Jason Dilges, Commissioner, Bureau of Finance & Management (BFM) appeared before the Committee to discuss the bureau's proposed FY10 budget. Also in attendance were Jim Neiles, Finance Officer and Director of the Executive Management Finance Office Don Templeton, Executive Secretary of the SD Health & Educational Facilities Authority and the SD Building Authority, and Jeremiah Murphy, legal counsel for the SD Health and Educational Facilities Authority. Document No. 1 was distributed.

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Commissioner Dilges told the Committee the Bureau's top priorities were to:

1. Eliminate the structural deficit in the state's budget.

2. Enhance the accuracy and timeliness of the CAFR (SDCL 4-4-6).
1 .      Increasing challenges and requirements in government accounting and financial reporting.
2 .      Creation of the office of Accounting Analysis and Financial Reporting.
2.1 o      3 existing BFM FTE
2.2 o      5 FTE moved as part of FY09 budget
2.3 o      Hired 2 existing state employees, 3 from private sector or
2.4 o      other governments
3 .      Economy of scale to share expertise across state government
4 .      Recent Accomplishments
4.1 o      Assisted many agencies with year-end financial work
4.2 o      Established new procedures and completed a review of all agency year-end accrual entries
4.3 o      Established new procedures and completed a review of all fund trial balances
4.4 o      Completed essential accounting functions done by DLA in the past, including Building Authority accruals, Interest accruals, and Schedule of Expenditure of Federal Awards

3. Improve internal controls; promote efficient and accurate fiscal administration (SDCL 4-7-3)
5 .      Internal control requirements are being enhanced throughout the accounting world
6 .      Created an Internal Control and Compliance position
7 .      Independent, reporting directly to the commissioner
8 .      Currently training and supporting financial analysis staff
9 .      As the financial reporting process improves, will shift towards compliance and controls
10 .      Recent Accomplishments
10.1 o      Increased internal controls regarding capital assets
10.2 o      Implemented new CAFR procedures
10.3 o      Reviewing, updating and documenting internal controls with agencies

4. Increase financial operations efficiencies by improving processes and systems (SDCL 4-7)
11 .      Operate and maintain all centralized, statewide financial systems
12 .      Ongoing challenge to keep up with customer needs and technology changes
13 .      Current Projects
13.1 o      Accounting system upgrades _ extend the life of the state's 22-yr-old central accounting system, forestall an eventual $20-30M replacement as long as possible
13.2 o      Mandatory upgrade to HR/Payroll to maintain vendor support (Lawson 9.0)

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13.3 o      Web-based access to central accounting system
13.4 o      Integrate e-Procurement system with the central accounting system
13.5 o      Exploring imaging for accounting and budgeting
13.6 o      MMIS Integration
14 .      Recent Accomplishments
14.1 o      New Imaging system tied to HR/Payroll
14.2 o      New Workforce Management System
14.3 o      Open.SD.gov
14.4 o      Completed a required technology upgrade to HR/Payroll system
14.5 o      New Employee Self Service

In response to Committee questions, Commissioner Dilges said there were over 100,000 hits on the new Open.sd.gov web site the first week, of which 90,000 were inquiries on state employee's salaries.

Commissioner Dilges commented on the work load and responsibilities the BFM shares with Legislative Audit. Each state is required to complete certain jobs with respect to the compilation of their annual financial report. Because BFM lacked the expertise to do some of the reporting, Legislative Audit had been doing that work. Commissioner Dilges said this meant Legislative Audit not only audited the reports, they compiled them as well. As the BFM gains expertise they are slowly taking these tasks back. Senator Hunhoff asked if the work of the internal compliance position would be the same as that of the Legislative Auditors. Commissioner Dilges explained that BFM has no audit authority; however, they are responsible for the financial report and the Legislative Auditors are responsible for auditing the report. Representative Putnam asked if there will be a finding when Legislative Audit looks at the report. Commissioner Dilges said yes.

The Bureau of Finance and Management's budget is funded with general funds and with user fees from state agencies. For FY10, the Governor recommends a decrease of $633,952 from the general fund. A reduction of a similar amount was made in the prior budget year as well, due to an adjustment in the annual sale/leaseback payment. This decrease totals $322,653. This leaves a net decrease of $311,299 (or 1.9%) from the amount budgeted in FY09.

Major Expansion and Reductions
15 .      Adjustments in other fund expenditure authority within the South Dakota Building Authority and South Dakota Health and Education Facilities Authority result in a $69,463 increase.
16 .      Adjustments in other fund expenditure authority within the South Dakota Building Authority and South Dakota Health and Education Facilities Authority result in a $495 increase.
17 .      A $633,952 decrease in general funds is for the sale/leaseback. A $250,000 increase in other funds expenditure authority is for the payroll system enhancement project. Adjustments in other fund expenditure authority within the South Dakota Building Authority and South Dakota Health and Education Facilities Authority result in a $714 increase.
18 .      Adjustments in other fund expenditure authority within the South Dakota Building Authority and South Dakota Health and Education Facilities Authority result in a $255 increase.
19 .      Adjustments in other fund expenditure authority within the South Dakota Building Authority and South Dakota Health and Education Facilities Authority result in a $1,726 increase.

Representative Dennert asked if the proposed federal stimulus package would help erase the deficit. Commissioner Dilges said he hopes a big part of the deficit will be gone before the legislators go home as the result of actions on the FY10 budget. As far as the federal government stimulus goes, those numbers change every day and Commissioner Dilges feels state government needs to deal with the deficit independently of the stimulus package. Commissioner Dilges said there are so many strings attached to the federal dollars, there will not be any free money left over to help with the deficit.

Representative Burg asked how many FTE were currently employed in BFM. Commissioner Dilges answered 37, with no requested increases.

Chris Nelson, Secretary of State and Teresa Bray, Deputy Secretary of State met with the Committee to discuss the FY10 budget request.

Funding for the Office of the Secretary of State comes from the State General Fund, funding from the federal Help America Vote Act, and revenue generated from the operation of the Central Filing System of Uniform Commercial Code documents. For FY10, the Governor recommends total funding of $977,219 from general funds, $3,130,575 from federal funds, and $453,973 from other funds and 15.3 FTEs. The total recommendation of $4,561,767 is an increase of $121,385 (2.7%) from FY09.

Secretary Nelson told the Committee that a large part of the budget is federal money that is reallocated out to the county governments in the form of reimbursement for election expenses.

The number of concealed weapon permits is 60% higher than last year with 2000 to date and the office has seen increased volume in the number of corporation filings.

Secretary Nelson said the office has one priority for FY10 and that is to implement the Annual Report Online Filing Program. The Business Services Department anticipates it will process over 56,000 Annual Reports in FY09. The number of these reports has increased an average of 4.78% per year since 1991. With the expected increase in coming years, along with the current available FTEs utilizing outdated, manual methods for filing, the office projects the time is approaching where they will not be able to complete the filing of these reports within an acceptable time period for the business community.

The Office has proposed legislation to allow for the change of the current UCC Filing Fee Fund, which currently completely funds all aspects of the UCC Division, to also fund technological development for the Business Services Department. In addition, this bill would authorize the deposit of $3.00 from the filing fee for each Annual Report into the Filing Fee Fund to cover the cost of the project development.

In regard to reporting campaign financing, Representative Putnam asked if there was a penalty for not filing on time or a grace period. Secretary Nelson said the penalty is $50/day. Since the penalty was initiated, the number of reports filed on time has increased dramatically, from 45% delinquent to 8%. Once a report is delinquent notices are sent out and the filer has the right to appeal. The $50/day penalty stops when they file an appeal.

Senator Brown asked if there was a way to improve the campaign finance reporting process for groups with limited activity. Secretary Nelson said his office had met with some of these groups and suggested that they disperse. The office has proposed legislation that would provide a lesser find for certain county groups with small amounts of money. Representative Dennert commented that he felt there were two many reports to file. Senator Novstrup and Representative Wink agreed. Secretary Nelson said this would require a change in statute. Representative Deadrick commented on the number of corporations filed in the state of Delaware and the amount of revenue that state takes in. Their laws are similar to South Dakota and asked if the Secretary of State's Office had looked at this as a revenue source. Secretary Nelson said they have not, but are open to looking into it.

Secretary Tom Dravland spoke to the FY10 budget. Also in attendance were Brooke Bohnenkamp, Mary Walter, Cindy Gerber, Dave Pfahler, Kristi Turman, Cindy Jungman, and Colonel Dan Mosteller.

Secretary Dravland said the department's three goals were to:

1 1.      Protect people and property.
2 2.      Build relationships with the department's partners both public and other stake holders.
3 3.      Maximize resources given by the Legislature and Administration to do the department's job.

Secretary Dravland told the Committee that preliminary fatality numbers have dropped 17% between 2007 and 2008, and alcohol related fatalities have dropped 31%. South Dakota is currently at the lowest number of alcohol related fatalities since 1970. This effort was accomplished with help from other agencies. In 2008 South Dakota's 120 highway patrol troopers arrested 2700 drunk drivers; however, statewide, DUI numbers have increased slightly. Representative Tidemann asked for information on the number of repeat offenders. Secretary Dravland said the department works hard to keep those drivers with a revoked or suspended license off the road. Last year 7,729 licenses were revoked, primarily because of a DUI. In the commercial vehicle inspection area, 600,000 commercial vehicles were checked and weighed, mainly for weight issues in order to protect our state highways. These inspectors also made sure the truckers had the right permits and authority to legally drive over South Dakota highways. In 2008 more than 71,000 commercial permits were issued, bringing in more than $3.9 million.

Representative Dennert asked about the overweight permits that are issued. Secretary Dravland said the department does issue overweight permits; however, those vehicles are under strict restrictions as to which roads they can travel, which bridges they can cross, and the appropriate speed. There are restrictions as to time of day and time of year for many overweight or size loads. Representative Wink asked how many mobile units the department had on the road. Colonel Mosteller said eight.

Secretary Dravland said State Radio dispatched an average of 10,600 calls for service per month. During 2008 South Dakota had 3 declared emergencies involving two blizzards and one flood. The June flood was extensive, impacting 27 counties and 3 reservations with damages totaling $4.5 million.

Over $5 million in Homeland Security grants were obligated to local and tribal governments for improvements to notification systems, sirens, and to purchase other equipment in preparation of a possible terrorist disaster.

For FY10, the Governor recommends a decrease of $617,361 from all funds and in increase of 3.0 FTE from FY09. The FY10 recommended budget consists of $3,654,598 from general funds, $21,551,407 in federal fund expenditure authority and $26,123,979 in other fund authority for a total budget of $51,329,984 and 417.5 FTEs.

Representative Burg asked for an explanation of the FTE. Secretary Dravland said the department is budgeted for 414.5 but are down to 400.5. While the department is under the same hiring freeze as other agencies, they are authorized to hire in 3 areas: the State Patrol, Inspections and Weights and Measures, and State Radio dispatch. The Highway Patrol is down 3, plus one vacancy at State Radio and the Homeland Security Director position. Senator Haverly asked for the actual number of vacancy's, minus the 3 in Highway Patrol. Secretary Dravland said 9. Senator Haverly asked what happens to the funds for these positions at the end of the fiscal year. Secretary Dravland said the funds stay with the position and are generally reverted.

Major Expansions and Reductions

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Division of Highway Patrol:
4 .      A recommended decrease in general fund expenditure authority of $451,512 and a subsequent increase in other fund authority of $451,512 for personal services. This funding swap will be funded out of the Motor Vehicle Fund.

Secretary Dravland explained the funding swap would be made possible through proposed legislation in SB 32, which would provide a new revenue source from the Motor Vehicle Fund. These funds would be dedicated to the operation of part of the Highway Patrol's budget. SB 32 would also allow for a fund swap of approximately $1.5 million between the Highway Fund and the Motor Vehicle Fund authority. Secretary Dravland said the new revenues provided for through SB 32 would not increase its spending authority above what is requested in this budget; rather it provides a supplemental funding source for the Highway Patrol and reduces its reliance on general funds and Highway funds.

5 .      A recommended increase of $982,256 in other fund expenditure authority for operating expenditures. The increase includes $35,000 for out-of-state travel costs for training, an increase of $265,906 in other fund expenditure authority to pay for inflationary increases in the cost of gasoline; an increase of $681,350 in other fund expenditure authority for increases in capital outlay to replace 25 additional vehicles, 10 new radars and upgrade 235 computers.

Secretary Dravland told the Committee the Highway Patrol reduced their travel budget by $75,000 in FY09; however, is now requesting to reinstate $35,000 in FY10. Lower fuel prices helped the Highway Patrol meet its FY09 fuel budget which was reduced by $285,000. The Patrol implemented a number of measures last year in an effort to reduce the number of miles traveled, including 1-2 hours of stationary patrol per day, slower driving speeds, less idle time, and car pooling for meetings. Secretary Dravland said during the first 6 months of FY09, approximately 400,000 less miles were driven. Senator Brown asked if there had been any difference in the Highway Patrols work success as a result of implementing the 1-2 hours of stationary time. Colonel Mosteller said the department continues to discuss the issue of meeting the public's safety needs while implementing the reduction policies and feels the policies have not degraded the quality of their work. The Governor has told the Patrol he would revisit the reduction policies if things do not work, because the budget reduction was not to be at the expense of Public Safety. Colonel Mosteller said the Patrol will continue to perform in accordance with the reduction policies.

Colonel Mosteller reminded the Committee there were three areas of reduction: vehicle purchases, miles driven and overtime. The Highway Patrol saved $1.2 million by not purchasing new vehicles in FY09. However, it is paramount that the vehicles be replaced in FY10. Senator Brown commented on the requested increase in mileage and gas prices. Secretary Dravland said while fuel prices today are lower, at the time the budget was prepared the department used $3.52 per gallon. There is always a risk when estimating fuel prices. In answer to Committee questions, Secretary Dravland said troopers fill at Department of Transportation shops whenever possible.

Representative Dennert asked if the department had a contingency plan should SB 32 fail to pass. Secretary Dravland said if SB 32 fails to pass, a number of items in the budget will be severely impacted. The budgeting process the department used would have to be changed; they would need to shift back to the general funding source used in the past or the highway funding source that they have used, particularly for the State Patrol.

Representative Tidemann asked for the cost of a fully equipped highway patrol vehicle. Colonel Mosteller said the last bid was $23,000. While he is aware vehicles are currently about $700 cheaper, the department will not be going out to bid for sometime. Information on the costs to equip the patrol car will be provided to the Committee.

Secretary Dravland said the major component of the $681,350 increase in capital outlay was the purchase of 25 vehicles in the amount of $585,000. The department also plans to purchase 4 motor carrier vehicles with federal funds and replace other equipment necessary to keep the troopers safe and able to do their jobs.

Representative Wink asked for the current number of patrolmen and vehicles. Colonel Mosteller said the Highway Patrol fleet had approximately 220-230 vehicles including patrol, motor carrier, and other vehicles. Currently there are 120 Highway Patrol troopers that actually work the road and depending on the day of the week, an average of 40-60% of them is on the road every day.

6 .      A recommended increase of $50,000 in other fund expenditure authority to purchase 8 motorcycles for use in the motorcycle safety training course. Participation in this course has increased 60% in the past 5 years.

Division of Emergency Services and Homeland Security:
Secretary Dravland said the division was requesting an overall budget reduction of $2,496,741 (12.4%). Last year the Office of Emergency Management received a significant increase in Emergency Management Performance grant funding. These funds are used to operate the Office of Emergency Management as well as county emergency management. Secretary Dravland said these grants require a 50% state match and rather than use general funds, the office staff committed to using only those federal funds where they could find in-kind match. The process was a huge undertaking for the office staff but provided the state with $1,045,000 in emergency management grant funding without using any general funds for match. Secretary Dravland thanked the staff for their hard work.

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7 .      A recommended decrease of $725,000 in federal fund expenditure authority for contractual services. The Flood Map Modernization Program will end in FY10.
8 .      A recommended decrease of $275,000 in federal fund expenditure authority for capital outlay for FY10. This is a zero-based budget and the offices planned expenditures will be lower in FY10.
9 .      A recommended increase in general fund expenditure authority of $3,259 for contractual services to meet statutory requirements relating to inspections of all public, non-public, and private school attendance centers. This program requires more inspections to be performed each year.
10 .      A recommended decrease of $1,500,000 in federal fund expenditure authority for grants to counties. This is due to a decrease in Homeland Security funding.

Representative Wink asked what percentage of the $1,500,000 decrease in Homeland Security grants was represented in the total grant amount. Secretary Dravland said it was difficult to answer because while the Homeland Security grants are allocated on an annual basis, they have a performance period of up to 3-years. The department currently has $13,146,000 budgeted for Homeland Security grants. Representative Wink asked if the counties would still receive these grants. Secretary Dravland said the decrease is in federal fund expenditure authority. The county grants under Homeland Security are an 80/20 match.

Senator Haverly asked about the 5 FTE increase from Actual 2008 to Requested and Budgeted for FY09. Kristi Turman, Director of Emergency Management said part of the discrepancy is that individuals working on a declared disaster code their time to the disaster fund and that decreases the FTE utilization. Ms. Turman said there are 2 vacancies in this division, one of which is the director of Homeland Security and one which is being held.

Inspection and Licensing:
11 .      A recommended increase of $90,395 in general fund expenditure authority for contractual services to meet the statutory time requirements for Weights and Measures inspections.
12 .      A recommended increase of $9,575 in other fund expenditure authority for travel expenditures based on current vehicle use rates.
13 .      A recommended increase of $483,143 in other fund expenditure authority for contractual services due to anticipated rates charged by BIT and anticipated telecommunications usage. This increase is also due to the driver license issuance contract which expires in FY10.
14 .      A recommended increase of $178,989 in other fund expenditure authority for personal services and 3 FTE for the Inspection Program in order to perform its federally required inspections within statutory time frames.
15 .      A recommended increase of $61,675 in other fund expenditure authority for travel expenditures based on current vehicle use rates.

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16 .      A recommended increase of $19,292 in other fund expenditure authority for contractual services due to anticipated rates charged by BIT, anticipated telecommunications usage and other central service costs.
17 .      A recommended increase of $4,055 in other fund expenditure authority for supplies and materials due to an anticipated increase for commercial printing.
Secretary Dravland said all requests in the Drivers Licensing Program are other funds. The increases include travel for the exam teams who travel 270,000 miles annually to provide services at 47 exam sites. The program relies heavily on BIT to run its program and is a heavy mainframe user.

Secretary Dravland said the Driver's Licensing Program maintains a contract for the production of the state driver license and identification cards. The current contract expires in December of 2009. The state will experience an increase in contract price when the new contract goes into effect in January 2010. The department estimates an increase of $4.50/card.

Secretary Dravland said there has been a lot of discussion regarding driver license security and proposed legislation gives the Drivers Licensing Program authority to implement federal standards regarding driver licenses and identification security. Whether this legislation passes or not, there will be an increase in the cost of the card based on a new contract.

Senator Brown asked for the current cost of the card. Secretary Dravland said going back to 1990 the cost was $1.46/card and in June of 2008 the vendor increased the cost to $1.58/card. The new increase includes card systems, software, photography and production equipment and card materials. Senator Brown asked why the proposed increase in the cost of the driver license wasn't higher. Secretary Dravland said the department looked at what cost the consumer could bear, $20 is a jump; however, neighboring states are at $20 or higher. The driver license is more than a permit to drive a car and people need it; the cost will not hinder people from obtaining a license.

Representative Deadrick asked what it costs to license a driver, including facility costs, personnel involved, manuals, testing, anything involved in obtaining a driver license. Secretary Dravland said last year it was nearly $30/card.

Representative Wink asked what additional information would be required for the Real ID Program. Secretary Dravland will provide this information to the Committee. Secretary Dravland said if South Dakota does not have a recognized ID or driver license or if the federal government de-certifies the driver license, our citizens will need a passport in order to board an airplane or enter a federal building. The Real ID is not a federal driver license or ID; it will say South Dakota and will look like the South Dakota driver license. The department is increasing the security required to receive the Real ID. There should not be any additional cost for implementing this program other than the cost of the card.

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Representative Carson commented on how easy it is to get a license; however, more information will be necessary in the future. Secretary Dravland said regardless of whether or not you have been licensed, the first time you will need to show a birth certificate and 2 other forms of identification that shows your name, social security number and address. Senator Bartling asked for a clarification of the renewal requirements after the new regulations go into effect December 31, 2009. Secretary Dravland said if you have just renewed your license you will not need a second renewal. According to Federal rules if you are younger than 50 and have recently renewed your license, your license is good until 2014; if you are over the age of 50 the license will be valid until 2017.

Representative Peters asked for the number of driver license and ID cards that are issued. Cindy Gerber, Director of the Driver License Program said 21,893 ID cards and 195,900 driver licenses were issued in 2008. In response to Senator Hundstad's request, Secretary Dravland will provide information to the Committee on the cost of a driver license in surrounding states. Secretary Dravland told the Committee that the department proposed an increase in license fees because driver license revenues will not support this project.

In regard to inspections, Secretary Dravland said in 2008, the 22 inspectors that cover the entire state, performed 43,000 inspections. Because the program is not able to complete all the necessary inspections, they are requesting 3 FTE and an increase in $178,989 in other fund expenditure authority. As an example of increased inspections, Secretary Dravland said a recent change in federal requirements requires food preparation sites in schools to be inspected twice annually. This inspection requirement was previously once every 5 years.

Secretary Dravland told the Committee the department had worked with its 7 partner agencies to determine how many inspections were needed, how much time the inspections required, and what, if any, inspections could be eliminated or reduced. After analyzing the responses, the department determined the program would need an additional 3 FTE to meet those requirements.

Representative Deadrick commented that funding for the State Fire School had stayed the same for a number of years; however, costs for the state fire school have increased dramatically. Secretary Dravland said the State Fire Marshall's offices works in partnership with the State Fire Association to provide for the State Fire School. The State Fire School is funded in the amount of $30,000 from the fire fund.

Secretary Dravland said approximately 50% of the costs for the Weights & Measures Program is offset by fees paid by the establishments that benefit from the inspections. The number of inspections has grown steadily, requiring 2,440 additional inspection hours in order to have all the inspections done within the designated time frame set in rule or statute. The program is requesting $90,395 in general fund expenditure authority for increased contractual services for additional inspections. Approximately 50% of this will be offset with additional fee revenue.