majority Leader Chet Pollert, R-Carrington, said he backs some of the major themes of Burgum's address and hopes the powerful House Appropriations Committee considers elements of the proposal.

“He’s trying to show the citizens of North Dakota some confidence," Pollert said. "You know, these are very uncertain times.”

Senate Minority Leader Joan Heckaman, D-New Rockford, said she would have liked to see more funding for K-12 education and child care but she concurred on some of the governor's outlined priorities.

The Legislature will convene for its regular session in January to work on crafting the next two-year budget, which will become active on July 1, 2021.

Bonding ideas form

The governor also announced a proposal for issuing $1.25 billion in bonds to carve out money for infrastructure projects. Under the plan, the state would gather cash by selling bonds to investors and then repay them at a low rate of interest.

State lawmakers have historically been leery of issuing bonds to pay for future undertakings, but Republican legislative leaders have said they will introduce a separate bonding bill during their upcoming regular session in January.

The competing plans both draw on interest generated by the state's $7.3 billion oil tax savings account, known as the Legacy Fund, to pay back investors.

Under Burgum's proposal, $700 million would be made available as "legacy loans" to North Dakota cities and counties, which could borrow funds at low interest rates from the state for water, road and bridge infrastructure projects. The governor said the funds would enable meaningful, lasting investments in North Dakota without putting the state on shaky financial ground.

The rest of the money generated by the bond sales would go toward fixing state roads, developing tech schools and updating state-owned facilities, like the "ancient" mainframe computers used by several agencies.

Wardner said that while Republican lawmakers agree with the governor on a general bonding strategy, they differ in some of the details. In particular, Wardner said he would favor grants over the revolving loan fund proposed by the governor for infrastructure projects, largely because he said those funds were already promised to cities and counties in the past.

Pollert said his Senate counterpart's plan involves issuing about $940 million in bonds, including $400 million for water infrastructure ventures, including the Fargo-Moorhead flood diversion project.

Heckaman noted that the Democrats have a $1 billion bonding proposal of their own that would also promote grants to cities and counties rather than loans.

The nitty-gritty

Even while Burgum's proposed budget increases overall state spending, it "holds the line" on the general fund portion of the budget from the last two-year cycle. The general fund is spent on a number of public programs, including K-12 education and human services. Most of its funding comes from property, sales and energy taxes.

Under Burgum's proposal, 38% of general fund spending would go toward K-12 education. The state has taken on a greater proportion of K-12 spending in recent years, and Burgum said his plan would maintain a strong commitment to students. State Superintendent Kirsten Baesler said she was "pleased" by Burgum's proposal to keep K-12 spending steady.

The governor's budgeting for schools relies on $83 million from a K-12 rainy day fund, which he says would remain in good shape despite the withdrawal.

Burgum's proposal also leans on $240 million from the budget stabilization fund, a more general rainy day fund.

The proposal is not without sacrifices. Burgum suggested cuts to the state's university system as institutions of higher education see declining enrollment. The plan would reduce the state's general fund allocation to public colleges and universities by an estimated $32 million.

Burgum said the state has spent a lot of money constructing and maintaining underutilized campus buildings, and higher education will have to rethink its business model going forward.

"Prior to the pandemic, we spoke repeatedly about how higher education is changing due to the unstoppable forces of technology, economics, demographics and culture," Burgum said. "The pandemic has only accelerated these changes, and our institutions must continue to find ways to adapt, innovate and become more efficient to remain successful in a world of increasing competition and alternatives."

Heckaman said the state shouldn't cut funding to higher education because previous budget reductions have resulted in academic programs being gutted and good faculty members leaving the state.

Burgum told The Forum the economic incentives for colleges and universities are set up so they get more state money if they attract more students, so the institutions should work to meet prospective students' changing demands for higher education. He added that the institutions are operationally independent and they could choose how to implement the "modest cuts" so as not to affect faculty.

The governor has budgeted $95 million to keep up the state Department of Health's pandemic response, though Burgum said he hoped another round of federal aid or an end to the health crisis would allow the state to spend the money elsewhere.

Burgum's budget also carves out $17 million to double the size of a drug addiction treatment program that ran out of funding about halfway through the current budget cycle. The governor also proposed building a new state hospital in Jamestown.

His budget proposal includes performance-based pay raises of up to 4% for state employees, while making no changes to the state health insurance plan. The proposal also calls for a 1% increase in employee and state contributions to the public pension fund, which would put it back on the path to financial solvency, Burgum said.

Burgum, a former tech executive, has had a rocky relationship with the Legislature in the past, culminating recently in a lawsuit over a legislative seat held once again by House Appropriations Chairman Jeff Delzer, R-Underwood.

Pollert said lawmakers will try to develop their relationship with the governor during the session, but he added that the issues they've had in the past are still going to be hanging in the air.

Burgum downplayed the friction between his office and the Legislature, saying his relationship with lawmakers is "as strong as it has ever been."

Forum reporter Adam Willis contributed to this report.