Herald editorial board

Gov. Doug Burgum's proposed budget offers a brighter outlook in North Dakota in the coming two years, complete with funding for government employee raises and infrastructure improvements, all without raising taxes.

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Overall, the budget as proposed is $14.3 billion, up 5 percent from the current budget.

The governor visited with the Herald's editorial board Wednesday afternoon, several hours after he unveiled his proposed 2019-20 budget during an address before the state Legislature in Bismarck.

He was joined by several others, including his wife, Kathryn Helgaas Burgum, and North Dakota Chief Operating Officer Jodi Uecker, who answered questions as well.

During the meeting, Gov. Burgum explained how oil production has risen, even as prices haven't, and that the increased output forms the basis for the larger state budget.

"People that are doing energy development in North Dakota are getting triple the amount of oil out of wells today than they were three or four years ago," he said.

Among his many proposals is a large increase to funding for Research ND, which saw drastic cuts during the last budget and which relies upon matching dollars from outside entities.

"We can keep a lot of ideas moving forward and with this significant expansion," the governor told the Herald. "The grants can either get larger grants or more projects and we can move research to commercialization."

During his speech, the governor didn't mention a $100 million proposal backed by the presidents of the state's two research universities, UND and North Dakota State.

Below are the governor's answers to various questions about that proposal, as well as a conversation about dollars he hopes to see dedicated to the growing UAS industry in North Dakota and Grand Forks.

Since these are questions on very local topics, the Herald runs them in their entirety below. More of the conversation between the governor and the Herald will be published next week.

Q: Regarding the $100 million research proposal from the presidents of UND and NDSU. There was no mention of it in your budget address. Why not? And how do you feel about it going forward?

BURGUM: It's been terrific that we have had statewide engagement about the importance of research. I think the tour, the combined tour, a lot of people were refreshed to see NDSU and UND collaborating and working together.

In our budget, again, when you are $14.3 billion and trying to pick the words that go into a 5,200-word address, it's hard. We ended up with one paragraph that had a lot in it. The one paragraph said we have over $200 million in research in this budget, when you throw in ag research, lignite, oil and gas, energy, all the research that's going on. And on top of that we put in significant expansion of Research ND-$20 million of which can be matched one-to-one, so that gets you to $40 million.

So this is a different proposal, but it incorporates research that is going on, plus some new, plus some matching stuff. I think it will continue to be a debate in the Legislature about whether that's the right number, up or down. But we believe research is a key way to try to diversify the economy, and we want to support it - particularly if we can put dollars in that need match from the private sector, that's great.

Research ND gets a lot of kudos from the two research universities because it has a program where a professor who may have an idea and thinks they can get a patent on this, they can present their idea and get $20,000. If they move to the next level, they can get another $20,000 or $30,000. We can keep a lot of ideas moving forward and with this significant expansion, the grants can either generate larger grants or more projects and we can move research to commercialization.

From the point of the state taxpayer, we should be investing in that sort of research that is more in the applied, getting to commercialization, research that would help move us toward precision ag and the important stuff that's going on at the EERC (in Grand Forks). It's not like we're not doing that now. The Industrial Commission just approved $15 million a week ago for the carbon-capture project going to the next level, because when it was funded at lower levels, it kept producing results and moving forward.

There are a lot of buckets of research-and-development around the state, and we want to continue to support those. It's great for students because it's hands-on experience working with those who are doing the research. There are a lot of benefits from it.

Q: As for the $40 million for research and development in your budget address, how does it compare to past budgets?

BURGUM: Research ND was up from $2 million. It got really whacked last time. It's 10 times higher than last time.

Q: And that program matches private, philanthropic-type contributions?

BURGUM: It doesn't have to be philanthropic. It could be a commercial company that says they'll put in $100,000 if you guys match us, and then we go fund something that may be a little riskier for them to do out of their own budget.

Q: That's a bit contrary to what the UND and NDSU presidents sought, though?

BURGUM: Yes. They (said) "give us $100 million and we'll decide." I'd love that, too.

Q: But we have heard that at one point you said to the presidents "You're not asking for enough." What happened from when you made that comment to today?

BURGUM: The comment I made was a positive context and it was not really taken out of context. But the claim was made that for every dollar of research, we get X dollars of return for doing it. When people show me those kinds of numbers and say they can return, whatever it was, $20 for every $1, then I just said "well you're not asking for enough." If you can do that with $100 million, why don't you ask for $1 billion and that research will pay for the whole state budget?

There was a little bit of me remarking about the claimed returns because they may come over time, but they are not coming in a way that help us balance the $14.3 billion budget. One thing that's interesting, when you drill down on this, if you take a look at the increased payments, plus the medical school stuff-for the first time in the history of the state-we will have, over a two-year period, a billion-dollar budget for the University of North Dakota. A billion dollars. And then the med school is a couple hundred million on top of that. I have a hard time feeling that in a state that spends, what, 45 percent of our budget on education, that we are underfunding education. I mean, we are all in on education in a big way.

Q: Do you think the presidents' research proposal is dead?

BURGUM: No. (UND) President Kennedy was there (in Bismarck Wednesday) and I shook his hand in the back of the room. They will continue to work with their support. And I would say as long as you have (Sen. Ray Holmberg of Grand Forks) as the head of Appropriations, nothing is dead for Grand Forks.

Q: Two items about unmanned aerial systems: Last week, you announced a $30 million proposal to build out statewide infrastructure to support Beyond Visual Line of Sight flights, and during the budget address, you mentioned $3 million for UAS infrastructure at the Grand Sky industrial park in Grand Forks. How important is this to North Dakota, and do you feel people realize other states are pushing hard to establish their own UAS industries?

BURGUM: Some governors are spending a huge percent of their time as economic developers. People can take (the governor's job) in different directions, but part of what we're focusing on is making sure we have the right infrastructure, right business climate, everything that attracts people to come here.

Some of these other (governors) maybe need job creation; in North Dakota we have 30,000 (open) jobs. We need workforce. But on UAS, we do have an early-mover advantage because we got an early lead. When we think of UAS, the component falls under the umbrella of "autonomous." We're doing a lot of autonomous in the air, and lots of other people are doing a lot of autonomous work on ground-based stuff. You have every car company and major tech company going that way. Our best advantage, where we can build competitive advantage, is to keep investing in areas where we have a lead and try to maintain that lead.

With the test site getting approved for Beyond Line of Sight here, what is fantastic is we have it within the radar zone of Grand Forks Air Force Base. When people were calling after the announcement Friday ... they were calling up and saying "hey, we want to do Beyond Visual Line of Sight testing, when will this network be done?"

Well, they can come now. They didn't know about the test site. We are going to build out the whole statewide capability, but come and start your testing now. We hope this will attract capital, attract companies and attract people to do it.

Q: Some months ago, state agency heads were asked to submit budgets with proposed 5 percent cuts. What happened to those budgets? And does this brighter revenue forecast mean those cuts won't be made after all?

BURGUM: It was 5 percent for smaller agencies and 10 percent for larger. People came in with 5 percent FTE reduction ideas and also came in with optional requests, in terms of, "if you did this cutting and got rid of stuff that is not adding value, what would you add back?" We spent as much time with what we'd add back as we did with what we'd cut out.

Within the $4.3 billion we spent last time, there was about $107 million of cuts that came from these sessions and ideas. We added back $101 million. So dollar for dollar, it's very similar, but the stuff we added back was redistributed-stuff that is more important, more effective, more efficient. If you had a, say, 5 percent cut and the biggest chunk of government is salaries-this across the 15,600 FTEs in this budget-there is $3.2 billion going toward salaries. That's about a $180 million increase in salaries and benefits this biennium over last biennium. We have a 4 percent increase built into this budget and a 2 percent the second year. The second year they can take it up to 4 if they can generate salary savings.

You can generate salary savings by eliminating some FTEs and they have the first year to figure out where they can get those efficiencies. Then they can take that 4 percent pool and if they want to do salary adjustments they can, or if they have a high performer, or if they want to give somebody a 6 and 2, they can. But if you add back a 4 and 4 to somebody whose budget was cut 5 percent, they are getting their budget today and they are going "oh, our budgets went up and we thought we were going to get cut 5 percent."

I say individual results will vary because in the university world, which we know is important to our state and important to this market, we did the same thing where we asked them to come in with a 10 percent cut and then talk about invention and research and all this. We announced today a package of things related to higher-ed, but in terms of what we were funding, we actually funded at 95 percent of the higher-ed formula times the credit-hour production.

Q: Did the Department of Human Services come with cuts, or just recommendations for cuts and reductions?

JODI UECKER (chief operating officer for the state): Yes. Human Services did a great job of really rethinking how they deliver services. Chris Jones, the executive director of that area, is doing a great job working on things like social service design with the counties and certainly has worked with folks in (this) neighborhood. In addition to behavioral health in particular and, as the governor says, moving investments more upstream. They came in with more ideas than we could fund and at the same time, they are making a lot of shifts in how they do things, whether it's back-office administration programs or more programs that can go out to those who are vulnerable. They definitely came to play, and it was appreciated.

Q: Just to be clear, did they come with cuts or with ideas?

UECKER: They came with both. The thing that's interesting that you need to think about when the governor provided those guidelines is that they are not allotments-they are guidelines. What it did was spur agency leaders to go back to their teams and say, what are we doing that is mind-numbing and does not add value? You have to get in the weeds to filter some of these things out. Those are the things that people came back and said, "we can do less or quit doing this in order to do something over here."

BURGUM: There was some reaction of "Oh, we're cutting, we're cutting." No, we're having a strategic planning process, and one way you have a strategic planning process is to have guidelines. Everybody had templates and the templates said, "what are the things you would love to stop doing, what is the stuff you'd like to invest more in?" And then we can have a dialogue around that.

Q: So there wasn't a mandate in the spring, and they had to cut funding and lay people off?

BURGUM: No. This was a dialogue about the next biennium. The template was robust. As part of what we were trying to achieve with the process, we had 57 meetings. Some were two hours and some were eight hours-agencies as big as Human Services and as small as the State Fair Board, people who never have a chance to have their budgets reviewed at the executive level.