February 9th, 2015

Today is Day 25 of the legislative session, we are now past the first quarter mark and it is time for a broad spectrum update of what is being watched.

There are dozens of tax bills that are making their way through the legislature – typically these bills end up getting merged into one omnibus tax policy bill. Because of the revenue situation due to oil prices falling, a lot of the tax policy work will unfortunately be pushed to the end of the session.

One solid attempt dig into whether our tax policy is working is Senate Bill 2057 which I previously alerted you to. That bill has since passed the Senate and has moved to the House.

On Thursday, February 5th, I spoke to the Senate Political Subdivision committee about Senate Bill 2329 which seeks to expand Renaissance Zones (area which cities can offer developers and businesses tax-free status for 5-years for redeveloping property). As this has been an issue recently, I asked the committee to study the effectiveness of the program before expanding it.

The key request was to research and develop a way to calculate the Return on Investment (ROI) of the sort of special deals cities give businesses and developers through the program. This study must include a proper accounting of what the properties in the program were generating for tax revenue before entering the RZ program, how much was exempted while the program was off the books, what the properties generated after the exemption, and whether the before to after growth rate was worth the exemption.

The issue of discriminatory tax exemptions and incentives is a long standing one. One would hope this session could make some progress into determining what the real value of these programs is – beyond padding the pockets of select developers.

Going into this session, it was clear that a movement to develop some new financing methods for local government construction was going to be a critical and common issue. Roughly a half-dozen bills are now in play to help local communities to financed projects with state revolving loan funds.

Because of Watchdog’s involvement in the school bonding election in Mott-Regent last spring, we decided to focus on helping find a way to make it easier for small schools to get financing at low (1%) rates, rather than being forced to go on the open bond market where they may have to pay upwards of 6% interest (even in today’s interest climate) to out-of-state bond investor.

With North Dakota’s various trust funds flush with cash reserves, there are plenty of dollars that can be freed up to offer low cost loans to create ways for schools of all sizes to access funds to address real needs on a loan basis.

Senate Bill 2039 would have originally used money from the Foundation Aid Stabilization Fund to create this revolving loan fund. Unfortunately, the interim committee that designed SB 2039 also tried to tie in a provision to create a separate fund to act as a perpetual bailout fund for the state pension system. SB 2039 also relied upon the passage of Senate Concurrent Resolution 4003 by the legislature, which would have put a ballot measure on the June 2016 ballot to open up access to 15% of the Foundation Aid Stabilization Fund.

I testified on both SB 2039 and SCR 4003 to remove the pension features (perhaps place those in a separate bill) and let the plan just address school construction.

Since that point, both SB 2039 and SCR 4003 have been amended to focus on school funding. Instead of creating a state pension bailout fund, the bill now creates a scholarship fund for college - but leave the determination for how those scholarship funds will be dispersed up to the State Board of Higher Education - an idea that is sure to have some opposition on the House side if it makes it through the Senate.

Fortunately, Senate Bill 2178 also exists to do much of the same things using the Bank of North Dakota, and a $20 million general fund appropriation to achieve the same goal in a simpler way that does not rely on a ballot measure. That measure has so far cleared the Senate Education Committee and awaits review by the Appropriations Committee.

Like with the tax reform and relief bills, the local government capital infrastructure loan bills may end up getting rolled into a single bill at the end.

As we get closer to the half-way point of the legislative session, we will have a better idea of what ideas and bills will need action taken. Our watch-list maxed out at 81 bills, many of these will be defeated by one of the chambers.

By the end of Feburary we will have a better handle on what good bills need an extra push, and what bad bills have gotten farther than they should have.

In many ways, the big ticket issues are somewhat at a stand-still because of the revenue situation. But each chamber has to pass their bills across the hall within the next 3-weeks.

Stay tuned!

-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network