2008 Legislative Session _ 2008

Committee: Joint Appropriations
Monday, January 14, 2008

                                            P - Present
                                            E - Excused
                                            A - Absent

Roll Call
P    Smidt (Orville)
P    Bartling
P    Carson
P    Davis
P    Dennert
P    Glenski
P    Burg
P    Greenfield
P    Gray
P    Hoerth
P    Haverly
P    Maher
P    Hundstad
P    Rausch
P    Putnam, Vice-Chair
P    Hunhoff, Vice-Chair
P    Tidemann, Chair
P    Apa, Chair

OTHERS PRESENT: See Original Minutes

The meeting was called to order by Chairman Jerry Apa.

Public Utilities Commission

Gary Hanson, Commissioner and Chair of the Public Utilities Commission, introduced the staff members present at the meeting: Heather Forney, Deputy Executive Director; Patricia Van Gerpen, Executive Director; Dusty Johnson, Commissioner; Steve Kolbeck, Commissioner; Jim Mehlhaff, and Larry Englerth. The Public Utilities Commission (PUC) distributes a handout

entitled “South Dakota Public Utilities Commission: Information for the Joint Committee on Appropriations, FY09 Budget Request” ( Document #1).

Commissioner Hanson informed the committee that the PUC was created by the legislature. The positions are not constitutional officers, but are to serve and protect South Dakota consumers. The PUC ensures the residents have safe, reliable, and high quality services at rates reflecting either a competitive market or fair regulation. The commission keeps the public informed, resolves disputes between customers and utilities, and regulate electric, natural gas, telecommunications companies, grain warehouses, grain dealers, public storage warehouses, intrastate pipeline safety, and excavation activities.

In response to Senator Apa's question about the Trans-Canada Pipeline, Commissioner Hanson stated that the PUC cannot state where the pipeline can be placed, but can inform as to where not to place the new pipeline. There is a pipeline safety program and they are responsible for the pipelines in the state. Nathan Solem, utility analyst with the PUC, informed the committee that the Federal program called Pipeline and Hazardous Material Safety Administration (PHMSA) is responsible for the safety of the pipelines. The commission works closely with the federal government with ensuring the federal regulations and standards are met. Commissioner Hansom informed the committee that the director of pipeline safety retired and the PUC will now be hiring and qualifying a new person for that position.

Senator Hunhoff asked about the resolutions from the One Call Board. In response, Commissioner Hanson informed that not all calls are marked. Only the calls that have a complaint or require follow-ups are marked. Nearly all of the marked call are resolved. At every commission meeting, the progress of the calls and any unresolved complaints are brought to the PUC commissioners attention,

Commissioner Hanson stated that the priorities of the commission are the consumer affairs, electricity and natural gas, grain warehouse, pipelines, and telecommunications. Due to the overlapping support devoted to these program areas, it is not possible to break out budget amounts for each area.

To measure the programs success, the PUC has outlined goals:
1 .      Conduct 250 grain dealer and warehouse inspections statewide;
2 .      Achieve federal certification for our lead Pipeline Safety Program staff member;
3 .      Keep the number of incomplete utility dockets to fewer than 20 percent;
4 .      Work to change state laws to apply better and more industry-current protections for South Dakota's grain producers;
5 .      Expand the knowledge of staff members regarding utility and industry technology and issues via educational opportunities;

6 .      Strive to make thorough and judicious decision on filings, resulting in PUC decisions being upheld at the appellate level; and
7 .      Successfully handle and resolve 95% of consumer complaints and inquiries within one month of receipt.

In response to Representative Glenski's question about the Do Not Call List, Commissioner Hanson informed the committee that the project is a federal program that will be expiring. The commission will be requesting increased funds to educate and inform 1,000's of South Dakota citizens that the phone numbers on the list have expired and they will need to be renewed.

Ms. Forney stated, in response to Senator Apa's question, that the $150,000 in fines assessed does not go to the consumers. The over-billing by E-Church was corrected. Letters were sent consumers informing them about the situation and to not make a payment. As a result, no consumers paid the inappropriate billing, and no reimbursements were made thereafter.

Ms. Forney stated that the FY09 budget request consists of $572,088 (15%) in general funds, $85,884 (2%) in federal funds, and $3,156,676 (83%) in other funds. The request for general funs is the same as last year.

The FY09 funding by source is shown on page 3 of Document #1. The administration is the salary and benefits for the three commissioners, and is completely funded by general funds. The fixed utilities, rate case, One Call, and Do Not Call are funded completely by other funds.

Grain/Warehouse Division
Ms. Forney said that the FY09 budget includes a decrease of $2,294 to align workman's compensation with historical usage. There is a request for an increase of $3,818 for increased travel expenditures. The commission is also requesting an increase for technology, and a decrease for printing and supply materials due to the PUC trying to perform more e-filings and less paperwork. The net total increase for the division is $5,564 for a total budget of $360,160.

In response to Representative Tidemann's question about the treatment for ethanol plants, Jim Mehlhaff, Director of the Grain/Warehouse Division, said that based on the current statute, the inspection program is called grain dealer. Inspections are only performed when people are storing grain for purchase. Inspections do not occur for ethanol plants, flower mills, or soybean crushing plants.

Mr. Mehlhaff stated, in response to Senator Bartling's question, that Senate Bill 46 has been submitted this year. The bill will increase fees from $160 to $250. If everything else remains static, the division is predicting $30,000 in additional revenue. The increase in fees would not relieve the need to obtain general funds.

Fixed Utilities
The FY09 recommended budget for the division is $2,019,200 in other funds. This is a $16,611 increase from the FY08 budget. One of the major items affecting the budget include a decrease in personal services of $23,478 and a reduction of 0.5 FTE. The PUC is allocating 0.2 FTE for the consumer affairs staff, 0.2 FTE for legal staff for the Do Not Call Registry, 0.05 FTE for the Deputy Executive Director's time, and 0.05 FTE for legal staff to the One call Notification Board. This reallocation will help align FTEs with historical usage.

Other items affecting the budget include a decrease of $850 for operating cost, a decrease of $7,850 for supplies and materials, contractual services, and travel, and an increase of $7,000 for capitol outlay. The capitol outlay increase is to perform computer memory upgrades or computer replacements that are needed prior to the State's conversion to the Vista operating system. In response to Committee questions, Ms. Forney informed the committee that PUC was notified by the Bureau of Information and Telecommunications that the switch to Vista is expected to occur in July 2008.

Rate Case/Utility Investment Fund
The recommended budget for FY09 is $259,991 in other funds. The amount requested has not changing from the division's FY08 budget.

Pipeline Safety
The FY09 recommended budget for the Division of Pipeline Safety is $170,666 and 2.3 FTEs, consisting of $87,076 in federal funds and $83,590 in other funds. This is total net increase of $1,728 from the FY08 budget. Some of the major items affecting the budget include a decrease of $5,314 in personal services to more accurately reflect historical expenditures for the division, an increase of $1,580 for increased travel, an increases of $3,898 for space billing, and a decease of $1,200 for printing and supply materials due to the PUC trying to perform more e-filings and less paperwork.

One Call Notification Board
The recommended budget for the One Call Notification Board for FY09 is $668,828 in other funds; which is a reduction of $167,872 from the FY08 budget. Some of the major budget items include:
1 .      An increase of $11,000 in other fund authority for personal services and 0.1 FTE;
2 .      An increase of $84,835 in other fund authority for increased travel and contractual services; and
3 .      A reduction of $264,000 in federal fund authority.

A handout entitled “SD One Call Board Members” ( Document #2) was distributed to the committee.

Larry Englerth, Director of the One Call Notification Board, stated, in response to Senator Apa's question that when a call is made, the billing to the utility company that receives the ticket and not the excavator who makes the call.

In response to Senator Smidt's question, Mr. Englerth said that a map of the fiber optic cable is available. The information is not available in print format, but will be made available via the Internet.


Representative Glenski asked about the overlap period in FTEs from the division director retiring. In response, Mr. Englerth stated that he anticipates retiring in March of 2009. The intent is to hire a new director in January 2009 and therefore an overlap of in FTEs will occur for three months. The new director will be hired at that time to allow for both the new and old director to be present at the spring meetings.

Do Not Call List
The FY09 recommended budget for the division is $54,154 in other funds, which is an increase of $51,154 from the FY08 budget.

The PUC is requesting an increase for the Do Not Call List Division. The fifth year of the Do Not Call List is fall of 2008. At that time, people who registered their phone number(s) five years goes, the names and numbers will come off the list unless they reregister. Therefore, the division will be starting a campaign to inform and educate the public. This campaign will need to be performed every five years.

Ms. Forney stated that the 0.4 FTE increase is a reallocation from other divisions.

Senator Apa requested the commission provide to the committee the handout of stating the number of phone numbers in the state.

In response to Representative Dennert's question, commissioner Hanson said that there are some exceptions to the Do Not Call List. They include:
1 .      political affiliates running for office;
2 .      not-for-profit groups;
3 .      surveys; and
4 .      companies and subsidiaries a person is engaged with.
Commissioner Hanson stated that even though there are exceptions, it would be a violation if any one of the exceptions tried to sell anything during the phone conversation.

Bureau of Finance & Management

Commissioner Jason Dilges and Finance Officer Jim Neiles appeared before the Committee to present the Bureau's FY09 Budget request. Documents Nos. 3 and 4 were distributed. Commissioner Dilges introduced Emily Ward, a new analyst with BFM.

The Bureau of Finance and Management's budget is funded with general funds and with user fees from state agencies. The recommended budget for FY09 is $16,169,990 and 37 FTE. This is a net $615,719 decrease in General Funds and a $402,726 increase in Other Fund Authority. The decrease in General Funds is associated with the sale/leaseback payment schedule. The increase in Other Funds is associated with centralizing the Comprehensive Annual Financial Report (CAFR) reporting responsibilities. The recommended budget includes 5 FTE for centralizing CAFR reporting responsibilities.

Major Expansion and Reduction as Recommended by the Governor:
 1 1.      General funds are provided for the payment of the sale/leaseback. The original closing date was December 18, 1986 and the final payment will be December 1, 2016. The funds budgeted are receipted and paid out the same day. There is no impact to the general fund.
2 2.      The agency and the Governor are recommending centralization of the preparation of the Comprehensive Annual Financial Report (CAFR) for the state under the BFM. This is a standard accounting report required of government agencies and by financial rating agencies. Currently these functions are being staff at the agency level, but it is maintain the expertise at that level is not sufficient to meet requirements. Further, current BFM staff, it is argued, is not sufficient to provide the needed support to guarantee compliance with requirements.
2.a a.      Offsetting reductions are made to 5 agencies @ $56,934 Personal Services, $10,823 Other Expense = $67,757 times 5 = $338,785
2.a.i i.      Labor
2.a.ii ii.      Social Services
2.a.iii iii.      Human Services
2.a.iv iv.      Transportation
2.a.v v.      Game, Fish & Parks
2.b b.      BFM will recover these costs to the Central Accounting and Payroll Systems fund from all state agencies.
CAFR Reporting Proposal
Commissioner Dilges briefed the Committee on the proposal to centralize the preparation of the CAFR, (Document 4) - The Increasing Challenges of State Government Accounting and Financial Reporting.

1 .      Government Accountability - SDCL 4-6-6 states: “The Bureau of Finance and Management shall annually prepare financial statements for the State of South Dakota. The financial statements shall be prepared in accordance with generally accepted accounting principles.” In addition, SDCL 4-11-2 states: “The Department of Legislative Audit shall perform an annual financial and compliance audit of the State of South Dakota in accordance with generally accepted government auditing standards.” Government must be accountable for the taxpayer's money.
2 .      Financial Reporting _ fulfills a commitment to the citizens of South Dakota, Governor, Legislature and Financial Community.
3 .      Increased Standards and Requirements _
3.1 o      GASB Statement 34 requires full disclose of the state's financial health and the reporting of all infrastructure assets.
3.2 o      GASB Statements 35-50 continue to require full disclosure of the state's financial health in addition to requiring reporting of “Other Post Employment Benefits”.
3.3 o      “Yellow Book” limits the auditor's ability to assist in producing the financial reports - auditors cannot compile the audits and then audit the reports themselves;
3.4 o      Statement on Auditing Standards 112 _ increases auditing standards and requirements, lowers the threshold for written audit findings and places a tremendous emphasis on internal controls;
3.5 o      Sarbanes-Oxley Compliance is a result of major corporate and accounting scandals, designed to ensure accurate financial disclosure, establishes new and enhanced standards.
4 .      Addressing these Challenges _
4.1 o      Centralized Accounting Analysis Staff,
4.2 o      Enhance Training and Education across state government finance community,
4.3 o      Continue work with BOP on recruitment. In response to Senator Hunhoff, Mr. Dilges said BFM now uses a “policies and procedure” method to train staff. Representative Glenski asked if BFM really needed 5.22 FTE. Mr. Dilges said if this procedure does not go forward, each agency may be requesting additional staff to help with these functions on an agency by agency basis. This model will provide greater cost avoidance. Mr. Dilges said not only is the timeliness of CAFR report important, but also the accuracy of the report, especially because of the updated reporting standards. Senator Apa asked why this activity wasn't performed by the State Auditor's Office. Mr. Dilges said SDCL 4-6-6 requires the BFM to prepare the report.
5 .      Functions of New Positions
5.1 o      Research and communicate new reporting requirements _ 400 hours
5.2 o      Agency assistance _ 6,050 hours
5.3 o      Prepare and review accruals _ 2,200 hours,
5.4 o      Blending building authority statements into the state's _ 120 hours,
5.5 o      Prepare additional footnotes currently prepared by DLA _ 120 hours.
5.6 o      These functions total 8,890 hours for 5.22 FTE, 1700 hours per employee.
6 .      Movement of FTE _
6.0.1 .      BFM    5
6.0.2 .      GF&P    (1)
6.0.3 .      Human Services (1)
6.0.4 .      Labor (1)
6.0.5 .      Transportation (1)
6.0.6 .      Social Services (1)
6.0.7 .     
Senator Apa asked if these positions are currently filled. Mr. Dilges said most are; however, those that are not are waiting to see if this proposal is approved. Senator Apa asked about the other state departments. Mr. Dilges said the 5 FTE will serve the entire state government, not just the 5 agencies involved. The work will be done in BFM. The various agencies will still do their day to day accounting functions. Representative Burg asked if the employees involved will stay at the same pay grade. Mr. Dilges said some may and some may not. Senator Hundstad asked for information on what these FTE will cost. Mr. Dilges said each FTE is listed in their respective department budget; it will cost nothing to transfer the FTE.

1 .      Current Accounting and Reporting Process
2 .      Proposed Accounting and Reporting Process
3 .      If We Don't Address This _
3.1 o      Quality of reporting will degrade,
3.2 o      Ability to meet expectations will decrease,
3.3 o      Dramatic increase in audit findings,
3.4 o      Jeopardize millions in potential future federal grants,
3.5 o      Negative impact on state's bond rating;
3.6 o      Reflects poorly upon the state as a whole; and
3.7 o      Significant increase in costs/FTE to the state.

Representative Burg asked if this process will make the information public information. Mr. Dilges said it is public information now and is available on the BFM website.

Department of Tourism and State Development

Richard Benda, Secretary for the Department of Tourism and State Development introduced Marty Davis, Finance Officer. He stated the department is comprised of the Governor's Office of Economic Development, the Division of Tourism, the Division of Research Commerce, Tribal Government Relations, Division of Cultural Affairs, Office of the Arts, Office of History, South Dakota Housing Authority, Science and Technology Authority, and the South Dakota Energy Infrastructure Authority.
Secretary Benda said in 2003, Governor Rounds created the 2010 Initiative, which is a plan to increase tourism and state development in the state. It is comprised of five goals:

1 1.      to double visitor spending in the state from $600 million to $1.2 billion;
2 2.      to increase the gross state product by $10 billion;
3 3.      to become a recognized leader in technology and research;
4 4.      to promote the fact that the quality of life in South Dakota is the best in America; and
5 5.      to uphold the commitment to have this as a work in progress.

Secretary Benda said that other than the increase for salary policy, health insurance, longevity pay, and state-owned space, the only major increase to the department's FY09 recommended budget is $56,688 for operating expenses for the South Dakota Energy Infrastructure Authority. Two years ago, the Legislature authorized money for the Energy Infrastructure Authority to produce several reports. There are copies of the report available if members are interested. The funds appropriated before have been spent and the department needs funds to cover the operating expenses.

According to Secretary Benda, the department has had a successful year with moving economic industry in the state. Dakota Roots was developed last year as a cooperative effort between Department of Labor (DOL) and the Department of Tourism and State Development (DTSD) to encourage more people to move back into the state. Many communities and business are asking about increasing economic growth and retaining college graduates in the state for their workforce lives. Secretary Benda believes that Dakota Roots addresses the issues. Currently, there are 212 business partners for the Dakota Roots initiative. There have been 30 businesses referred to the initiative and requesting expansions in the state. There are over 1,700 job seekers visiting the website and over 300 employees were relocated in the state from 40 different states.

In response to Representative Burg's questions, Secretary Benda that he is not certain if the department has lost a project due to lack of finances, but projects have been lost from competition. The department has offered assistance to businesses that are interested in locating their business in the state. The difficulty has been in retaining employees. To address the issue of the education matching the job development and recruitment of employees, the Governor has asked the secretaries of the Department of Labor, Board of Regents, Department of Education, and Department of Tourism and State Development to discuss business needs and if the state is meeting those needs. Secretary Benda stated that the technical institutes and the private universities should also included in this discussion.

Representative Haverly asked about the workforce development needs for the Hyperion groups. In response, Secretary Benda informed the committee that the Hyperion people have stated interest in meeting with the South Dakota regental institutions, technical institutes, and high schools to discuss their needs and make certain they are met.

South Dakota Housing Development Authority
Mark Lauseng, Executive Director for the South Dakota Housing Development Authority, stated that for FY08 the division contributed more than $300.15 million in affordable housing and rehabilitation in the state. In FY07, the division purchased more than $269 million in first time home buyer loans originated by 31 lenders and 289 branch locations. The average first time home buyer was 29 years old, and a two person household with an average household income of $41,079. The average loan amount was $104,817 and the average home was 43 years old. The average purchase price was $108,121 compared to $103,169 in the previous fiscal year. The income and purchase price limits are established by federal regulations.

The Rental Housing Development Division is responsible for federal home investment partnership and housing tax credit programs. These programs and other funding sources were utilized to provide $37 million in rental development and rehabilitation. This staff also provides support to the state homeless consortium and administers the emergency shelter grants program, which provided $329,000 to 22 shelters in 18 communities. The staff is also responsible for the five year consolidated housing and community development plan, which is submitted to the US Housing and Urban Development Authority. The South Dakota Housing Development Authority (SDHDA) is a leading entity in housing for the homeless consortium which brings agencies together to see how mainstream resources for housing and services can be better coordinated to address homelessness in the state.

The Rental Housing Management Division provides loan management and oversight, administers subsidity and/or monitors compliance on nearly 12,000 privately owned and federally financed or subsidized units located throughout the state. During FY07, federal subsidity payments of $22 million were passed through to the low income tenants, occupying 195 of these properties located in 68 communities throughout the state. There were 128 Governor Houses sold in the past fiscal year. Program eligibility limits the houses to 1 and 2 person household with a total household income of less than $31,980, and 3 or more person household with a total income of less than $37,310.

Mr. Lauseng stated that a budget increase in the amount of 2% is recommended from FY08 to FY09. Administrative costs for the Home Ownership Program are derived from the collection of 1 discount point of the loans made. Administrative costs for the remaining federal programs shall be offset by fees collected.

In response to Representative Burg's questions pertaining to the Governor's Houses, Mr. Lauseng stated that the number of Governor Houses sold is comparable to last fiscal year, but in total the number has decreased over the past 10 years. The costs are going up and it is more difficult for people to meet the eligibility criteria at those income levels. About a year and a half ago, the division lowered the income limit requirements.

Division of Tourism
Billy Jo Warra, Director of the South Dakota Office of Tourism, informed the committee that the division has been challenged by the Governor to double visitor spending from $600 million to $1.2 billion. Over the past five years, there has been an average increase of 7.2% increase per year. The percentage fluctuates each year, but the state is consistent with being higher than the national average of 4% to 5%. The cooperative efforts, strategic marketing, and intensive research has really paid off in terms of marketing strategy and creating real results tot the citizens of the state. Even though the 2007 numbers are not yet available, Mr. Warra stated that in calendar year 2007, the division ended up with a 26% increase in inquiries, 8% increase in visitor car counts, and 17% increase in taxable sales.

The FY09 recommended budget for the division is $11,657,289 which is an increase of $335,519 from FY08. The increase includes $35,888 for the Governor's recommended salary policy and almost $299,631 for promotions/advertising for marketing and cooperative partnerships.

In response to Senator Maher's question pertaining to Orion, Mr. Warra stated that for the media campaign, Orion presented the division two different proposals. Option A would represent seven- second billboards at the backend of each show. The offer allowed for seven-second billboards on 11 shows filmed in South Dakota. The estimated cost per show filmed was about $9.21 per thousand, for a total cost of the sponsorship was $25,000. Option B was for a specific one show series (Bird Hunters Journal). There was to be a seven-second billboard for each show, and there would be 22 weeks with two airings per show. The estimated cost per thousand was about $5.99 for a total sponsorship cost of $25,000.

Senator Maher asked about an e-mail he received from a constituent ( Document #5). In response, Mr. Warra said that Orion was a company that came into South Dakota several years ago asking the Tourism Office to assist them in building relationships to film in different areas of the state. The DTSD public relations office placed Orion in contact with high quality lodges and helped establish the relationships. After being in the state and filming a couple shows each year, they came to the state not only from an editorial perspective but also from an advertisement perspective asking the state to support them. From the state's editorial perspective, the state provided staff time, air time, meals, sponsorship, networks, contacts, lodging, etc. After several years with that relationship, they came to the state with a paid sponsorship option. The department did not feel that a seven-second billboard showing on seven different shows would be a good value for the state without knowing what the airtime and air schedule. The department would rather remain with the previous sponsorship with the earned media participation with Orion. They were obvious upset and that was represented in the e-mail. Ms. Warra stated that the department continues to value the relationship with Orion, and hopes they will continue to work with the state. She replied to the e-mail asking to keep an open working relationship. The department asked for Orion to call and continue the conversation, but there has not been any communication since. Although the department values the relationship, the division has limited

marketing dollars. The cost per thousand, target audience, times aired, and quality of show are ranked to determine the best value for the state. With the Orion proposal, the two options offered did not meet the states expectations, and they were asked to resubmit proposals.

In response to Senator Maher's question about the $150,000 in adverting provided to Field and Stream, Ms. Warra stated that Field and Stream and Orion are completely different sponsorship relations. The division spent $100,000 with Field and Stream over a couple different campaigns. This was part of the Giant Step Cooperative which is from the industries that partner in the state. The industry members are giving money to the State of South Dakota as part of the coop participation to state that is a good value.

The department believes that the sponsorship options presented to the department are very generalized numbers. By going back specifically to each show, with the options presented by Orion and the cost of advertisement for Pheasant Forever, the department decided on Pheasant Forever at a cost of about $6.00 per thousand with the provided internet capabilities the total cost was brought down to $5.56 per thousand. This is a better type of value for the state and the taxpayers when comparing sponsorships.

Senator Apa recited a couple sentences from the e-mail (Document #1) and in response to him asking if the information was factual, Ms. Warra stated the information is not fully correct. For the shoulder season, the division's planning period starts in February and March of each year. Orion contact the department in May, and at that time, it was too late to work on sponsorships for that year. However, the department stated interest in working together for the next year. The department did not state that it would be purchasing or making an agreement, but would discuss the calendar for the next year. When Orion contacted the division, they were told that the department is not quite ready to buy, but is looking at proposals. Members from Orion were upset and they wanted the division to sign at that time. The planning period will be starting soon again and the division is willing to work together with Orion to develop a good proposal for the next shoulder season.

Senator Apa requested the department provide to the committee the actual amount invested with Field and Stream for advertising.

Representative Putnam asked the department to provide copies of the correspondence where the department notes the inaccuracies of the e-mail and the department's response and request for further communication. In response, Ms. Warra stated that the correspondence will be provided to the committee. The department received the e-mail on September 28, 2007, and Ms. Warra stated that she replied in early October. At that time, the department did not point out errors, but asked for Orion to contact the department. The division tried to maintain an open dialogue with Orion, but they have not responded. The department wants to maintain a good working relationship. The requests for shoulder proposals will be sent soon, and Orion will be receiving that information, if not contacted by Orion sooner.


In response to Representative Haverly's question, Ms. Warra stated that the issue with Orion was not only a timing issue. If the department would have believed the proposal to be valuable to the state and cost effective, an arrangement could have been attempted. Orion wanted the department to discuss and sign-on fall sponsorship, but the department desired to discuss later sponsorships due to the timing.

Ms. Warra said, in response to Representative Carson's question about the number of proposals, that the advertising agency is Lawrence and Schiller of Sioux Falls. For on-line marketing, the department receives about 4 to 5 proposal per day; about 60 in a month's time. The division reviews the proposals and narrows down to about 4 proposals. The department and the advertising agency constantly receive advertising calls. The department and advertising agency needs to evaluate the cost effectiveness and target audience to determine the selected proposals.

Representative Burg asked about the $2 million challenge. In response, Ms., Warra stated that there is about $67,000 remaining for FY08 and the department continues to accept applications.

In response to Senator Hunhoff's question, Secretary Benda stated that Ms. Warra will be leaving the department and her position has not been filled. The department hopes to have that completed in the near future.

Division of Research Commerce
Mel Ustad, Director of the Office of Commercialization, provided an overview of the six 2010 centers that are funded primarily by this project. Nearly all the cases, the 2010 centers are tied closely with industry partners. The 2010 centers include:
1 1.      The Bio-Processing Center at South Dakota School of Mines and Technology;
2 2.      The Drought Tolerance Center based at South Dakota State University;
3 3.      The Signal Transduction Center at the Sanford School of Medicine in Sioux Falls;
4 4.      The Center for Infectious Disease and Vaccinology based at South Dakota State University;
5 5.      The Center for Light Activated Materials is partnership involving South Dakota State University and Avera Research; and
6 6.      The Nano Technology Center based at South Dakota School of Mines and Technology.

The Bio-Processing Center and the Drought Tolerance Center are closely integrated in performing work with the ethanol industry and other agricultural industry. The Signal Transduction Center has a close connection with research performed at Sanford. The Center for Infectious Disease and Vaccinology has a number of industry partners involved for both the human side and animal side. Since the centers were created, they have generated $29.2 million in external funding. The centers work closely with the Governor's Office of Economic Development (GOED).

In response to Senator Hunhoff's question about duplication, Mr. Ustad stated that there are cases were multiple organizations are performing the services. The Division of Research and Commerce needs to partner with people to accomplish tasks. Partnerships have been made with universities and organizations in the economic development area to facilitate those issues. Since there are a number of organizations out there performing the services; things could be coordinated better. However from the division's perspective, it ties to work with partners to make success for State of South Dakota.

Mr. Ustad stated, in response to Representative Glenski's question about requests from the Board of Regents (BOR), that the $29 million is externally funded from grants. The grant funding facilitated is with the BOR and the university is the lead. It would be a better question for the BOR.

Senator Hunhoff asked about the FTE, and in response, Mr. Ustad stated that the FTE for a secretarial position that is shared between GOED and the division. Senator Hunhoff requested the department provide a list of any grants that have be awarded including to whom and the amount.

Mr. Ustad stated in response to Representative Tidemann that when the centers were created four years ago, it was with the understanding that they would receive funding at a certain level and then would become self-sustaining. The original centers include: the Signal Transduction Center, the Center for Light Activated Materials, Nano Technology Center, and the Center for Infectious Disease and Vaccinology. The Bio-Processing Center was created two years ago, and nine months ago, the Drought Tolerance Center was created. Mr. Ustad stated the time frame to have each center fully running varies, but typically takes about 6-12 months. He stated that the research council will be meeting in March and will discuss the plan for the 2010 centers for the next 18 months. Three of the original four centers should be self-sufficient within the five year allotment.

Tribal Government Relations
Rodger Campbell, Director of tribal Government Relations, stated that he is a liaison between the state agency and the nine tribal governments in the state. Over the past year, throughout the past year, the division has accomplished many interagency activities. One example was the division working with the Department of Public Safety to secure grant funding to replace transmitters on the Pine Ridge Indian Reservation. Also with the Department of Public Safety, the State fire marshal working with the Ogala Sioux Tribe to establish a volunteer fire department. The division aided the Oglala Sioux Tribe in obtaining federal funds to build a Veteran's building. The division is looking at methods to help provide funding expertise and find more money to help. The division collaborated with Tourism Department, feel as though there is a coordinated effort in communicating with the tribes. In the GOED, there have been a coupe projects on the Rose Bud reservation where infrastructure funding was provided for an incubator. The Rose Bud

Economic Development was the precipitant of Future funds for a building that will be going there.

Secretary Benda stated that Radiance Technology from Alabama indicated they had some worked that need top be completed. By working with the Department of Tourism and Economic Development and the Rose Bud Economic Development, the company was able to put up a 10,000 sq. ft building and employee 25 people. They have been training 12 people right now, and the company is very pleased with the progress and the training. Think it will be a great workforce and if goes well they anticipate there could be more job opportunities in the future.


Representative Burg stated that this is a unique opportunity to address the unemployment there. Secretary Benda stated that he agrees and believes that there is a workable prototype developing.

In response to Senator Maher's question about the law enforcement issues at Standing Rock and Cheyenne Ridge, Mr. Campbell said that he is working with Secretary Tom Dravland with the Department of Transportation to address the issue. Both Mr. Campbell and Secretary Dravland were invited to Bear Soldier District. They were aware of the jurisdiction challenges, and the Department of Public Safety is wiling to provide assistance if there are more discussions.

Science and Technology Authority
Secretary Benda stated that the mission of the Science and Technology Authority is to foster and facilitate scientific and technological investigation, experimentation, and development by creating a mechanism through which laboratory, experimental, and developmental facilities may be acquired, developed, constructed, maintained, operated, and decommissioned. He told the committee that the old Homestake Mine has been selected as the location for the underground science lab. In July, $15 million was awarded from the National Science Foundation to the University of California _ Berkley to compile and finalize the details of the lab. At the same time, the state needs to get the water level in the Homestatke Mine down to the 4,850 ft water level. The department intends to operate an interim lab app and the Legislature has appropriated funding for the issue. Currently, the lab is in the hiring process and working with DinaTech to have the water pumped out.

On the condition statement, the cash ending balance for the Science and Technology Fund is projected to be $33 million. The department has received the first installment of the Sanford donation and therefore the balance is $41 million. The first installment is to get the lab to an operational level. The department is using the other funding before the Housing and Urban Economic Development funding.

In response to Senator Burg's questions about the total cost and potential income generated, Secretary Benda stated that the scientists at Berkley are finalizing that information and a document will be prepared. He informed the committee that the labs are part of the National Science Lab Foundation and are allocated funding accordingly.


In response to Senator Apa's question, Secretary Benda said that Dr. Alonzo has been hired to run the lab at the 4,850 level.

South Dakota Energy Infrastructure
Senator Apa asked about Senate Bill 54 and the department's request for an increase in general fund authority of $56,688. In response, Hunter Roberts said that the South Dakota Energy Infrastructure does have an annual operating budget. When the budget was created, there was about $266,000 and the budget has been decreasing with operating and report expenses. The recommended budget is for those operating expenses. He said that Senate Bill 54 takes away the annual interview requirement because the South Dakota Energy Infrastructure does not see the benefit in doing an annual interview process. The interviewer's reports cost near $50,000. The division is eliminating that report requirement and in the future if the South Dakota Energy Infrastructure or the Legislature saw a report that needed to be completed, that would be reflected in a future budget.

In response to Representative Glenski's question, Marty Davis, stated that funds can not be directly appropriated to an authority. The money for the South Dakota Energy Infrastructure Authority will be provided to the authority through the GOED. This funding will pay for salaries, legal counsel, travel, legal compensation, and office supplies.

Ms. Davis stated, in response to Senator Hunhoff's question that there was a general appropriation bill two years ago, and the funds will be depleted at the end of the fiscal year.

Senator Hoerth requested the department provide a list of committed and non-committed funds in the future fund grant and the current balance.

In response to Representative Dennert's question pertaining to the breakdown of the energy conservation funds, it was stated that there are three outstanding loans. The original loan amount was for $3.2 million and $3.1 has been expended. There is a balance remaining that will be spent this fiscal year. The second loan amount is to Star Academy for the installation of a broiler system. Over $1,653,000 has been expended. That project will be completed this year. The final loan is for the Vets home installing a bio-mass broiler system. Currently, $70,000 of the $2.1 million has been expended. Energy improvement projects at the Capitol Complex are also being looked into. Currently, they are planning to upgrade the energy recovery system at the health lab for approximately $120,000. There are also plans to upgrade the chiller systems at both the Kneip building and the Becker-Hanson building. The cost is estimated to be about $400,000.

Other documents distributed to the committee include:
1 .      A chart outlining the South Dakota Housing Development Authority employees ( Document #6);
2 .      SDHDA 2007 Annual Report ( Document #7)

3 .      “Milestones for Homestake” ( Document #8); and
4 .      2007 South Dakota Arts Council Annual Report ( Document #9).

State Treasurer

Vern Larson, State Treasurer appeared before the Committee to present the FY09 requested budget. Also in attendance were Mike Mehlhaff, Deputy State Treasurer, Lloyd Johnson, Unclaimed Property Manager, Sandra Tillman, Cash Manager and Claudean Hluchy, Finance Officer. Document No. 10 was distributed.

The State Treasurer requested $2,868,010 and 9.0 FTEs which is the same budget as FY08. Adding in the Governor's salary policy of $13,295 brings the total request to $2,881,305 ($505,547 from the General Fund) and 9.0 FTE. Mr. Larson told the Committee 18% of the agency's funding comes from General Funds and 82% from Other Funds.

Treasury Management
The budget request is for $505,547 from the State General Fund and 5.5 FTE.

Remote Deposit Machine Update
Mr. Larson gave the Committee an update on the remote deposit machines project. The machine has been installed in the Treasurer's office and an additional machine in the Department of Social Services.  Mr. Larson said it is their hope that $326 million will be remotely deposited within the Treasurer's Office and $85 million within the Department of Social Services.  In the coming year the program will be expanded with the Department of Game, Fish & Parks Licensing Division making deposits of nearly $18 million.  In addition, the remote deposit machines will be used at the state universities. Mr. Larson said in 2009 the office will try to use this system with different state agencies that are located in remote areas of South Dakota.

Division of Unclaimed Property
The State Treasurer requested $2,370,442 from other funds and 3.5 FTEs. This is the same as was approved in FY08. The only increase involved is for salary increase and health insurance.

As of today, the State Treasurer has $10.2 million in revenue for unclaimed property. Approximately 62% of the money received this year, with an identifiable name, will be returned.

Transfers
The agency transferred $5,200 within treasury management. This is a one-time transfer involving both operating expenses and personal services. This transfer will be used to cover the shortfall in personal services at the end of FY07. The shortfall occurred as one employee is spending less time with Unclaimed Property Division. This is expected to continue in FY08 and a base transfer will be requested for FY08 to correct the problem. The funds are available due to

lower than expected legal contract services related to delinquent veterinary loans. The agency was also notified by the Bureau of Finance & Management of a one-time $250 health insurance cost and there is a chance a transfer will be necessary again this year.

State Auditor

State Auditor Richard Sattgast appeared before the Committee to present the agencies requested FY09 budget. The State Auditor requests $1,189,004 from the general fund and 18.0 FTEs. The Governor recommends $1,209,553 from the general fund and 18.0 FTEs, an increase of $46,969. Document No. 11 was distributed.

State Auditor Sattgast indicated to the Committee that he had not budgeted money to VISTA software upon instruction from the Bureau of Finance & Management. Senator Hundstad noted this was not consistent with earlier information provided by the Public Utilities Commission. LRC staff was asked to investigate this and report back to the Committee.

Transfers
The agency had a one-time transfer of general funds of $3,915 involving both operating expenses and personal services. This transfer will be used to cover the shortfall in personal services. The personal services budget is short due to staff bonuses paid. Bonuses were paid due to staff shortages and extra duties carried by staff. Funds were available due to lower than expected supply expenses. Discussion followed on the bonuses paid to staff.

Representative Tidemann asked how many people received a bonus, what the dollar amount was, and was this normal operating procedure. Mr. Sattgast said it was the first time he had done this during his tenure; however, it is a tool to keep incentive up amount employees. The bonuses amounted to $31,000 and were given to 15 office staff. The bonuses ranged from $500 to a few thousand dollars.


 MOTION:     ADJOURN

Moved by:    Davis
Second by:    Gray
Action:    Prevailed by voice vote.

Barb Bjorneberg and Lisa Shafer

____________________________

Committee Secretary
Jerry Apa, Chair

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