80^th Legislative Session _ 2005

Committee: Joint Appropriations

                                            P - Present
                                            E - Excused
                                            A - Absent

Roll Call
P    Apa, Chair
P    Bartling
P    Dennert
P    Earley, Vice-Chair
P    Gant
P    Glenski
P    Greenfield
P    Hanson (Gary)
P    Haverly
P    Hunhoff
P    Klaudt, Vice-Chair
P    Napoli
P    Peters
P    Rausch
P    Smidt
P    Sutton (Duane)
P    Tidemann
P    Putnam, Chair

OTHERS PRESENT: See Original Minutes

The meeting was called to order by Chairman J. E. “Jim” Putnam.

Department of Labor

Pam Roberts, Secretary of the Department of Labor and Dick Flemmer, Director of Administrative Services presented the budget. Members of the Department's executive team were introduced. The Department's Budget Summary, including responses to the Committee's questions, was distributed (Document 1).

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The Department of Labor is responsible for administering the state's labor laws, the delivery of job training and job placement programs, the collection of Unemployment Insurance taxes and payment of Unemployment Insurance benefits, the investigation of Human Rights violations, and providing for the safety and well being of the general public by administering six professional licensing boards.

Secretary Roberts told the Joint Committee that the State Retirement System and the Public Utilities Commission are also attached to the department. However, those agencies have separate budget hearings and are not included in the summary.

The Department's primary source of funds is federal grants which provide the majority of the agency's revenues. The Department also receives general fund appropriations for administering the state's labor laws and Human Rights statutes and for matching funds required under the Adult and Basic Education grant. The Department also receives “other funds” which are user fees collected for Workers's Compensation automation projects and for the operation of the six professional licensing boards.

Secretary Roberts said the Department is requesting an appropriation budget of $36,402,235 and 365.5 FTE. This represents no budget increase and no change in FTE.

Secretariat Administration - the Governor recommends an appropriation of $200,000 from General Funds, $16,554,951 from federal funds and 35.5 FTE. The $200,000 is a required State match for the Adult Basic Education Program.                                  
Representative Rausch asked about the increase in FTE from 2004 to 2005. Secretary Roberts explained there really wasn't an increase in FTE. Last year when the department closed down the fiscal staff in Aberdeen, 10 people moved into vacant positions in Unemployment Insurance and the department hired their replacements here in Pierre. Ms. Roberts said there were some vacancies last year that were planned and held open because the department didn't want to lay anyone off in the transition of staff from Aberdeen to Pierre. Four FTE were eliminated as a result of the consolidation. The Unemployment Insurance Division, which actually hired the10 people who were no longer with Fiscal, held open vacant positions until the department could move people to Pierre. The department allowed the people to stay on in those positions until they trained the Pierre Fiscal staff and then they transferred into the Unemployment Insurance positions. Ms. Roberts said while the department did have more vacancies last year than usual, it was an exception.

Representative Hunhoff asked if the performance indicators reflect the work load for FTE in the department, and is that how the department measures production. Secretary Roberts said yes, not only for the FTE but for the grant money from federal funds. The department has negotiated performance with federal contracts to provide so many filled positions at a certain rate of pay.

Administrative Services - The Governor's recommended total appropriation is $4,324,631 from federal funds and 18.0 FTEs. Secretary Roberts said this is the program where the transition from Aberdeen to Pierre took place. Mark Zickrick, LRC staff corrected the FTE numbers on page 232 of the budget information. Actual 2004 should be 20.7, 2005 would be 18.0, 2006 would be 18.0 and 2006 Governor's Recommended, 18.0.

Unemployment Insurance Service - The recommended appropriation is $4,409,438 from federal funds and 94.0 FTE, status quo with FY 2005.

Representative Glenski asked about the change in FTE from FY 2004 to FY 2005. Secretary Roberts said this was a one time thing, they did not increase FTE, positions were held open for the transition from Aberdeen. The normal FTE number would be 94.

Representative Dennert asked about the decrease in Trust Fund Balance. Secretary Roberts said it was a reflection of many things. In the years between 2001 and 2004 was a bad economic shift in South Dakota and benefit payments increased greatly due to economy. Economy is better now and benefit payments are down. Secretary Roberts explained that benefits payments are tied to wage inflation which inflates every year. However, the revenue side is based on a of $7,000 base wage with no inflation rate. The Unemployment Insurance system currently needs a fix every few years. The department has a task force looking at long term fixes. Representative Dennert asked the trust fund balance should be at. Secretary Roberts said, according to the federal government, $45 million.
Senator Apa asked if there is any consideration for increasing the rate charged to employers this year. Secretary Roberts said no.

Representative Haverly said by looking at the performance indicators, it appears that everything has gone down or stabilized since 2003. Representative Haverly asked if the Department can justify keeping the same number of FTE when it appears things have gone down. Secretary Roberts answered that they are funded for 94 which plans for a average good year. For about 3 years the department's staff pulled double duty and worked hard, things are now better and the department is staffed at an appropriate level. Secretary Roberts said the department did not come to the Committee asking for additional FTE in the hard years and are not asking to have FTE cut now.

Representative Haverly asked if all FTE are currently filled. Secretary Roberts said there were no vacancies except for one recent retiree in Unemployment Insurance in Aberdeen. The position is advertised.

Representative Hunhoff asked if there is a time frame for an annual review of the fund balance, so that we aren't behind on the planning stage for what we need in the future. Secretary Roberts said yes, the annual report will be finalized this week. Representative Hunhoff asked if the Department is on pace with their annual reports, are they making revenue recommendations in a timely fashion. Secretary Roberts said the department has been monitoring this issue, reporting monthly to the Administration. The benefits are decreasing rapidly and the department feels they need more time to review where the benefits are going to be over the next few months. Benefit payments are based on who is getting laid off. South Dakota has had some extreme situations where some high level positions were laid off so the benefits are higher than normal.

Senator Earley asked if when looking at the numbers and the trend from 2003 to today, are we looking at a time when this fund is depleted and unemployment insurance may not be paid. Ms. Roberts said yes, if we continue at the current rate, the fund would be at zero by 2008. However, there is a statutory trigger that kicks in at $11 million where the tax rate would automatically increase and keep the fund at that level. Secretary Roberts said the department doesn't see that trigger kicking in until 2007. The department has several short-term and long-term strategies in their plan that they will be discussing over the coming months.
                                    
Senator Earley asked what type of increase the law allows. Don Kattke, Director of the Unemployment Insurance Division responded the trigger depends on what the balance is at the end of any calendar year. Mr. Kattke said the trigger would kick in now if the trust fund were at $11 million, at a rate of 1/10 of 1% for all employers. The surtax gets bigger as the fund balance gets lower. Secretary Roberts said it is the department's plan to not have it kick in. Senator Earley asked what the fund balance was today and Secretary Roberts responded $27.3 million.

Senator Apa said with a $27.3 million balance today, and in the next 5+ months with employment tax coming in and benefits going out, is the department assuming the fund will draw down $7 million. Mr. Kattke responded yes, that has been the pattern for the past few years, a gradual decline in the trust fund.

Senator Apa said in estimated FY 2004, the claim balances from FY 2003 went down15,000 claims and the department is projecting claims will go down by 36,000 claims, and at the same time projecting to have the same amount of payout. Senator Apa asked if that was an error. Mr. Kattke responded the estimates were done in late summer and there was a period where they projected that the decline in the payments would not be so rapid. Secretary Roberts said the department uses the US Department of Labor to help with projections and the state uses a very conservative approach when making projections. The department would never go below the projections listed.

Senator Apa asked for final numbers on weekly claims received. Secretary Roberts said they do have final numbers and they will provide them to the Committee.

Senator Apa asked if the trigger kicks in does that mean all employers pay it? Mr. Kattke responded yes, the extra surtax applies to every employer. Senator Apa asked if the department is considering removing the “forgiveness” for those employers who did not pay out unemployment. Secretary Roberts said the council did not support that concept. Senator Apa suggested that if in deliberations the department consider employers who actively fight fraudulent unemployment claims, provide some incentive to these employers.

Representative Klaudt asked for the year end balance for FY 2004 for the Unemployment Insurance fund balance. Secretary Roberts said the fund is calendar year. On December 31, 2004 it was $27.3 million, December 31, 2003 it was $37.4 million. Mr. Kattke said the balance on June 30, 2004 would be as shown in the Performance Indicators, $30.2 million.

Representative Putnam asked for performance indicator purposes LRC should show the calendar year information even though we do everything on a fiscal year basis and the federal government uses a federal fiscal year.

Senator Smidt asked with the projected unemployment figures going down, did that mean the claims would also go down and the fund balance go up. Secretary Roberts said the unemployment insurance fund is a reflection of the economy. The tax side of it is stable, there is no additional income coming in, the benefit side is the portion that is hard to project.

Representative Putnam asked how far out the department makes projections and what are the numbers past 2006. Phil George, from the Department of Labor, said the current projections go to 2012. The department expects the economy to grow about 1.25% per year on the employment side and the department does not make unemployment projections. Senator Smidt asked what is the unemployment factor. Secretary Roberts responded they do not trend unemployment because it is too difficult to project, both at the state and federal level. The department takes the current year's rate and applies it to the next year.

Representative Peters asked what kind of notice employers would get if increases were passed on. Secretary Roberts said the UI Council has instructed the department to go out and meet with employers who are in the negative balance category and zero category and explain what is going, and give them options. The department would come with a package that everyone can support. Secretary Roberts said the Retailers and Industry & Commerce organizations are already getting the word out to their members.

Representative Glenski said looking at actual claims, it appears the numbers are going down but payments are going up. Are we losing higher paid jobs? Secretary Roberts said the system was in balance until 2001 when a number of high end employees were laid off. The fund experienced dramatic claims, with a reduction in the trust fund starting in 2002. It is leveling off again now and getting back to normal activity. Secretary Roberts said the problem is that benefit amounts increase from year to year, that claims amount is tied to an inflation factor while the tax rate is based on a wage that is stable at $7,000. As a short-term strategy, the UI Council is looking at possibly putting an inflation factor on the $7,000 and then over the long term look at the $7,000 wage that was established in 1968 and bring the wage up to a higher level. The same tax rate would then be calculated off the higher wage base. Mr. Kattke said most states are significantly higher than us, of our neighboring states only Nebraska is at $7,000.

Field Operations Budget - The department has 16 full-time career centers and 3 itinerant centers where the department provides employment services. Governor's recommended appropriation is $9,589,119 from federal funds and 196.5 FTEs. This is status quo with FY 2005.

State Labor Law Administration - The Governor's recommended budget is a total appropriation for this program of $1,324,096 and 21.5 FTEs. This includes $590,774 from the General Fund, $329,280 from federal funds, and $404,042 from other funds. This is also status quo with FY 2005.

Secretary Roberts told the Committee the remainder of the budget pertains to the informational budgets for the six licensing boards: Board of Accountancy, Board of Barber Examiners, Board of Cosmetology, Plumbing Commission, Board of Technical Professions, and Electrical Commission. Representatives from the various boards were introduced.
    
Board of Accountancy - The Board of Accountancy is self-sustaining through its fees. The total recommended appropriation for this program's informational budget includes $224,909 from other funds. The Governor recommends a decreased appropriation of $29,964 in other funds for personal services and a $13,284 reduction in other funds operating expenses, both to align the recommendation with actual expenditures.

Representative Peters asked what changed in Board of Accountancy to account for the decrease. Marty Guindon informed the Committee that there was recently a change in Executive Director and over the years the expenses were declining, however, the changes were not made in the budget requests. This budget has been realigned with what is actually be spent.

Board of Barber Examiners - Recommended informational appropriation for this program is $25,863 from other funds, a $1,970 decrease from FY 2005.

Board of Cosmetology - The total recommended informational appropriation for the Board of Cosmetology is $196,528 from other funds, an increase of $9,185 over FY 2005. Representative Putnam asked why the Board was requesting an increase for inspectors. Susan Monge said no inspectors were being added. Currently there are 5 inspectors located throughout the state who are less than part-time, working about 500 hours. The Board has developed a safety and sanitation course that will explain to violators how they can avoid future problems. The Board increase is an estimate of how much time this activity will take.

Representative Putnam asked Ms. Monge to explain their budget process. Ms. Monge said the Board prepares a budget and presents it to the Secretary of Labor who in turn brings it to the Governor and then the Appropriations Committee.

Representative Hunhoff asked if businesses that are strictly a nail business are licensed under the this Board. Ms. Monge said yes. Representative Putnam asked how many FTE were involved with the Board. Ms. Monge said one full-time executive director, one part-time secretary and 5 inspectors who are less than part-time. This figures out to be about 2.6 FTE. The Board is requesting no new FTE just an increase in hours as needed. Representative Hunhoff asked if the Board would be asking for a fee increase. Ms. Monge said hopefully not, maybe farther down the line. Representative Putnam explained that when the Board increases their budgets, they have to back to their members to request additional funds. The funds are generated from fees charged to their members. The Legislative has oversight on these fund balances.

Representative Hunhoff asked what the fund balance was. Ms. Monge said about $87,000

Plumbing Commission - The recommended informational appropriation is $478,479 in other funds, status quo with FY 2005.

Board of Technical Professions - The recommended total appropriation is $307,128 from other funds, a decrease of $26,454 over FY 2005. The Board is shifting duties from part-time to full-time personnel, and eliminating a legal contract. The recommended decrease in personal services is $8,745 and the decrease in operating expense of $17,709.

Electrical Commission - The recommended appropriation includes an increase of $154,830 from other funds for a total of $1,306,109 from other funds. This involves an increase of $118,896 for personal services and $35,994 in operating expenses for increased costs of personnel and expenses associated with an increase in the workload of electrical inspections. The operating expense increase reflects more travel for seasonal inspections and $19,600 for capital outlay for computer equipment.                 
Representative Klaudt asked about the increase in Personal Services and no increase in FTE. Ron Nagle said the Board is shifting back from about 10 years ago when there were cuts in FTEs. The Board had 10 and lost one, and then over the next 8 years lost another and as a result went to temporary inspectors. The 10 FTE referenced are full-time inspectors. The Board is requesting 1.5 FTE and increasing the hours for the seasonal staff. Secretary Roberts said they are moving some of the temporary inspectors to full time. Last year they used 20 FTE and are projecting to use 21.5 for FY 2006. The $118,896 is for 1.5 FTE and increased hours for the seasonal inspectors. Representative Putnam asked for the hourly rate. Mr. Nagle said between $14.00 and $15.00 per hour. Representative Putnam asked for a complete breakdown of everything, added dollars and increased FTE and a total breakdown of the budget for FY 2006 for the Electrical Commission. Representative Klaudt asked for the Boards's fund balance and Mr. Nagle said approximately $1 million.

Representative Peters noted the budgets biggest increase was in contractual services and asked where this money was going. Mr. Flemmer said the money was for rent, janitorial expenses, and related facility costs. The largest portion, $3 million goes to BIT. Secretary Roberts said the department has a grant to upgrade their UI system and those contracts are included in this budget.

Representative Peters asked if when the department moves to internet reporting will they stop mailing the quarterly packets. Secretary Roberts told the Committee the department is moving toward paperless operations and electronic reporting is up to 30%. No quarterly packets are being mailed now, only a post card to those who report on the internet.

Senator Gant asked if the department can save money or eliminate FTE in their move to internet reporting. Mr. Flemmer responded said the FTE are staying constant. If the department did the work without internet they would probably come to the Committee looking for more FTE.

Senator Apa noted from a report that the Secretary of Labor had received a sizeable salary increase. Senator Apa asked if the Secretary's duties had changed or increased. Secretary Roberts responded that her salary did not change. Secretary Roberts said when she left the Governor's Office to move to the Department of Labor between administrations, she had quit her job and this figure reflects her leave payout.

Military and Veteran's Affairs

Adjutant General/Secretary - Major General Mike Gorman introduced Deputy Secretary Andy Gerlach and other members of his department. In response to the Joint Committee's earlier questions, Document 2 was distributed.

Representative Putnam told Adjutant General Gorman that the Committee was extremely proud to be part of his organization. The Committee appreciates the job and all the folks in the guard and air guard are doing for the citizens of South Dakota.

Adjutant General Gorman went through the department's budget presentation (Document 3). The department's highlights for 2004 included:
    1 *      Readjustment Briefings
        2 *      5,500 new SD Veterans since the beginning of War on Terror.
        3 *      Over 82,000 total veterans in South Dakota
    4 *      Mobilization Station Benefit Briefs - Department & National Guard Teams
        5 *      South Dakota is the only state to do this
    6 *      Veterans Bonus Program - first in the nation to offer this program.
        7 *      1,891 bonuses paid totaling $825,170
    8 *      Korean War Memorial Dedication

The Governor recommends an overall decreased appropriation of 44% for the department. The recommended appropriations from general and other funds are increasing by $291,048 and $750,338, respectively, but the recommended appropriation from federal funds is decreasing by $20,742,000.

In the Office of Adjutant General, the Governor's total recommended budget is $662,154 and 4.3 FTE., $627,116 from General Funds, $11,300 from federal funds, $23,738 from other funds. The recommendation involves increased General Fund appropriations of $18,000 for personal services for an employee reclassification and $4,000 for per diem for the Board of Military Affairs.

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Representative Putnam asked if Military and Veterans Affairs had submitted their request for employee reclassification to the Bureau of Personnel for their evaluation. Adjutant General Gorman said yes.
        
Adjutant General Gorman discussed the National Guard 50% Tuition Reduction Program.
Senator Gant asked if the 50% break on tuition was for state schools only. Adjutant General Gorman said yes. The program was started about 30 years ago and applies only to state supported schools. Senator Gant asked if students ask about the possibility of private schools. Adjutant General Gorman said yes they ask, however, its hard to get private businesses to participate in these type of benefits. No private schools have ever stepped forward to volunteer.

Adjutant General Gorman told the Committee the State headquarters for the National Guard is located in Rapid City. There are two major military organizations within the National Guard, the Army National Guard and Air National Guard. The National Guard is the only arm of the military today to have a dual mission, both federal and state. Adjutant General Gorman said there are 4500 National Guard members in South Dakota.    

Adjutant General Gorman briefed the Committee on the National Guard financial/economic impact on South Dakota communities. The National Guard brought in a total of $180,161,446.
        
In Army Guard the total recommended budget is $13,170,912 and 48.6 FTE. The Governor recommends a decrease of $21,400,000 in federal funds for operating expenses reflecting the elimination and/or completion of federally-funded construction projects. The Governor also recommends a total appropriation increase of $341,000 operating expenses for armories maintenance and repair. This consists of $120,500 from General Funds, $170,500 from federal funds and $50,000 from other funds.
    
Adjutant General Gorman said the Army National Guard has 3,417 soldiers, 546 full-time federal employees and 48.6 state FTE. Thirty-three armories are located across South Dakota in 31 communities.             
        
In Air Guard a total of $3,700,452 and 41.0 FTE is recommended by the Governor. This recommended budget for FY 2006 is status quo with FY 2005. This includes $304,114 from General Funds and $3,396,338 from federal funds for a total of $3,700,452 and 41.0 FTEs.

Adjutant General Gorman reported the Air National Guard has a mission strength of 1,008, 297 full- time federal employees and 41.0 state FTE.        

Representative Glenski asked if the Starbase Program was available to public, private and home schooled students. Adjutant General Gorman said the program was supposed to be Title I Public School students; however, in Rapid City it has been opened at times to home schooled and private school students. The National Guard prefers to see the class full.

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In regard to the Air National Guard strength, Senator Apa asked if one employee for every 2.98 people wasn't too high. Adjutant General Gorman said yes, but this is done for a purpose. The Air National Guard has to have readiness, they could receive a call at any time to leave. The only way to be ready is to have enough full-time employees to make sure the logistics and maintenance are ready to go

In Veterans' Benefits and Services the Governor recommends a status quo budget for FY 2006. The total recommended is $1,226,604, which includes $1,011,409 from the General Fund, and $215,195 from federal funds, and 18.0 FTEs.
                        
Adjutant General Gorman pointed out that in FY 03 the Veterans Affairs expenditures in South Dakota were $307,128,707. This is a phenomenal amount of money brought into South Dakota. Adjutant General Gorman said the staff at the Division of Veterans Affairs works very hard to provide monetary benefits to South Dakota's veterans.

Representative Hunhoff asked if the VA hospital costs were for direct care services. Adjutant General Gorman said yes. Representative Hunhoff asked if that meant the veterans had no other sources to pay for the services. Adjutant General Gorman said not necessarily.

Representative Hunhoff asked if the state had specific criteria for coverage of services or was it based on federal criteria. Adjutant General Gorman said for the VA hospital it is based on federal criteria. The department is a go-between to help them understand what the benefits are.

In State Veterans' Home, the Governor recommends total funding and staffing of $6,280,433 and 81.7 FTEs. The funding is comprised of $1,743,415 from the General Fund, $487,500 from federal funds, and $4,049,518 from other funds. The Governor recommends an increased General Fund appropriation of $138,871 including $112,984 for personal services for the 7.7 FTEs for direct nursing care and the 1.0 FTE for building maintenance. The Governor also recommends an appropriation of $487,500 from federal funds for operating expenses to reflect a federal grant for building renovations. The Governor's recommended increase in appropriation of other funds reflects the above mentioned FTEs as well as increased costs of medical service contracts, the food service contract, travel, and maintenance and repair.

Adjutant General Gorman informed the Committee that approximately 64% of the operating cost for the Veterans Home is received from VA per diem from the federal government or fees from the residents themselves. The Home has a capacity of 150 residents and is at 71.
        
In 2005 and 2006 the patient daily costs are less than Title 19. Representative Glenski asked if these costs will go up with the addition of nurses and other requested FTE. Adjutant General Gorman said yes.

Representative Hunhoff asked why the Veterans Home operations were less than Medicaid costs. Deputy Secretary Gerlach said that over the years it has proven to be the efficient operation of the facility. The way the department manages the hospital, as large and complex as it is, including the building and grounds, with 73 FTE.

Representative Putnam asked if the regulations are the same at the VA hospital as at any hometown facility. Deputy Secretary Gerlach said the federal government has guidelines that the department needs to follow involving patient costs, patient care in order to be reimbursed.

Representative Hunhoff asked if there were Medicare beds at the facility. Deputy Secretary
Gerlach said no. The department has looked at that issue in the past, but with the age of the facility and putting the cost to the plan, it was not efficient to try to become Medicare/Medicaid certified. Deputy Secretary Gerlach said it is better the way they operate now.

Adjutant General Gorman said the department is requesting additional nursing staff for the hospital to meet VA requirements. Representative Hunhoff asked for the current staffing ratio of nurse to resident. Larry Wilcox, Superintendent at the Veterans Home said the ratio is 2.9 and federal requirements are 3.9. Representative Hunhoff asked why the federal government was coming back to the facility requiring more nurses. Superintendent Wilcox said because the facility opened a special care unit for Alzheimer patients. This will take the nurse-to-patient ratio to 3.9, the national average for that type of care.

Representative Hunhoff asked if the department would be expanding their dementia unit. Superintendent Wilcox said they currently have18 residents in the dementia unit and they will not be expanding it. Representative Hunhoff asked if the department was looking for specialized nurses to fill these vacancies. Superintendent Wilcox said no, they will train the nurses.

Representative Klaudt asked if the armory construction was through a block grant or reimbursement. Adjutant General Gorman said each armory is funded separately. If the armory is not built on federal land it has to be a match of 75 federal, 25 local and/or state money. The department tries to go for these projects on a long term, long range plan but it is getting harder for the local communities to come up with the match funds.                                 
Senator Earley asked for an update on the status of Ellsworth Air Force Base. Adjutant General Gorman said the task force at Ellsworth has submitted their information to the Brack Committee. Bases scheduled for closing will be announced this summer. Adjutant General Gorman said bases not on the list can still be recommended for closing by a base that is listed.

Representative Hunhoff asked where the staff would come from for the projected increase in the average daily census, especially since the requested FTE are for the 18 residents in the special care unit. Superintendent Wilcox said there is not a need for additional staff in residential living. The problem is there was never an adjustment for the special care unit. The hospital has been using overtime and temporary nurses. The department is trying to correct FTE to provide staff to take care of the residents properly. Representative Hunhoff asked what the percentage of occupancy was in other areas of the hospital. Superintendent Wilcox said 71 today.

Deputy Secretary Gerlach said they do not take anyone into the State Veterans' Home that goes directly into nursing care; that is not the department's mission. The Veterans Home is a good, solid health care facility and as individuals come into the domiciliary and need additional care, they may rotate into the nursing care and maybe special care unit.

Representative Haverly asked if South Dakota is on any type of rotation with the National Guard. Adjutant General Gorman answered that in the first phase we had 2100 soldiers serve and all of those are back. In the 2^nd phase we had around 900, and those may be home in a few weeks. In the 3^rd phase which is starting now, 22 will serve until next fall. Phase 4 will start in the fall. The numbers are decreasing. South Dakota's units were the most ready and thus called up first. Representative Haverly asked if our National Guardsmen are still filling positions at Ellsworth. Adjutant General Gorman said that project was completed late in 2004.
Adj Gen - yes that completed late in 2004

Representative Tideman asked if as the units come back and are assisted by the department, does the department see any future needs that the guard will need to address further, and problems or issues. Adjutant General Gorman said the vet centers established 10 years ago to assist with veterans returning from Vietnam were planned for only a short time. Those centers are still open and active. It is the Guard's experience that we won't see the problems for awhile and the services will be there.

Senator Smidt asked for information on the Vietnam memorial dedication. Adjutant General Gorman said he was not sure of any details; however, the date is set for September 18, 2006.

Senator Apa asked what percentage of our troops could not deploy because of health reasons or other reasons. Adjutant General said about 7%. Senator Apa asked how the Adjutant General would respond to Mr. David Hackworth, a man who has been highly critical of the National Guard. Adjutant General Gorman said it was maddening that Mr. Hackworth's story was published. The South Dakota guard units have done a tremendous job and he knew of no cases that would warrant Mr. Hackworth's writing. Senator Apa said Mr. Hackworth reported 30% of the guard nationwide were not deployable and he asked where that number came from. Adjutant General Gorman said he didn't know because South Dakota's numbers are always good and he knew of no other units that had that high a number. Senator Apa asked what the regular army's non-deployable number. Adjutant General Gorman said maybe 15%.

Senator Apa said Congress allows a $12,000 death benefit and insurance will pay $250,000 if you pay $16/month the whole time you are in the service. Senator Apa asked if every guard member deployed was able to get this benefit. Adjutant General said yes, they try hard to get the soldiers to take advantage of this benefit.

Committee recessed at 10:05 a.m.

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Committee reconvened at 10:20 a.m.

Representative Putnam introduced former Senator Cheryl Madden, also a former member of the Appropriations Committee.

Bureau of Information & Telecommunications (BIT)

Commissioner Otto Doll went through the Bureau's Budget Request summary (Document 4) highlighting the budget requests.

For FY 06 the Governor recommends an increase of $187,946 in total funds and an increase of 5.0 FTEs. The FY 2006 recommended budget consists of $5,206,939 from the General Fund, $2,247,527 from federal funds, and $35,877,417 from other funds for a total budget of $43,331,883 and 363.3 FTEs.

The areas of expansion include:

Development - $137,366 in Other Funds and 2 FTE. Commissioner Doll told the Joint Committee that prior to preparing their agency budget, BIT goes out seeking new Information Technology (IT) projects for other agencies (Chart on page 3). In looking at this workload, BIT didn't feel they could handle all the work with current staff levels and generated a request for an FTE to help work on the IT projects. The resources will be used to avoid the use of outside consultants who may have a higher rate than in-house resources. The IT projects vary from replacing PCs to replacing a major information system and have various funding sources. For FY 2006, 175 Information Technology (IT) projects are proposed.

The second position will replace an outgoing consultant previously supplied by DSU in a group called BEI which has now dissolved. One contractor worked exclusively on SDRS projects and for a rate under the going BIT hourly rate.

Senator Earley asked if in the DSU agreement, would DSU have a consulting contract with BEI. Commissioner Doll said BIT actually had a contract with BEI. BEI in turn had an employee who BIT paid the administrative costs for. The relationship between BEI and DSU was that BEI was a part of the university itself. Senator Earley asked if there would be no consulting contract. Commissioner Doll said the contract was between BEI and SDRS. Senator Earley asked if all contracts are written agreements. Commissioner Doll said not in all cases. There are cases where contracts are between agencies and a firm, a signature is required however it may not be a written agreement. Senator Earley asked if generally there were other funds involved in these contracts. Commissioner Doll said yes. Senator Earley asked for a copy of the BIT agreements with other agencies. Commissioner Doll said he would provide. Representative Putnam asked if any of these agreements are Memorandums of Understanding. Commissioner Doll said a vast number of the contracts BIT has are with vendors and service providers. Representative Putnam asked Commissioner Doll to provide the agreements to LRC for distribution to Joint Committee.

Representative Hunhoff asked if other state departments had to go through BIT to make hard and software purchases. Commissioner Doll said yes they do. BIT has to sign off on all IT contracts for hard/software or professional services. Representative Hunhoff asked if BIT in turn does a follow-up with the department to see if the hardware was installed and working. Commissioner Doll does the follow-up. BIT does not purchase PC's for agencies but they do the installation of computers and software. BIT manages the installation of any IT equipment.

Representative Peters asked how busy BIT is and what was their charge-ability rate. Commissioner Doll said they are very busy. BIT handles approximately 60,000 requests a year from all aspects of state government, local units of government, K-12 and higher education. They manage workloads, there are more problems than people. BIT always has outstanding work. As far as charge-ability each type of work is different.

Representative Haverly asked Commissioner Doll to explain why in 2004 BIT budgeted $18,204,879 for personal services and the Actual for 2004 Actual was $17,438,031. Commissioner Doll said BIT has a certain spending authority. BIT would have to have all positions filled and working 100% of the time. BIT has a 7-9% turnover rate and there is always some amount of time lapse between and employee leaving and a new employee being hired. Representative Haverly asked if this money reverts back. Commissioner Doll responded that a majority of BIT's money is Other funds, agencies fund BIT. It's authority not physical dollars. BIT only bills what they spend so there is no money to revert back. Commissioner Doll said there are only two area of BIT that use General Funds, State Radio and Public Broadcasting.

Representative Haverly asked if BIT had any vacancies that are going unfilled. Commissioner Doll said their oldest vacancy is around 6 months.

Senator Greenfield asked if BIT was asking for increases in billing rates. Commissioner Doll said only one rate would increase and that was the Information Management Fee. Senator Greenfield said BIT gives agencies an idea of what the billing rates will be, the departments budget accordingly. Then the Committee sees a difference between budget and actual figures and is told it is Other funds. In reality it's funds BIT anticipated bringing in from agencies and the agencies never pay BIT for the services. The Committee doesn't see a reversion of funds. Agencies say they have an increase in BIT charges, apparently the Committee shouldn't anticipate much of an increase this year. Is that correct? Commissioner Doll said correct.

State Radio - The Bureau is requesting 3.0 FTE and an increase of $50,580 from General Funds. These positions would support the expanded State Radio network. Commissioner Doll said the current radio system started with 35 original tower sites. Six additional towers were added through CDBG grants, 2 more were constructed with Homeland Security funds and 4 more are in progress. Commissioner Doll said over the past two years there has been a 108% increase in infrastructure to maintain. Currently over 10,000 radios are supported, a 297% increase. Along with the increased number of radios, the call volume continues to go up and, with use comes wear/tear on the equipment.

Commissioner Doll said over the past few years the Bureau has added a tremendous amount of radios, repeater sites, transmitters, infrastructure and software and maintained the current level of 9.0 FTE. The Bureau is proposing to add 3.0 FTE to minimize overtime and best serve the user base. Staff is spread across the state. The request is for 2 Technicians one in Mitchell and one in Mobridge and a System Engineer in Pierre. These positions would augment the staff and work with growth in system.

Senator Earley asked what changed in State Radio Engineering under Personal Services to go from an agency request of $151,740 and 3.0 FTE to the Governor's recommendation of $50,580 and 3.0 FTE. Commissioner Doll said one change was that BIT was originally given the dispatch function of State Radio as well as the engineering function. The dispatch function was moved to the new Department of Public Safety and with the exchange of people and dollars along with the decrease in of overtime, it was felt BIT could support the 3.0 FTE.

Representative Hunhoff asked if the Bureau budgeted overtime dollars last year. Commissioner Doll said yes. Representative Hunhoff asked what percentage figure was used for overtime. Commissioner Doll said he didn't have that information but would provide it for the Joint Committee.

Commissioner Doll addressed the questions in Document 5.
Question 1: What are the specific services that BIT charges other state agencies? What are the rates as of January 1, 2005? Do you project any rate increases in FY 2006? If yes, please identify the increases and the reasons for them. Commissioner Doll said rates are broken down by specific areas and rates vary because of how BIT charge out each area. Development charged out by the hour, Communications is charged out by the number of devices. Charges vary from agency to agency and BIT can only charge what they spend. Departments may spend more or less than what we have projected. When that happens, BIT adjusts their rates. BIT tries to keep the adjustments small and infrequent.

Representative Peters asked if BIT tracks employee hours since development work is billed by the hour. Commissioner Doll said yes and currently 78% of the hours are billed out. Representative Putnam asked Commissioner Doll to provide a graph that would show the spikes in billable charges

Representative Tideman asked for the current status of the DDN system and its equipment. Commissioner Doll said the current system has 329 sites across the state. The system is in every high school, middle school, some elementary schools, some state buildings and higher education institutions. Usage is still high and varies by school district. BIT tracks who initiates the service and who receives the service. Smaller school districts use it more than larger districts. Since the system started in 1999, the equipment uses a standard that has been superceded. BIT is migrating the system and will continue to do that over time. Commissioner Doll said the system operates as it was originally intended. BIT does survey the users and they are happy with the service.

Representative Glenski asked about video conferencing. Commissioner Doll said the DDN video conferencing facilities are available to state government, K-12, higher education and the private sector. The K-12 and higher education services are paid for through the Department of Education. These units do not pay per use. The private sector pays $30/hour/site, $75/hour/site for interstate or world wide sites. Consulting or technical work is charged per hour.

Question 2: Provide data comparing IT salaries for state employees with those employed in the private sector. Commissioner Doll told the Joint Committee the information submitted in the handout was taken from a survey done in South Dakota only. In most cases the average BIT salary for existing staff is below what is being paid by the private sector. Commissioner Doll aggregated the four surveys into an average and sorted the BIT average salaries by the level in increasing responsibility. This shows the BIT salary structure is below the state private sector salary structure. Commissioner Doll said when you get near the higher level positions the difference increases to around 35%.

Representative Glenski asked if the job classifications were provided to the units surveyed. Commissioner Doll said he wasn't sure because the Bureau of Personnel did the survey.

Question 3: Explain the procedure by which agency IT projects are approved. Commissioner Doll said this procedure revolves around the process shown in the hand out. Projects are brought before the Senior IT Committee. The Senior IT Committee approves or disapproves the project, the agency prioritizes the project and the Agency and BIT schedule the project when financial and personnel resources become available. Representative Hunhoff asked if there was a process that BIT monitors on projects that are assigned and then not completed. Commissioner Doll said yes, those projects are brought to the Senior IT Committee.

Senator Smidt asked if VOIP will impact DDN usage in the future. Commissioner Doll said if you do everything over the internet, you still pay for the connectivity to the internet and all the equipment to get to the computer or lap tap, plus other charges (wires, etc.) There are costs to everything, and the quality of video over internet is not as good. Commissioner Doll said the short answer is yes, it will over time. However, people misunderstand that some technology takes time to be integrated.             
Senator Earley asked Commissioner Doll if state government would have to expand its information technology. Commissioner Doll said that as a whole technology goes through it's own cycles. The amount or level of expertise for today's technology has leveled off; however, the challenge is new technologies that require a fair amount of expertise. Wireless is a new technology and the ability to manage it drives more expertise. Some technology is its own worse enemy.

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Julie Anderson, Executive Director of South Dakota Public Broadcasting (SDPB) spoke to the Joint Committee regarding digital TV. Ms. Anderson said Public Broadcasting is acting under a federal mandate to convert all of the existing analog television transmitters to the new digital standards. Ms. Anderson said SDPB was required to be on the air 2 years go in Rapid City and Sioux Falls. That requirement was met and SDPB is now playing catchup in the rest of the state. Ms. Anderson said under the new FCC mandate SDPB has until July 2006 to replicate coverage on the new digital system up to 80% of the existing analog system. This is a problem because SDPB lacked funding to put together a comprehensive plan to do the work, getting by with federal grants when available. Ms. Anderson said the latest mandate involves Brookings and Beresford, the two transmitters who serve the most South Dakotans. SDPB has hired a consultant to give them recommendations on how to meet this mandate. Commercial stations are under the same rules and guidelines and usually on a shorter time frame to meet deadlines.

Ms. Anderson told the Joint Committee SDPB did receive a 75/25 match grant the Corporation for Public Broadcasting to build a tower at Beresford. The present tower was donated to SDPB 45 years ago and is not able to hold up the amount of weight involved in the digital equipment. The grant will cost about $500,000 and SDPB will have to match it with $125,000-$150,000.

Representative Putnam asked if South Dakota will be under penalty if it doesn't meet the deadline. Ms. Anderson said when you are given a license to operate a full-power radio or television station, that license comes with some guaranteed rights, one of which is a non-interference right. This non- interference right means no one can start broadcasting next to the SDPB tower with so much power that it interferes with the signal. Ms. Anderson said if PBS doesn't replicate 80% of the service at Beresford, the FCC will never allow the SDPB to increase the power level in this area. In 2009 we could lose our power level and the non-interference right.

Ms. Anderson said SDPB has done an outstanding job of seeking as much non-state money as possible to complete this project. To date over $12 million has been spent to get SDPB where it is today and that includes a one-time special appropriation of $1.2 million from the Legislature three years ago.

Senator Earley asked for an explanation of the difference in FY05 approved federal funds of $2.2 million and FY 05 estimated federal funds of $1.1 million. Ms. Anderson said it was likely grant dollars in which case SDPB doesn't anticipate receiving the same amount of funding. Federal grant dollars will go down now that SDPB has completed their physical build up. In addition, Ms. Anderson said the rural agriculture grant funds were estimated to come in FY 2006 but came in sooner.

Senator Earley asked what the difference was between the requested FY 2006 $8,277,113 and the estimated FY 2006 $8,028,354. Ms. Anderson said the estimated FY 2006 funds will go up, the CPB grants are not included in that figure. Corporate Public Broadcasting revenue is actually the SDPB annual grant from the Corporation of Public Broadcasting which is different from other federal funds. Senator Earley asked Ms. Anderson to provide him balanced figures between the estimated revenue and requested budget amount. Ms. Anderson said part of the problem is that SDPB projected to run in a deficit.

Commissioner Doll told the Joint Committee BIT has several accounts, one is Public Broadcasting. Revenue vs expenses vary, however, the IT account is currently positive. Even though they operate in a deficit, they have money available to pay those expenses. Ms. Anderson said most grant money is 2 year money and they have 24 months to use the funds. SDPB is spending down some of the 2 year grant money. Senator Earley asked Commissioner Doll to provide the Joint Committee with the current fund balance.

Representative Hunhoff asked where in the budget were the expenses for acquiring outside programming. Ms. Anderson told the Joint Committee the expenses are in Contractual Services. SDPB pays annual dues to PBS of about $500,000 for the right to use their programming. In addition, SDPB also purchases programming from other sources for a total expenditure of approximately $600,000. Representative Hunhoff asked if the amount had increased over the past years. Ms. Anderson said there isn't much negotiating with PBS. The rates are going up 5% this year. The rates are based on a formula.

Senator Greenfield asked for the number of Public TV viewership and radio listeners. Ms. Anderson will provide the TV number, the last study for radio listeners was approximately 160,000 listeners per week.

Representative Putnam asked staff to include these numbers in future performance indicators.
    
Meeting recessed at 12 Noon.

Meeting reconvened at 3:00 p.m. in the Kneip Building Conference Room to hear the Department of Corrections budget.

SD Department of Corrections (D.O.C.), presented by Doug Weber, Acting Secretary

The Department distributed Documents 6 and 7.

The department's mission is to protect the people of South Dakota by providing safe and secure facilities for juvenile and adult offenders committed to the State's custody by the courts, to provide opportunities for their rehabilitation, and to provide effective community supervision upon their release.

FY06 Recommended budget is $88,703,174, which is the smallest increase since 1997.

Governor's recommended General Fund increase is $1,676,138. With the following major item summary:

1.	Inmate Medical Costs	$ 381,851
2.	Inflation for private placements 1.4%	187,523
3.	Alternative Care (225 to 230)	109,232
4.	Funding swap from federal to general	391,920
5.	Additional FTEs	200,172
6.	MDSP Barracks Expansion	1,273,509
7.	SDSP Unit D Expansion (March 1, 2006)	316,654
8.	Food services reduction	(361,608)
9.	JCAHO reduction	(680,143)
10.	Balance of DOC	142,972
11.	TOTAL	$1,676,138

South Dakota Department of Corrections has adult and juvenile services in 18 communities throughout the state.

Senator Earley asked how the juvenile population numbers are estimated?
Doug Herman, Director of Juvenile Services, replied that the number is forecasted based on historical data. Senator Earley commented on the U.J.S.'s figures showing an increase in juvenile commitments. Mr. Weber agreed that over the last 6 months, they had noticed more commitments.

Department of Corrections FY06 FTE Recommendation
	FTE	Location
New Barracks Expansion	30.0	Mike Durfee State Prison
Unit D Expansion	8.3	South Dakota State Penitentiary
Corrections Specialist	2.0	Administration
Parole Agents	4.0	Parole Services
Counselor (STOP)	(1.0)	Mike Durfee State Prison
Correctional Staff	(6.0)	Rapid City Minimum Unit
Correctional Officer	(1.0)	Pheasantland Industries
Total	36.3

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J.E. “Jim” Putnam, Chair

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