Committee on Appropriations A/V — 2019

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Roll00:00:47
Mr. Steve Westra, Commissioner, Governor's Office of Economic Development (GOED), introduced staff and gave an overview of the Governor's Office of Economic Development.00:02:45
Governor's Office of Economic Development - Page 200:03:45
GOED Divisions - Business Development Division - Community Development - Marketing & Research - Finance - Page 300:04:40
Commissioner Westra, GOED, had 70 different projects and created 1,835 new jobs in the year 2018.00:06:11
Commissioner Westra said bringing broadband to rural areas, workforce housing, and workforce shortage are challenges. The GOED would address these issues in the year 2019.00:08:06
Mr. Travis Dovre, Administrative Services Director, Governor's Office of Economic Development, made FY20 budget request as recommended by the Governor.00:08:55
Legislative Research Council Budget Brief Document - Governor's Office of Economic Development has $51,013,948 in their program. Mr. Dovre said most of these funds are from grants to assist communities. There is no change from FY19. - Page 400:09:31
Mr. Dovre said there have been underutilized FTE due to turnover in the business team in the Community Development Block Grant.00:10:23
Representative Post - question - who pays into the employer investment fund and how does it transfer into the South Dakota Development Fund.00:10:55
Mr. Dovre indicated there was $16,458,081 reversion which was reserved for a big business that met state requirements to develop in South Dakota. 00:13:30
Legislative Research Council Budget Briefing - Office of Research Commerce - Page 800:14:00
Representative Saba - question - what is the mission of the Governor's Office of Economic Development and does it encompass international business.00:15:45
Commissioner Westra indicated economic development is not just within the State of South Dakota and the GOED is going to streamline their agriculture department and has potential.00:17:00
Representative Saba - question - is this administration planning to work internationally with countries like China.00:18:05
Senator Nesiba - question - comment - there is a need to build international relationships and indicated North Dakota and Minnesota have trade models.00:19:13
FY20 Changes - Building South Dakota - South Dakota Jobs Program - FY20 Expenditure Authority $1,751,608 - (Legislative Research Council Budget Briefing - Page 25) - Page 300:20:19
Building South Dakota Funding Recap - General Funds - Local Infrastructure $1,470,000, Housing Opportunity $1,040,000, and Workforce Education $490,000 totaling $3,000,000. (Referring to Legislative Research Council Budget Brief - Page 26) - Page 400:22:05
Local Infrastructure - As of July 1, 2018 there was $4,315,781 committed to projects. - Page 500:22:30
Local Infrastructure - Other Funds-Increase for FY19 - Additional one-time authority $3,300,000. - Page 600:24:00
Housing Opportunity - Other Funds - Budget Based on Source of Funds - South Dakota Housing Development Authority, General Funds, and Private Activity Bond Fees totaling $2,940,000 - Page 700:24:40
Housing Opportunity - Other Funds- Other Funds - Actual FY19 Sources- South Dakota Housing Development Authority and General Funds and Private Activity Bond Fees and Interest Earnings which total $3,016,568 - Page 800:25:00
Representative Hunhoff - question - would provide a list of all GOED projects, expenses, and budget request and requested additional information.00:26:10
Senator Nesiba - question - does the South Dakota Ready Fund address poverty issues and indicated his district has had an increase in poverty and wondering if this fund could incentivize wages.00:27:33
Representative Saba - question - what has the GOED done to have Gross Domestic Product to increase 2% to 50 billion for the State of South Dakota and requested additional information. 00:30:22
Senator Cronin - question - did the department implement legislation passed last year for Building South Dakota program and wanted documentation.00:32:00
Senator Cronin - question - requested additional information detailing Building South Dakota.00:33:15
Mr. Mark Lauseng, Executive Director, South Dakota Housing Development Authority, gave an overview of the authority.00:35:45
Mr. Lauseng indicated workforce affordable housing continues to be a challenge and there is a pilot project for affordable rental properties in rural areas.00:38:00
Senator Partridge - question - what are the national Housing Development Authority trends over the next ten years.00:39:10
Representative Gross - question - do you have a way of measuring community workforce retention through Grants for Grads Program.00:40:40
Senator Nesiba - question - (referring to Legislative Research Council Budget Brief Page 12 - Informational Budget) - why do investments fluctuate so often. 00:41:51
Senator Nesiba - comment - one of his constituents purchased a home through the Grants for Grads Program and said they were thankful for the program.00:42:55
Representative Howard - question - how do you decide what level of cash reserves are needed for SDHDA investments and commented it was at a high level.00:43:30
Representative Saba - question - how many of these loans are benefiting reservation housing and requested additional information.00:44:00
Mr. Mike Headley, Executive Director, South Dakota Science and Technology Authority, gave an overview of Sanford Underground Research Facility.00:45:50
Joint Committee on Appropriations - Budget Questions - Total FY19 Federal Budget is $24.3M from the Federal Department of Energy - Page 200:46:15
Mr. Headley said Former Governor Daugaard gave a $4,000,000 future fund grant to support the lab.00:47:31
Senator Cronin - question - why did the former Governor Daugaard provide $4M for maintenance and support and why did he use the futures fund.00:48:00
The SURF lab has been funded be the Federal Department of Energy since FY12 and is considered a prestigious lab.00:49:14
Senator Partridge - question - is the SURF lab regarded as the nation's premier underground laboratory.00:50:10
Mr. Headley gave update of their workforce and said South Dakota Science and Technology Authority would employ 180 employees by year end.00:50:40
Economic Impacts in South Dakota - (As of Sep 30, 2018) $201 million - Page 400:51:00
Total Spending in South Dakota through September 30, 2018 - Map - Page 500:51:45
Sanford Underground Research Facility - Map of Facility - Page 600:52:05
Representative Howard - question - what types of jobs are coming to the SURF lab.00:52:06
4850L Science Facilities - Existing and Future Facilities - Page 700:52:46
Long-Baseline Neutrino Facility (LBNF) - Will host the deep underground Neutrino Experiment (DUNE) - Page 800:53:00
FERMILAB - News - January 7, 2019 Pre-excavation work on LBNF/DUNE begins in South Dakota - Page 900:55:30
LBNF/DUNE Economic Impact - Jobs Created Year 2016-2026 - Jobs in South Dakota 1,859 and a total economic impact of $952 million - Page 1000:55:33
K-12 STEM Education Opportunities - School Presentations, Curriculum - Page 1200:56:15
LUX-ZEPLIN (LZ) Dark Matter Experiment - Page 1100:56:24
Senator Nesiba - question - would you explain what K-12 STEM Educational Opportunities are at the SURF lab - Page 1200:56:34
Education Opportunities - Units - Sanford Underground Research Facility - Page 1300:57:16
Mr. Scott Landguth, Executive Director, South Dakota Ellsworth Development Authority, gave overview.00:58:14
Mr. Landguth indicated Ellsworth Airforce base will host the new B3 Bomber and will have a major economic impact for South Dakota.00:58:40
Mr. Landguth referred to Legislative Research Council Budget Briefing - Page 2100:58:55
Mr. Landguth has eliminated 99% of end of runway problems at Ellsworth Airforce Base. The future of the base is very good.00:59:47
Mr. Landguth will bring forward a bill to address workforce incentives for spouses of military at Ellsworth Airforce Base. Secretary Wilson of the Airforce is enforcing this policy. 01:00:45
Representative Howard - question - how much has the South Dakota Ellslworth Development Authority spent on land surrounding the airbase runway and are there any new purchases in the next year.01:02:15
Representative Howard - question - are there any complications with the agreement with the FAA for airspace around Rapid City.01:03:15
Representative Saba - question - will the upcoming bill be presented about spouses or wives by the South Dakota Ellsworth Development Authority.01:04:29
Senator Partridge complimented the South Dakota Ellsworth Development Authority and Mr. Landguth's work.01:05:00
Mr. Matt Clark, State Investment Officer, introduced Chairman Lorin Brass, South Dakota State Investment Council.01:06:00
Chairman Brass, introduced board members and presented an overview of the State Investment Council.01:07:09
Organization Chart - State Investment Council - Page 201:07:20
Assets - Fiscal Years 1973 to 2018 in Millions - Chart - Page 301:08:00
Investment Performance - State Investment Council - Returns versus Benchmarks - FY18 - 4 Years Annualized and 10 Years Annualized - Page 401:09:24
Investment Performance - Returns versus Benchmarks - South Dakota Retirement System Dollars - Page 501:10:00
Superior Returns Add Up Over Time - Cumulative Returns for SDRS, Benchmark, Corporate Plans, and Other States - Year 1973 to Year 2018 - Graph - Page 601:12:25
Mr. Clark, State Investment Officer, emphasized how the State Investment Council invests for the long term.01:13:20
Representative Gross - question - how does the State Investment Council determine their index.01:16:20
Representative Gross - question - has this been the formula for their benchmark for many years.01:17:20
Representative Karr - question - do you make any adjustments for inflation when you determine the state's return on investment.01:20:30
Mr. Clark said return on investments for the South Dakota Retirement System will be around 6.2% in the long term without any unforeseen circumstances. 01:21:25
Potential Excess Earnings - Excess Earnings in Millions - Graph - 20 Year Projection - Page 701:22:29
Many Pistons Contribute - Cumulative Added Value by Source FY99 to FY18 - Graph - FY99 to FY18 - Page 801:23:02
Every Asset Category Has Good and Bad Years - Annual Added or Detracted Valued by Source - Asset Class - Page 901:23:40
Cost Efficiency - Management Fees Goal of the Investment Council is less the one-tenth of 1% of assets - Page 1001:24:50
Long-Term Plan Executive Summary - Projected Long-Term Plan Budget - Investment Office Budget Summary - FY20 - FY30 - Page 1101:26:00
Mr. Matt Clark, State Investment Officer, said they are working on succession planning since he and Tammy Otten have over 35 years of experience each.01:27:00
Mr. Matt Clark indicated the State Investment Council would like to hire an attorney. Their long-time attorney was about to retire.01:29:15
Senator Nesiba - question - is the State Investment Council hiring summer interns.01:30:00
Representative Howard - question - will there be a large amount of retirements in the State Investment Office over the next few years.01:31:52
Compensation Overview - Council target is 70% of cost of living adjusted median industry pay to balance. - Page 1201:33:40
Compensation Overview (Continued) - Page 1301:34:50
FY18 Budget and Actual - Personal Services and Operating Expenses - Page 1401:35:43
Representative Karr - question - how did you determine whether you need interns or additional staff at the State Investment Office.01:39:56
Representative Koth - question - do you receive any salary policy pushback from staff.01:41:25
FY20 Budget Request - Total Base Compensation $7,094,281, Total Investment Performance Incentives $11,328,728, Operating Expenses $2,249,779 and is a 2.43% increase from the previous year - Summary - Page 1501:44:17
FY20 Budget Request - Contractual Services Detail - Investment Services $1,472,438 and Administrative Expenses $644,821 which totals $2,117,259 - Page 1601:47:43
The audit committee of the State Investment Council wants to be purchase software at an expense of $150,000 to $200,000 annually to prevent investment from deviating from their portfolio criteria.01:50:15
Representative Bartels - comment - Legislative Audit does audits quarterly and bills $51,500 to the State Investment Council.01:51:40
State Investment Council - Legislative Research Council Budget Brief - Legislative Research Council Budget Briefing - Pie Chart - Page 101:53:45
State Investment Council Trust Funds Summary Page - Legislative Research Council Budget Briefing - Health Care Trust - FY20 Distribution is estimated to be $5,520,000 - Page 13 01:54:24
Board of Regents Trust Fund - Legislative Research Council Budget Briefing - Page 1401:55:09
Education Enhancement Trust Fund - FY20 Distribution is estimated to be $21,335,000 - Legislative Research Council Budget Briefing - Page 1401:55:33
Dakota Cement Trust Fund - FY20 Distribution is estimated to be $12,682,000 - Legislative Research Council Budget Briefing - Page 1401:56:00
School and Public Lands Trust Fund - Legislative Research Council Budget Briefing - $14,753,921 - Page 1401:56:10
Senator Maher - question - would you update what happened to the Dakota Cement Trust Retirements.01:56:50
Representative Koth - question - how often do you change the State Investment Council benchmarks and does the State Investment Council approve these benchmarks.01:57:51
Senator Partridge - question - what is the State Investment Council policy regarding how much of the portfolio has to be cash assets and how much is earmarked for future investments.01:59:39
Representative Howard - comment - complimented State Investment Council for their work.02:04:50
Senator Wiik - comment - complimented State Investment Council for their accomplishments.02:05:50
Introduction of Pages02:06:51
Mr. Rob Wylie, South Dakota Retirement System, introduced Mr. Eric Stroeder, Vice Chair of the South Dakota Retirement System Board of Trustees, and an Engineering Supervisor with the Department of Transportation, who made opening comments and introductions of the SDRS trustees. 02:08:08
Every dollar invested in the South Dakota Retirement System pays out $12.27 and has been recognized nationally.02:11:35
Mr. Stroeder commented that prudent benefit designs, outstanding investment returns and the support of the Legislature, Executive, and Judicial branches of state government, local public employers, and all stakeholders have made the long-term actuarial soundness of South Dakota Retirement System possible.02:12:15
Senator Cronin - question - do you think there is room for 105 additional participants in the South Dakota Retirement System.02:15:25
Mr. Rob Wylie, South Dakota Retirement System Executive Director, commented that the retirement system is doing well and SDRS works with the State Investment Council to make retirement benefits possible. He also said he would share the challenges of SDRS.02:15:40
Mr. Wylie emphasized by South Dakota Statute mandates the South Dakota Retirement System to be managed by fixed assets and SDRS is 100% funded. The market value of the assets owned by SDRS will be able for all benefits owed today.02:18:17
Mr. Wylie explained the South Dakota Retirement System is funded completely from the plan's assets, and no general fund dollars are used. 02:18:24
South Dakota Retirement System for FY18 is funded 100.0%. This marks the 23rd time in the last 28 years actuarial valuation that SDRS has been at least 100% funded.02:21:18
Mr. Wylie emphasized that the $3.5 billion plan is fully funded and reflects the way South Dakota does business. If the SDRS would get behind in funding, it would be difficult to catch up.02:22:14
Pension plans must adjust to extremely volatile capital markets, people living longer, retiring baby boomers, new accounting standards that allocate retirement assets and liabilities to participating employers' balance sheets.02:24:27
FY20 Budget Briefing - South Dakota Retirement System - Legislative Research Council Budget Brief - Page 102:25:26
The South Dakota Retirement System FY20 general fund request is $0, federal fund expenditure authority $0, and $4,710,632 and in other fund expenditure authority totaling $4,710,632 and includes 33.0 FTE. - Page 202:26:55
Major Items Summary: South Dakota Retirement System - Legislative Research Council Budget Brief - Page 302:27:00
Representative Howard - question - would you clarify why SDRS has requested an increase for customer services contract with CEM Benchmarking Inc.02:30:00
Senator Cronin - question - would you give more details about SDRS benefits and how does that result in economic benefit.02:32:30
South Dakota Retirement System - Appropriations Hearing 2019 - Handout - Page 302:34:00
Figure 5: Taxpayer Investment Factors by State - For every dollar retirement dollar spent in South Dakota results in $12.26 and Mr. Wylie explained why this is so successful because the SDRS is fully funded. - Page 702:36:00
VII. Recognition - the National Institute on Retirement Security that evaluated the total economic output per dollar of taxpayer contribution in each state, South Dakota had the highest total output per taxpayer contribution of any state, 18 percent higher than the next best and is 110 percent higher than the average state. - Page 302:37:49
VII. Recognition - The Society of Actuaries (SOA), Pew Charitable Trusts, Chief Investment Officer (CIO) Magazine, and the National Institute on Retirement Security has recognized the State of South Dakota for their sound fiscal management and financial condition of the South Dakota Retirement System. - Page 302:39:40
Schedule of Retirees and Beneficiaries Added to and Removed from Benefit Payroll - Page 702:40:57
Mr. Wylie indicated many teachers waited to retire and this year SDRS is expecting retirements to increase by 20% to 25% this year and this trend may continue for the next 3 years.02:42:38
SDRS State Agency Employees Nearing Retirement - Item 5 - Board Papers - SDRS Handout02:44:41
These statistics don't include early retirements. Mr. Wylie expects 10% of workforce will retire in the next five years.02:45:40
Representative Hunhoff - question - what is the annual mortality rate of retired state employees.02:46:15
Senator Maher - question - does the SDRS surviving spouse receive benefits if a state employee retired and passed.02:48:00
Mr. Wylie commented the spouse benefit is 60% if a SDRS member retires and passes. This does apply to someone who marries after retirement. 02:48:12
Senator Maher - question - how many people have retired and returned to employment and how has SDRS addressed this issue.02:49:20
Senator Nesiba - question - how do state employees share their input to the South Dakota Retirement System Plan.02:51:00
Senator Nesiba - question - how do state employees access customer service with SDRS.02:52:20
Representative Howard - question - is there flexibility in Joint and Survivor Spouse Benefits and have they considered other options.02:53:20
Mr. Rob Wylie, Executive Director, South Dakota Retirement System, announced his retirement in December 2019 and has given 31 years of service.02:54:00
Announcements02:54:49
Adjourn Partridge/Bartels02:55:13

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