Committee on Appropriations A/V — 2018

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Mr. Matthew Clark, State Investment Officer, made staff introductions and presented FY19 budget request as recommended by the Governor. The agency requested $8,798,068 in Other Funds and includes 34.3 FTE.00:01:52
Organization Chart - State Investment Council - Page 200:03:40
Assets - Chart - Fiscal Years 1973 to 2017 - South Dakota Retirement System, Health Care Trust Fund, Education Enhancement Trust Fund, School & Public Lands Fund, Dakota Cement Trust Fund, South Dakota Cash Flow Fund - Page 300:04:50
Investment Performance Returns versus Benchmarks - 10 Years Annualized - Page 400:05:30
Investment Performance Returns versus Benchmarks - South Dakota Retirement System Dollars Earned00:08:01
Superior Returns Add Up Over Time - Chart - Cumulative Returns for South Dakota Retirement System, Benchmark, Corporate Plans, and Other State Plans- Annualized Return 44 years ended FY17-Page 600:08:15
Potential Excess Earnings - Graph - Excess Earnings in Millions - Page 700:08:54
Many Pistons Contribute - Cumulative Added Value by Source - FY99 to FY17 - Page 800:09:19
Every Asset Category Has Good and Bad Years - Added Value or Detracted Value by Source - FY99 to FY17 - Page 9 00:10:24
Cost Efficiency - Management Fees - Page 1000:11:05
Long Term Plan Executive Summary - Projected Long Term Plan and Unit Cost Summary - 10 Year Plan - Page 1100:12:49
Compensation Overview - South Dakota Investment Council target is 70% of cost of living adjusted median private industry salary pay - Pages 12 and 1300:13:58
FY 2017 Budget and Actual - Personal Services and Operating Expenses -Page 1400:15:30
Jeff Mehlhaff, Budget Analyst, Legislative Research Council - South Dakota Investment Council - Page 6 - Contract Inflation - The agency requested an increase of $7,975 in Other Funds to pay the 2% increase for bank custodian fees. The agency requested an increase $1,100 in Other Funds to upgrade a printer and increase $4,090 for printer maintenance and liability insurance. The agency also requested an increase of $225,866 in Other Funds for base salary and promotional increases.00:16:37
Page 6 - Capital Outlay Adjustment and Align Budget - The agency requested a decrease of $4,833 in Other Funds for office supplies and postage.00:19:08
Page 7 - Legal Services for Distressed Debt Investments - The agency requested a $50,000 increase in Other Funds for legal services for distressed debt investments.00:19:17
Page 7 - Investment Research Services- The agency requested an increase of $62,640 in other funds for investment research services.00:23:05
Representative Ahlers - question what investment service was added and what investment services were eliminated by the South Dakota Investment Council00:24:14
Page 8 - The agency requested an increase in Other Funds for $9,540 to add office space at their current location.00:25:25
Page 10 - Performance Based Compensation - Increase of $535,066 in Other Funds for performance based employee compensation.00:26:48
Representative Karr - question how do you choose incentive rate and how do bonus incentives compare to the marketplace00:28:20
Page 11 and Page 12 - Trust Funds - Health Care Trust, Education Enhancement Trust, Dakota Cement Trust, and School and Public Lands00:32:15
Senator Cronin - question what is the status of the Dakota Cement Trust00:35:08
Representative Hunhoff - question how many people are covered under the Dakota Cement Retirement System00:36:31
Senator Cronin - question has the state invested in bit coin00:37:24
Senator Partridge - question - what do the New York rating agencies require from South Dakota to obtain a AAA rating00:37:50
Representative Karr - question what is the outlook for the State Investment Council over the next 3 to 5 years00:42:18
Senator Sutton - question why is a 10% reserve required to maintain a AAA bond rating00:46:28
Senator Sutton - question - what if a recession occurred and the state is required to use some of our reserves. We would lose AAA rating anyway and asked for more specific details from bonding agencies.00:48:22
Representative Karr - question how does the investment council determine benchmark requirements00:51:44
Mr. Rob Wylie, South Dakota Retirement System, Executive Director, introduced board of trustee member Mr. Matthew L. Clark, staff, and made FY19 budget request as recommended by the Governor. The FY19 budget request is $4,525,639 in Other Funds and includes 33.0 FTE.00:56:14
Mr. Wylie indicated the South Dakota Retirement System is the retirement system for nearly all South Dakota public employees. Over 490 employers participate in SDRS and there are 86,000 members.00:58:30
Mr. Wylie reported the Board of Trustees adjusted actuarial assumptions to recognize low inflation and low investment return expectations. During the 2017 session, the legislature supported Board of Trustee proposed legislation and will support long-term stability.01:01:33
The South Dakota Retirement System expenditure authority is funded completely from the plan's assets and no legislative general funds are appropriated.01:02:50
The South Dakota Pension Plan is 100.1% funded and is the 22nd time since 1986 that SDRS has been 100 percent funded.01:03:53
The South Dakota pension plan return on assets were 13.8% in FY17 and is directly related to the success of the South Dakota Investment Council. 01:04:55
The South Dakota pension plan has addressed the new GASBY accounting standards01:06:50
Baby boomers will be retiring and the South Dakota pension plan has addressed this issue and other challenges. The success of SDRS has been achieved through oversight of the Board of Trustees and ongoing support of the Legislative, Executive, and Judicial branches of state government.01:07:40
Mr. Jeff Mehlhaff - Budget Analyst - Legislative Research Council - Page 6 - SDRS requested $7,000 for increased costs for meeting rooms and ACH banking charges, $25,000 increase in other funds for bureau billings, and the agency requested an increase of $100,000 in other funds to cover potential liability litigation.01:10:30
Fire Drill01:13:28
Senator Tidemann - question what are the South Dakota Retirement membership demographics and how do we compare to other states01:14:05
Baby Boomers and SDRS Membership Retirement Rate - 2007 to 2017 Chart - Page 1001:15:43
Senator Tidemann - question what Midwest states need 30 years to become fully funded and are currently only 40% funded.01:19:05
Senator Tidemann complimented SDRS, SDIC, and legislature to make sure the South Dakota retirement plan is successful01:22:15
Representative Hunhoff - question how many retirees are left from the South Dakota Cement Plant closure01:22:50
Page 11 - South Dakota Retirement System and Other Public Retirement Systems - Employer Contribution Rates for General Employees Graph and Actuarial Value Funded Ratio01:24:25
Representative Bartels - comment on South Dakota's aging population and how the South Dakota Investment Council and South Dakota Retirement System manage contributions and payments.01:27:40
State Treasurer's Office01:29:15
Richard Sattgast, State Treasurer introduced staff and presented an overview of the State Treasurer's Office.01:29:17
Treasury Management is responsible for monitoring and enforcing compliance with the Veterinary Education Assistance Program sponsored by the Board of Regents. The Office is monitoring over 60 grants and 5 veterinary student grant recipients are currently in non-compliance and are in a repayment process to the state. Under the guidelines of the grants, the recipients pay back anywhere from $600 to $2100.01:33:33
Lee DeJabet, Administrator of Unclaimed Property briefed the Committee on Unclaimed Property. Money is collected from businesses, banks and institutions that has gone dormant for 1 to 3 years. The Treasurer's Office takes the money in and disperse it back to the rightful owner. 01:35:40
The Treasurer's Office handled $27.6 million in claims in FY17 with a good portion going to foreign accounts from large holders, with 7-10% going to South Dakota.01:36:28
The amount of claims paid out in FY18 to date is $12.8 million. The office has taken in $80 million in gross receipts including mandatory stock sales and large holders. The office operates just short of $1 million for expenditure authority.01:36:45
Senator Partridge question regarding legislation on mandatory time for selling stocks.01:38:15
Ms. DeJabet said 90 days after confirmed receipt.01:38:35
Senator Nesiba question on where do you go to find unclaimed property.01:39:16
Ms. DeJabet said the best place to search for unclaimed property is the State Treasurer's website, The Treasurer's Office phone number is 605/773-3379.01:39:29
Mr. Mehlhaff said the State Treasurer's recommended FY19 budget totaled $29,463,279 and 9 FTE. Page 5 - Treasury Management: Capital Outlay One-Time Expense. The agency requested $2,100 in general funds to replace a date/time stamper. This increase nets to $0 because of a decrease of $2,100 to office furniture.01:40:29
Page 8 - Unclaimed Property: The agency requested an increase of $8 million in general funds for expected increases in unclaimed property claims.01:40:58
Ms. DeJabet explained that the $8 million request was because of the large amount of claims received in the Office.01:41:22
School and Public Lands01:43:25
Ryan Brunner, Commissioner of School & Public Lands introduced staff and presented a brief overview of the duties of the School and Public Lands Office.01:43:29
Four straight years of increases in land rentals01:44:00
Mr. Brunner said School and Public Lands will pay out $11.2 million to K12 schools in February with $10.2 million paid out last year. There has been a 51% increase over the past 5 fiscal years.01:44:20
Land Rental Income: The Surface Division has had 4 years of record amounts of money generated in land rentals. There will 213,000 acres will be up for lease in March and April. 01:45:20
Weed & Pest Fund 01:46:25
Oil & Gas royalties last year were $1.3 million, another year of decline due to oil prices.01:47:40
State Owned dams: There are 98 state owned dams. The Office was able to eliminate 2 in the past year.01:49:03
Special Use Deeds01:50:30
Land Sale Update01:52:50
Mr. Brunner told the Committee the Office of School & Public Lands is returning $24.00 for every $1.00 appropriated to them.01:55:30
Lucas Martin, LRC Fiscal Staff presented the FY19 budget request01:56:08
Page 3 - Prior Years Supplemental there was a reversion of $16,000 in Personal Services due to a vacant position. The $9,197 reversion in general funds was also due to the vacant position.01:56:22
Representative Hunhoff question on the process for land leases.01:57:28
Recommended FY19 budget request is $832,228 and 6.0 FTE.01:57:29
Mr. Brunner said all land is leased at public auction with approximately 26 counties having land up for auction. Every acre is a 5-year lease with an additional 5-year option.01:57:43
Representative Hunhoff question do the people leasing the acres change from year to year.01:58:18
Mr. Brunner said there is a minimum rental rate set in state statute using a 5-year price of average for cattle and the minimums have increased. In addition, the bidding has become more competitive. 01:58:30
Mr. Brunner referred the Committee to Page 5 of the budget document and explained AUM Rates.02:00:10
Senator Tidemann question on 213 acres being offered for lease, what is the percentage of grassland vs. crop land.02:01:21
Mr. Brunner said it's a majority of grassland but will provide further information.02:01:40
Senator Tidemann question on the condition of the 213 acres.02:02:24
Mr. Brunner said a lot of the land in the northwest part of the state is on private property and well taken care of; there have been complaints on over grazing but the condition varies by location.02:02:40
Senator White question on who makes the decision to break grass.02:03:30
Mr. Brunner said the Commissioner makes the decision on whether or not to break grass.02:03:50
Senator White commended Mr. Brunner and his office for their work.02:05:03
Representative Howard question on the funding that goes to the schools.02:05:24
Mr. Brunner said the funding is not part of the State Aid to Education. The funding is appropriated by the State Constitution based on enrollment. The money is handled by the Investment Council until the week before when it is transferred to the State Treasurer's Office and then dispersed to the schools. 02:05:43
Representative Lake question on starting bid for renting farm land.02:06:58
Mr. Brunner said the Office works with county averages to determine the rate; however, the Office rents out very little farm land.02:07:14
Representative Hunhoff question on priority list for work on state owned dams.02:08:12
Mr. Brunner said work on Richmond Dam was just completed and Elm Lake is next on the list. Funding is still available from a previous appropriation for this work.02:08:27
Senator Cronin question on how many acres have been covered by the $231,000 Weed and Pest Registration fee.02:10:18
Mr. Brunner said the lessee usually does the application with the chemical provided by School & Public Lands. 02:10:44
Motion to Adjourn: Wiik/Bartels02:14:15

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