Highlights

Legislative Auditor Jim Nobles said two recent OLA reports highlight the problems with Minnesota's current contracting process. The latest report, on professional/technical contracting, indicates that there is a significant gap between the process established in law and the process practiced by state agencies, he said. A May 2002 special investigation into contracts surrounding the creation of a temporary bypass for two trunk highways in the Metropolitan Area serves as a case study, Nobles said, illustrating the common problems and conflicts between MnDOT and the Dept. of Administration. However, he said, it was important to recognize that a new governor and new commissioners represent an opportunity to correct the problems of the past.

Lieutenant Governor Carol Molnau, who is also transportation commissioner, said there is room for improvement in the contracting process. She said the contracting process, both in law and in practice, will be reviewed to ensure that contracts get the best value for taxpayers. A working group appointed by the governor, she said, will focus on balancing the needs of agencies to innovate and the need of the Dept. of Administration to regulate contracts. "What I think we both need is sensible oversight," Molnau said, that allows agencies to deliver projects while regulators ensure proper use of state funds. Sen. Satveer Chaudhary (DFL-Fridley) said he was concern ed by recent newspaper reports that indicated only the largest contractors were receiving MnDOT work. Molnau said the agency lets about 3,200 contracts every year, so some contractors are being used on several contracts. Dick Stehr, a MnDOT engineer, said construction contracts are awarded to the lowest bidder, provided the bidder meets certain qualifications, including the ability to post a sufficient bond for the project. Consulting contracts, Stehr said, are value-based and require an evaluation of the consultant's ability to carry out the project within a reasonable cost structure.

Too often the issue of contracting has been viewed through the lens of either-or, said Administation Commissioner Brian Lamb. He said he prefers to think that projects can be delivered both efficiently and by following state contracting law at the same time. Lamb said state law already provides for certain emergency exceptions. The exceptions, he said, should be reexamined and possibly expanded. The department's goals include creating a reliable performance measurement system that will allow the contract regulators to evaluate agencies and monitor their violations to identify trends, he said. The department will also focus on educating agency officials, from commissioners on down, in good contract procedure and the Dept. of Administration's role in contracting, Lamb said. He said the department will also work with Legislators to ensure that operational realities and statutes are coherent and cohesive.

'First shot' veterans honored
The 82 St. Paul residents who served on the USS Ward as it fired the first shots of World War II were honored during the Wed., Jan. 29, meeting of the Agriculture, General Legislation and Veterans Affairs Committee. Chair Steve Murphy (DFL-Red Wing) read a resolution honoring the veterans and recognizing their unique service.

On the morning of Dec. 7, 1941, the USS Ward was patrolling the waters outside Pearl Harbor when it encountered an unknown submarine. The ship fired on the two-man submarine and sunk it. The submarine was found, and the story of the ship's crew confirmed, Aug. 28, 2002.

Four of the 82 St. Paul reservists who manned the ship testified before the committee. Orville Ethier said the reservists were activated in January 1941, but most had been in the Naval Reserves for some time. "To be honest with you, when I left St. Paul in 1941, I thought we were just going on a nice cruise," he said, since the threat of war seemed distant and the men were leaving the Minnesota cold for sunny California and, later, Hawaii. Richard Thill said it was a miracle the first shot fired from the ship's No. 3 gun actually hit the Japanese submarine. The USS Ward was originally built in 1917 and had sat idle for 24 years before the St. Paul reservists were assigned to it, Thill said. Ethier said the No. 3 gun that fired the shot was removed from the ship in December 1942 and displayed at the Smithsonian Institution until 1958, when it came to the Capitol grounds in St. Paul.

Will Lainer said the USS Ward sank Dec. 7, 1944 in action off the Philippine Islands. In fact, he said, the ship was hit by enemy fire and started drifting, but was not sinking on its own. Lainer said the ship was blocking naval efforts and the USS O'Brien-under the command of Capt. W. W. Outerbridge, who had commanded the USS Ward on Dec. 7, 1941-was ordered to sink the ship. Lainer was able to dive with a small crew in October 2002 to see the Japanese submarine that sank. Russell Reetz said 22 of the 82 St. Paul reservists are still alive.

Budget bill repassed, heads to conference
The Senate met briefly Tues., Jan. 28, to complete parliamentary procedures in order to send the FY 03 budget resolution bill to conference committee. The members amended the Senate language onto the House bill, H.F. 74. In offering the amendment, the chief sponsor, Sen. Richard Cohen (DFL-St. Paul), said the Senate language provides a solution to the budget difficulties for the current fiscal year.

Sen. David Knutson (R-Burnsville) argued against adopting the amendment and urged members to support the House language. He said the Senate proposal does not make significant enough permanent, baseline cuts and doesn't leave enough on the bottom line. Cohen responded that he has been urging speed in passing the budget resolution, but at the same time urging members to be aware of what members are doing. He urged members to adopt the amendment and get the bill into conference committee where conferees can deliberate on the effects of the bill.

Sen. Michael Jungbauer (R-East Bethel) said the proposal is shortsighted, because cuts now have further effects on the FY 04-05 budget shortfall. Sen. Becky Lourey (DFL-Kerrick) said the House proposal cuts programs that will, in effect, cause more problems and cost more down the line.

The amendment was adopted 34-31 and the bill was repassed 35-30.

In other action, members also adopted S.R. 12, the mileage resolution. The members then recessed to await the House's refusal to concur with the Senate amendments.

The Senate returned briefly in the afternoon to accept a message from the House relating to the appointment of conferees and appointed Cohen and Senators Linda Berglin (DFL-Mpls.), Dennis Frederickson (R-New Ulm), Jane Ranum (DFL-Mpls.) and Dallas Sams (DFL-Staples) to the conference committee on H.F. 74.

Panel compares bills
Members of the House-Senate Conference Committee on the bill to resolve the FY 03 budget shortfall, H.F. 74, began work Tues., Jan. 28. The panel met in the evening and compared the contents of the House's plan to cut $468 million with the Senate's plan to make $384.1 million in reductions. The panel is chaired by Rep. Jim Knoblach (R-St. Cloud) and Sen. Richard Cohen (DFL-St. Paul). The conferees also met Thurs., Jan. 30 to continue negotiations.

Brief sessions held
The Senate also met in very brief floor sessions Mon., Jan. 27 and Thurs., Jan. 30, in order to process bill introductions and work at the Senate Desk.

Committee update

Capital Investment
Debt management discussed
The Capital Investment Committee met Wed., Jan. 29, to discuss debt management policy and a cancellations report due Feb. 1. The panel, chaired by Sen. Keith Langseth (DFL-Glyndon), heard from Assistant Commissioner Peter Sausen, Dept. of Finance, on the state's debt management policy.

Sausen said the debt management policy was established in 1979 as an executive policy that is not established in law. He said the policy has three goals, to maintain triple-A bond ratings, minimize state borrowing costs and provide a reasonable financing capacity within a prudent limit. He also said, according to the major bond rating services--Moody's Investors Service, Standard & Poor's Corporation and Fitch Rating Service--the state has been successful in maintaining the triple-A rating. He said bonds rated triple-A are judged to be of the best quality with the smallest degree of investment risk and interest payments protected by a large or an exceptionally stable margin. He also said financial management, economic vitality, the state tax burden and the state debt burden are the factors that determine the state's bond rating.

Sausen also reviewed the policy guidelines the department uses. He said the guidelines include a 3 percent general fund debt service ratio, a 2.5 percent debt to personal income ratio and a 5 percent future commitments to personal income ratio.

In addition, he reviewed the constitutional requirements for projects eligible for bond financing and other constitutional provisions for which debt may be issued.

Members also discussed the cancellation report. Sausen said the report, which will be released Feb. 1, is a list of projects more than four years old for which funds have not yet been encumbered. He said normally the projects are canceled on July 1, but there is a provision in the other body's FY 03 budget resolution bill to have the projects cancel Feb. 1, in order to be included in the current fiscal year.

Commerce and Utilities
Energy issues heard
Members of the Commerce and Utilities Committee met Mon., Jan. 27, to hear a series of overviews on energy issues of concern to Minnesotans. The panel, chaired by Sen. Ellen Anderson (DFL-St. Paul), heard first from Edward Garvey, deputy commissioner, Dept. of Commerce, who gave a brief introduction to the issues. Toby Madden, regional economist, Federal Reserve Bank, spoke on the economic impact of energy policy, Marya White, manager, Dept. of Commerce, spoke on the impact on consumers' energy bills, and Ken Wolf, reliability administrator, Dept. of Commerce, provided an explanation of energy generation, transmission and distribution.

The panel also heard Burl Haar, executive director, Public Utilities Commission, on the variety of energy providers such as cooperatives, independent power producers, investor owned utilities and municipals. Mike Bull, legislative analyst, Minnesota House of Representatives, explained oversight of utilities and the roles of the Public Utilities Commission, the Dept. of Commerce, the Office of the Attorney General and the Legislature. Steve Rakow, rates analyst, Dept. of Commerce, provided an overview of nuclear power in Minnesota.

Nuclear power plants discussed
The Commerce and Utilities Committee, chaired by Sen. Ellen Anderson (DFL-St. Paul), met Wed., Jan. 29, to discuss nuclear power plant safety. Members also heard testimony on plant security.

Crime Prevention and Public Safety
Overviews heard
The Crime Prevention and Public Safety Committee, chaired by Sen. Leo Foley (DFL-Coon Rapids), devoted the Mon., Jan. 27, meeting to hearing overviews from the Department of Public Safety, the Department of Corrections and the Minnesota Sentencing Guidelines Commission. Speakers from the agencies outlined the organization and activities of the departments.

Education
New commissioner addresses panel
The Education Committee, chaired by Sen. Steve Kelley (DFL-Hopkins), devoted the Tues., Jan. 28, meeting to a discussion of teacher training and qualifications in compliance with the federal Elementary and Secondary Education Act (ESEA). The act, known as the No Child Left Behind Act, is a major redefinition of the role of the federal government in education and includes requirements for teacher quality. Newly appointed Children, Families and Learning Commissioner, Cheri Yecke, said that, generally, there are three main teacher quality requirements under the act: they must have a bachelors degree, they must be licensed and they must demonstrate a competency in the subject being taught.

George Maurer, executive director with the Minnesota Board of Teaching, also discussed a variety of subjects relating to Minnesota's compliance with the act.

Special ed resolution gains
The Education Committee devoted the entire hearing Thurs., Jan. 30, to a discussion of special education and a resolution memorializing Congress to fully fund the Individuals with Disabilities Education Act.

The panel, chaired by Sen. Steve Kelley (DFL-Hopkins), first heard a background presentation on special education from Norena Hale and Cecelia Dodge of the Dept. of Children, Families and Learning. Hale reviewed the eligibility requirements for special education and the numbers of children in specific disability areas in Minnesota schools. She also highlighted the Minnesota Continuous Improvement Steering Committee process and reviewed test results in reading and math over three years by disability group.

Carol Vollmar, a special education teacher, also spoke on the challenges of teaching. She said when she began teaching, she had students with one kind of disability, but now students with many types of disabilities are in the same class. She said that as a result, classroom control is difficult. "Safety concerns have over taken educational needs," she said, "and the frustrations are beginning to outnumber the joys."

Steve Larson, executive director, ARC Minnesota, and John Guthmann, board member, PACER Center, detailed the legislative priorities of the Coalition for Children with Disabilities. Larson said the coalition, comprised of several statewide organizations, has made funding for special education, third party billing for health care related services provided in schools, improving dispute resolution and due process procedures and supporting the Interagency Committee on Autism the top four priorities this year.

Members then turned to consideration of S.F. 85. The measure, authored by Sen. Wesley Skoglund (DFL-Mpls.), is a resolution memorializing the President and Congress to carry through on their pledge to fund 40 percent of special education costs. Scott Croonquist of the Metropolitan Association of School Districts, Vernae Hesbargen of the Minnesota Rural Education Association, Dr. Colleen Bamtrog of the Minneapolis Public Schools and Brad Lundell of Schools for Equity in Education all spoke in support of the measure.

Sen. Gen Olson (R-Minnetrista) offered an amendment specifying that federal maintenance of effort requirements should only apply to state appropriations for special education and not to local school district subsidies for special education from general education funds. Members adopted the amendment. An amendment offered by Sen. Michele Bachmann (R-Stillwater), providing that Congress suspend unfunded mandates in the No Child Left Behind Act until the commitment for special education is met, was defeated. The measure was approved and advanced to the Senate floor.

E-12 Education Budget Division
Funding overviews continue
The members of the E-12 Education Budget Division continued the process of reviewing the elements of education funding at a hearing Weds., Jan. 29. The division, chaired by Sen. LeRoy Stumpf (DFL-Thief River Falls), heard presentations from Senate staff on a variety of revenues and aids.

Environment and Natural Resources
ATV damage detailed
Members of the Environment and Natural Resources devoted their first hearing, Mon., Jan. 27, to hearing testimony from a variety of individuals and groups on the damage done to both public and private property by all-terrain vehicles (ATVs).

Chair John Marty (DFL-Roseville) said the hearing was focusing only on the damage. Marty said a subsequent hearing would be devoted to land management issues and solutions to the environmental damage.

Barry Babcock, representing the Jackpine Coalition, said 85 percent of all ATV use is in 25 percent of the state, primarily in the north central area.

Larry Wannebo, from Cass County, said it was a mistake to allow ATVs to use ditches along the roadways. He said it is cheaper to protect the environment than to repair it. He outlined damage done to ditches caused by ATVs. He said ditches were constructed to filter road run-off, but that the ATVs cause erosion and result in dirt and silt flowing into wetlands, streams and lakes.

Sen. LeRoy Stumpf (DFL-Thief River Falls) said, "I want to point out that there also a lot of responsible ATV riders." We need more education, more enforcement and most importantly, more trails, Stumpf said.

Linda Bair described damage in her area and concluded that ATV users need a place to ride, but they don't need access everywhere. She also urged members to "Get on with it; damage is continuing every day."

The co-director of Minnesotans for Responsible Recreation, Jamie Jueneman, gave a presentation on environmental damage. Jueneman said the growing ecological disaster of unrestricted ATV use is at a critical stage. He said a comprehensive solution is needed, including confrontation of ecological issues, a designated routes only policy, a dedicated source of funding for additional needs, and implementation of reforms in the legislative auditor's report.

Gene Smallidge, a farmer in Cottage Grove, said ATV riders have no respect for private property. He said the state allows riding in ditches, but the riders leave the ditch and go on to private property-to farmers' fields. He said enforcement just does not happen in his area and that he has made numerous citizen's arrests of riders on his property.

Jack Nelson spoke on behalf of ATV riders and said he welcomed enforcement for those who break the law. He emphasized, though, the need for trails, but said the process is extremely slow.

Tom Umphness, also representing ATV users, said every time we try to take a step forward in having a place for riders to go, we run into roadblocks. He said the riders who break the law should be held accountable. "We have the frustrations as well," he said.

Motorized recreation reports considered
Members of the Environment and Natural Resources Committee met Wed., Jan. 29, to continue tackling the issue of motorized vehicle use on public lands. Chaired by Sen. John Marty (DFL-Roseville), the panel heard two reports on the issue, as well as citizen testimony.

John Patterson said the report prepared by the Office of the Legislative Auditor (OLA) considered what trails the state has, how the state finances the trails, how effective planning efforts have been, if adequate oversight for the grant-in-aid program exists and how well the Dept. of Natural Resources enforces regulations on motorized vehicles. Patterson said the OLA found that the state has almost 19,000 miles of snowmobile trails, but not even 1,000 miles of off-highway vehicle (OHV) trails. Trails for each type of vehicle have separate dedicated funding sources, he said, with money coming primarily from gas tax collections and vehicle registration fees. Snowmobile registrations have fluctuated since 1968, he said, but are around 300,000 now. Meanwhile, Patterson said, all-terrain vehicle (ATV) registration has risen from 12,000 in 1984 to 148,000 today.

Planning for OHV trails has been a recognized need in the DNR since the 1970s, he said, but planning did not actually begin until the late 1990s. Even then, Patterson said, the planning process lacked assessment of each community's needs, a thorough examination of environmental factors and an assessment of fiscal considerations. However, he said, the department has a new philosophy for OHV management: managed use on managed trails. The OLA recommends that environmental assessment worksheets be completed for more OHV projects and that the department work for a better understanding of how many miles of trails the funding can support. Patterson said snowmobile planning has not been formal, but has been determined largely by local snowmobile clubs. However, he said, the informal system has served the state well, primarily because snowmobiles have a lower environmental impact than OHVs.

The grant-in-aid program, he said, funds 91 percent of snowmobile trail miles and 85 percent of OHV trail miles. However, trail clubs receive little oversight from either the DNR or local units of government, Patterson said. He said DNR employees and county officials reported only 32 cases of trail work violations in the past 5 years. The OLA recommends that the DNR increase its oversight of the program, consistent with its managed use on managed trails philosophy and work toward eliminating violations, he said. Patterson said the report also recommends formal training for local club officials and a plan to reduce grants if violations occur and continue.

The report also recommends increasing enforcement time for OHVs, to account for the longer OHV season and to achieve parity with snowmobiles, requiring ATV rider training and reexamining gas tax allocations to snowmobiles, ATVs and other OHVs, he said.

Greg Murray and Tom Spence presented a report from the Motorized Trail Task Force. Spence said the 21-member task force had a balance of motorized interests, non-motorized interests and centrists. However, he said, the task force initially agreed to operate by unanimous consent when making recommendations. Spence said several recommendations were blocked by one or two members. The recommendations approved include planning guidelines, creating an inventory of trails and establishing a permanent advisory committee on motorized trails. Recommendations not approved include establishing a toll-free number for reports of damage or violations and closing trails experiencing substantial environmental damage. Spence said any recommendation that included closing trails was automatically vetoed by some members. Sen. LeRoy Stumpf (DFL-Thief River Falls) said the parties need to find grey areas, instead of black and white, when considering environmental damage. Some trails may need to be closed only during especially environmentally sensitive times, he said. Sen. Michael Jungbauer (R-East Bethel) said the state needs to meet all of the public's needs. While environmentally sensitive trails need to be closed, and the public educated about why the trails are being closed, less sensitive areas should be designated and opened, he said.

Ray Boehn, representing the ATV Association and Amateur Riders of Motorcycles Association, said the task force was the idea of OHV groups. However, he said, the task force has lost all of its credibility with OHV riders. He said the co-chairs of the task force, Murray and Spence, were anti-motorized and stifled discussion from OHV users on the task force. Sonja Bartz, president of the ATV Association, said her group has been responsible in handling cases of damage. She cited repairs made to ditches after the association's convention in Gilbert. The group, she said, tried to secure permanent trail access, but was unable to do so in time for the convention. The association then sought and received ditch right-of-way access from the Dept. of Transporation, Bartz said. However, rain right before the convention made the ditches at risk for damage, she said, and most riders did not use them. Bartz said the association undertook the task of repairing the ditches damaged by riders on their way to the convention. She said the association has also worked with the DNR for over 15 years to secure a trail system, but new trails have been blocked by lawsuits filed by environmental groups, including Minnesotans for Responsible Recreation.

Members of the public also spoke about the difficulties of living near OHV trails. Peter Hovde, Long Lost Lake Association, said he and his wife were going to retire to Long Lost Lake, which is near Lake Itasca, until they discovered that the road ringing the lake was going to be added to the OHV trail system. Hovde said OHVs should be kept away from local residents who want peace and quiet. Mark Wendt said multiple uses of state land are compatible, but that trails for motorized vehicles should not connect to non-motorized trails or areas. Jamie Jueneman said a trail that crossed his land was originally only for local residents to access the state trail system. However, he said, clubs and the hospitality industry started to promote the trail, increasing its use. He said abuse of the trail and violations on his land escalated, but he received no responses from the DNR or local clubs. Jueneman said he finally terminated the easement allowing use of his land for the trail, only to find that OHV riders are still crossing his land. He said the DNR has not removed the trail from its maps, even though he terminated the easement three years ago. Other landowners across the state are also canceling easements, he said, and for a reason. However, Jueneman said, the solution from the Legislature and DNR seemed to be attempting to buy landowners out. "This rewards bad behavior," he said, "it doesn't solve bad behavior."

The committee also heard S.F. 94. Carried by Sen. Dave Kleis (R-St. Cloud), the bill makes a technical change in a 1993 law authorizing a land transfer. Kleis said the transfer is related to impending construction of sports facilities at St. Cloud State University. The bill was approved and recommended for placement on the Consent Calendar.

Health and Family Security
Health data collection discussed
A joint meeting of the Health and Family Security Committee, chaired by Sen. Becky Lourey (DFL-Kerrick) and the Judiciary Subcommittee on Data Practices, chaired by Sen. Wesley Skoglund (DFL-Mpls.), met Thurs., Jan. 30, to discuss the Dept. of Health's proposed rule on collecting medical data.

Lourey began the discussion by reminding members that the department's proposed rules were done at the direction of the Legislature. Assistant Commissioner Dick Wexler presented a history and background of the proposal to collect administrative billing data. He said administrative billing data is data that comes from the bills that doctors, clinics and hospitals send to insurance companies and HMOs for services. Under the rule, Wexler said, the department would get the billing data in two parts-demographic data and health care information. The demographic data is information such as name, birthdate and address and the health care information data is information about diagnosis and procedures. He also said most of the information is in billing codes and is not a medical record.

Wexler also said the rules have not yet been adopted. The department has delayed the final step before adoption in order to give the new administration time to review the proposal. He said that all but two states have some form of administrative billing data collection. The information gained from the data is important, Wexler said, for use in studying health care costs, comparing health care providers and for managing chronic disease.

He said the department has security measures in place to separate and protect identifying information. He also said, under the proposed rules, Social Security numbers are not collected, independent security audits must be done, a committee with consumer, industry and government representatives must review all projects, only departmental researchers may access the information and information may only be released in a form that doesn't identify patients.

Wendy Nelson, from the department, explained the process for gathering and encrypting the data. Sen. Don Betzold (DFL-Fridley) said one of the problems has been that people think the rules mean gathering data and putting it on the Internet, but that is not the intent. Sen. Warren Limmer (R-Maple Grove) said there is still a lot of concern that personal information can get out. Betzold said the Legislature had previously decided to err on the side of protecting public health by gathering the data. Wexler said the department takes security concerns very seriously and the staff has worked very hard to make sure no one could ever access identifiable information.

Sen. Sheila Kiscaden (IP-Rochester) said the gathering of the data is vital to provide information about how the health care system is operating. "We hear a lot about health care costs," she said, "but we need data to be able to judge outcomes. In my mind, this is a way to help providers, payers and patients know where there good outcomes."

Nelson said funding is not in place to fully implement the rules. However, she said the department made the decision to go forward with gathering some of the data, such as hospital discharge data, rather than redo the rules process when funding does become available.

Health, Human Services and Corrections Budget Division
Grant programs reviewed
The topic of Department of Health grant programs was the focus of the Tues., Jan. 28, meeting of the Health, Human Services and Corrections Budget Division.

Chair Linda Berglin (DFL-Mpls.) said she invited representatives of the department to review the programs for the benefit of the new members of the division.

Aggie Leitheiser, acting commissioner, and David Johnson, assistant commissioner, began the discussion with an overview of the department's program organization. Johnson said the department's statutory mission is to protect, maintain and improve the health of all Minnesotans. He said the core functions are preventing disease, reducing health hazards, protecting health care consumers, promoting good health and achieving success through partnership with local organizations.

Johnson also said 60 percent of the department's funding goes to local governments, non-profit organizations, community hospitals and individuals in the form of direct services. Only 18 percent of the department's funding comes from the general fund; the greatest amount is from the federal government. Johnson said the department has three major program areas: health improvement, health quality and access and health protection. A fourth area, management and support, was not covered in the discussion of grants.

Gayle Hallin, assistant commissioner, reviewed the grant programs for the health improvement area. Under health improvement,the department provides grants for community health, family health, health promotion and chronic disease, the state center for health statistics and the office of minority and multicultural health. Assistant Commissioner Richard Wexler discussed the health quality and access area. Grant programs for the area include health policy and system compliance and facility and provider compliance.

Leitheiser concluded the discussion with a review of the health protection program. Leitheiser said the health protection program is what most people think of when they think of the Department of Health. Grant areas include environmental health, infectious disease and epidemiology prevention and control, public health laboratories and the Office of Emergency Preparedness.

Overview continues
The Health, Human Services and Corrections Budget Division met Wed., Jan. 29, to continue hearing budget overviews. The division, chaired by Sen. Linda Berglin (DFL-Mpls.), focused on Department of Human Services (DHS) grant programs.

Assistant Commissioner Dennis Erickson began by providing a brief profile of the department. He said DHS services touch one in four Minnesotans and that services are delivered at the state level, through counties, health care providers and non-profit organizations. DHS is approximately 30 percent of the state's total budget and about 25 percent of the general fund budget, Erickson said. He also said that only about 3 percent of the DHS budget goes for program administration. In addition, Erickson said, general fund expenditures amount to about $7.7 billion, but when all funding sources are calculated, the department's expenditures amount to $18.2 billion.

Erickson also briefly touched on the budget management tools DHS has available. He said the items that influence expenditures are rates and payments, eligibility, and services and benefits. He said the budget structure is comprised of 11 program areas that are divided into grant programs and management programs.

Grant programs include children's services grants, basic health care grants, state operated services, continuing care grants, economic support grants and revenue/pass through grants. The administration programs are agency management, children's services management, health care management, continuing care management and economic support management. Grant program directors explained in detail the purpose of specific grants in their area and detailed the breakdown between state and federal dollars used in each program.

Higher Education Budget Division
Panel hears HESO overview
Members of the Higher Education Budget Division, chaired by Sen. Sandra Pappas (DFL-St. Paul), met Tues., Jan. 28, to hear an overview of the Higher Education Services Office.

Robert Poch, director of the office, gave a history of the office and the Higher Education Services Council, which oversees the office and makes policy recommendations to the governor and Legislature. HESO provides services to students, parents, policymakers, education providers at all levels and the public at large, Poch said. The office has a staff of 77 employees., of which only 32 are state-funded, he said. Of the office's $285 million FY 2002 budget, Poch said, 97 percent went directly to grants to students and institutions. Fifty-seven percent of the budget is state funds, he said.

The office works to ensure that Minnesotans know what it takes to attend higher education institutions, both academically and financially, Poch said. As early as fourth grade, he said, HESO and school districts are working together to give students and families a realistic concept of what education costs, what financing options are available and what is required academically to gain admission. The office also ensures the legitimacy of private education providers, Poch said. One of the office's main functions is to help Minnesota families afford higher education, through various grant and loan programs, he said. During FY 2002, the state grant program distributed $125 million to 71,000 undergraduates, the state work-study program distributed $12 million to 12,000 students and the child care grant program distributed $4.6 million to 2,429 students. The Student Educational Loan Fund (SELF) issued 28,000 loans totaling $104 million in FY 02. Poch said the office also administers the Minnesota College Savings Plan, which is regulated by section 529 of the U.S. Internal Revenue Code. The plan accumulated $70 million in assets, for over 16,000 recipients, in its first 14 months, he said.

HESO also facilitates information sharing and information technology among institutions and about higher education, Poch said. The office has supported the Learning Network of Minnesota, which connects school districts, public libraries and post-secondary education institutions. HESO has also supported the library information systems that make library materials from across the state available in any participating library in Minnesota, he said. Poch said the office, through its website, makes customized enrollment data available to the public and maintains other data for government institutions.

Business community offers suggestions
Members of several business organizations offered suggestions for maintaining Minnesota's commitment to higher education while the state confronts a massive budget shortfall to members of the Higher Education Budget Division during the panel's Thurs., Jan. 30, hearing.

Duane Benson, executive director of the Minnesota Business Partnership, said that if general fund spending continued to grow at the rates it did during the 1990s, biennial spending would be $85 billion by FY 2020-2021. He said the partnership formed a panel to come up with principles for the state to use in reining in state spending and refocusing spending priorities. The principle most relevant to higher education, he said, is funding people, not institutions. Benson said the partnership advocates increasing the proportion of state higher education spending that goes to grants and other forms of student aid, while decreasing the proportion of spending that goes to the institutions. He presented data showing that families with adjusted gross incomes of $20,000 or less receive large amounts of grant aid and bear almost none of the costs of higher education at a state institution. Above $20,000, he said, the amount of family responsibility increases, until the amount of responsibility levels off at full tuition, or around an adjusted gross income of about $60,000. Benson said most families with incomes of $60,000 or more who have students in state universities do not realize they are receiving a state-subsidized education.

Senior Vice President of the Minnesota Chamber of Commerce Bill Blazar said this Legislative Session presents an opportunity to redistribute higher education funding so that more money follows students. He said funds should be distributed based on students' and families' ability to pay. Blazar summarized the impressions chamber members have of Minnesota's higher education providers, especially the MnSCU system and the University of Minnesota. Blazar said chamber members recognize the various options for funding education, including tuition, financial aid, fees for services, contributions and state support. He said research can also be funded by all of those sources, except for aid. However, Blazar said, businesses ask how much funding is enough. He said the state and education providers need to set goals for higher education and measure progress toward those goals. Resources can then be targeted to meet the goals, Blazar said. He said chamber members recognize that tuition will increase, and they believe tuition should more closely reflect the cost of education. However, Blazar said, chamber members also support increasing student aid in order to help low-income students have opportunities for education and to join the workforce.

As tuition increases and state funding falls, said Division Chair Sandra Pappas (DFL-St. Paul), there may be an erosion of quality or a deterioration of the ability for some students to attend higher education institutions. Blazar said the issue will have a lot to do with perception. He said resources may be available to many families, but because they will not be aware of them, the families will consider higher education unaffordable and not pursue their options. Benson noted that even though tuition is already rising, enrollment is reaching record levels. He said higher education will always be considered a good investment by employees and employers.

Mitch Pearlstein, executive director of the Center for the American Experiment, offered five goals for the state. He said funding should be increased for student aid and decreased for institutional funding. The state should reconcile its commitment to wide access and the focus on research and graduate education, especially in regard to the University of Minnesota, he said. Pearlstein said the University's advantage lies in its research power, on which much of the state depends. He said the state should focus the University on its research and graduate operations over its undergraduate education, even though such an approach is not congruent with Minnesota's populist tradition. Pearlstein urged Legislators not to be convinced that cuts will translate into decreasing access for students. He also suggested that the Legislature avoid micromanaging how the University implements cuts. The Board of Regents and the University's president deserve wide latitude in that area, he said.

Brian Axell said the Minnesota State College Student Association has strong concerns about decreasing institutional support in favor of aid. He said many part-time students are not eligible for state aid. Also, Axell said, many students and potential students are not aware of financial aid opportunities and suffer sticker shock as tuition increases. He said the association supports the state's current policy, which keeps tuition low, thus helping all students. Sen. Lawrence Pogemiller (DFL-Mpls.) said that tuition will rise, because of the state's budget shortfall. Less money will be available overall for higher education, he said, but the question is whether the higher education funding system will be biased to lower-income or higher-income students. Frank Viggiano, Minnesota State University Student Association, suggested eliminating the Higher Education Services Office in favor of making block grants to the University, MnSCU and the private sector. Under such a system, he said, each institution could tailor its program to its students.

Jobs, Housing and Community Development
Panel hears presentations
Members of the Jobs, Housing and Community Development Committee met for the first time Thurs., Jan. 30. The panel heard presentations relating to Minnesota's current employment statistics and heard a report from the Unemployment Insurance Advisory Council. In addition, members heard an update on Minnesota's economic and workforce development programs reorganization.

State and Local Government Operations
Contracting report discussed
Senators heard a report characterizing as deficient state agencies' compliance with statutes and guidelines regarding professional/technical contracts during the introductory meeting of the State and Local Government Operations Committee, Mon., Jan. 27. The panel, chaired by Sen. Jim Vickerman (DFL-Tracy), also heard a response to the report from the new commissioner of administration.

Legislative Auditor Jim Nobles said that while the Office of the State Auditor examines local governments, the Office of the Legislative Auditor (OLA) examines state agencies. The Legislative Audit Commission, he said, oversees the office and approves its evaluations. The bipartisan commission, he said, expressed Legislators' concerns and conflicts over the use of the private sector by state agencies to improve services provided to the public. Contracts for outside services can, in some cases, be more effective and efficient than using state employees to deliver those services, Nobles said. However, he said, at the first sign of budgetary problems, funds for contracting are trimmed or eliminated. Also, Nobles said, the public, the press and Legislators share a suspicion about contracts and their abuse. To protect the public, the Legislature has established a rigorous process that relies heavily on the Dept. of Administration to oversee contracts, he said. The OLA found that Minnesota's contracting procedure is good on paper, Nobles said, but is not working in practice. The Dept. of Administration is overwhelmed, he said, with only 2 employees to examine over 4,000 contract-related documents every year. At the same time, he said, agencies were found to bypass and ignore the department, legal requirements and good contracting practices.

Professional/technical contracts are used for services that are primarily intellectual, such as identifying technical needs, conducting studies or designing the state's roads and bridges, said project manager Jo Vos. She outlined the general contract process and requirements imposed by the Legislature. The department has made the process easier for agencies by creating a standard contract template, Vos said. Total spending on professional technical contracts amounted to $358 million in FY 2001. Between FY 1996 and FY 2001, annual increases in contract spending outpaced inflation, but was at the low end of state spending increases, Vos said. In that period, inflation rose 2.9 percent annually, professional/technical contract spending increased 5.3 percent annually, employee compensation grew at an annual rate of 5.7 percent and overall state operating expenditures rose 6.5 percent per year. From 1996 to 2001, she said, the number of contracts processed by the department rose 64 percent and the number of contract amendments rose 152 percent. Over two-thirds of the contracts handled by the department in a sample year, Vos said, were for amounts less than $50,000. However, she said, the 18.8 percent of contracts for amounts greater than $100,000 represented over 85 percent of total contract spending in that year. Vos also reviewed the effects of the moratorium on contracts imposed in earlier rounds of budget cutting.

In the OLA's review of 60 contracts in 6 agencies-the Departments of Administration; Children, Families and Learning; Human Services; Natural Resources; Revenue; and Transportation-Vos said the auditors found little documentation about the needs for the contracts or exploration of alternatives, such as using state employees. She said 36 contracts did not contain adequate descriptions of the state's responsibilities, 33 contracts lacked adequate performance standards and 30 contracts did not have adequate monitoring tools. In almost two-thirds of the contracts, she said, agencies allowed work to begin before the contract was signed; in 10 cases, the contract was signed 5 months later and in 2 cases the signing came 10 months after the work began. Vos said in over one third of the contracts, agencies allowed contractors to begin work before funds for the contract were encumbered, or set aside. In six cases, she said, three months elapsed between the start of work and the encumbrance of funds, and in the most egregious case funds were not encumbered until two weeks before the contract was to expire. Agencies were deficient in monitoring contracts and reviewing the work after the contract expired, she said. Vos said the OLA found that the Dept. of Administration plays a weak oversight role because of its philosophy-contract facilitation instead of contract monitoring-because of its limited staff resources and because the department lacks enforcement tools.

Vos said the report included several recommendations. Among them were refocusing the Dept. of Administration on its oversight role and clarifying contracting statutes and guidelines, she said. The OLA also recommends delegating more responsibility to agencies that have complied with contract guidelines, she said, and increasing the oversight of the Dept. of Administration over poorly performing agencies. Such a policy, Vos said, represents a carrot-stick approach to encourage agencies to follow contract guidelines. The OLA report also recommends removing the requirement that the Attorney General's Office approve all contracts for form; since most agencies use the Dept. of Administration's template, almost all contracts meet format requirements, Vos said. The OLA report also recommends requiring a performance evaluation of contractors after work has been completed and the enactment of legislation specifically prohibiting agencies from allowing contractors to begin work before the contract is signed and funds are encumbered.

Ryan Church, a consultant with the Dept. of Administration Management Analysis Division, conducted a similar study of the contracting process. He said his report came to many of the same conclusions. Church said he found that the department is fast and efficient in its review and approval of contracts. The report includes several recommendations, he said, including promoting a broader understanding of contracting requirements among state agency heads. Brian Lamb, commissioner of the Department of Administration, said the challenge many agency contract coordinators face is that they are employees of agencies-responsible to agency heads and obligated to advance the agency's mission-but are also responsible for following state contracting guidelines. He said the department, and the new governor's administration, is examining the issue and is already taking steps to improve the process.

Committee members also heard an overview of regional development organizations. Craig Rubis, Southwest Regional Development Commission, and John Chell, Arrowhead Regional Development Commission, described the efforts their organizations are making to foster development in the southwestern and northeastern sections of the state.

Administrative rules discussed
The State and Local Government Operations Committee, chaired by Sen. Jim Vickerman (DFL-Tracy), devoted the Wed., Jan. 29, hearing to a discussion of administrative rules and to consideration of two bills dealing with rulemaking.

Senate Counsel George McCormick gave members some background about the committee's responsibility regarding administrative rules. He said agencies may only develop rules because the Legislature delegates the authority and that it is the role of the committee to provide oversight on the process of rulemaking. He said the Administrative Procedures Act is one of the most complex in the nation, but the upside is that by the time a rule is completed, all interested parties have had input into it.

David Orren, from the Dept. of Health, provided members with an overview of state agency rulemaking. He said the most important thing to know about state agency rules is that rules have the force and effect of law. Rules are used to administer programs created by the Legislature and to fill in any necessary details in the law. He said rules were the Legislature's response to problems with informal policies, fulfilled the public's desire to know how agencies intended to implement laws and provide certainty and consistency. Both agencies, through their expertise, and public participation add value to the rulemaking process, Orren said. All rules are reviewed by an administrative law judge, Orren said, but 80 percent of all rules are noncontroversial and are adopted without a hearing. Orren said suggestions for improved legislative oversight include giving rulemaking authority only when necessary, narrowly defining rulemaking authority, monitoring rules as they are being developed and monitoring administration and enforcement of rules.

John Knapp, an attorney with Winthrop and Weinstein, also spoke about the rulemaking process. He said there have been three major improvements in recent years to the rulemaking process. He cited the expanded role of the governor, more regulatory analysis of benefits, results and costs of rules and a recent law allowing parties to challenge an agency trying to enforce a policy without going through the rulemaking process.

Administrative Law Judge George Beck also provided an overview of the role of administrative law judges in the rulemaking process.

Members then considered two measures, sponsored by Sen. Don Betzold (DFL-Fridley), relating to rules.

The first bill, S.F. 30, imposes notice requirements for the use of the "good cause exemption." According to Betzold, the good cause exemption is a provision that allows an agency to find that the rulemaking process is unnecessary, impracticable or contrary to the public interest when adopting, amending or repealing a rule. Betzold said the good cause exemption is intended primarily for those cases in which rules must be adopted in order to comply with federal law. However, he said, he thought there should be some notice provision. Under the bill an agency that intends must use the exemption to notify interested parties no later than the date the agency submits the proposed rule to the Office of Administrative Hearings. Under the bill, the notice must state the proposed rule, an explanation of why the rule meets the requirements of the exemption and a statement that interested parties have five days to submit comments.

The bill was amended to include an immediate effective date and sent to the Senate floor with a recommendation to pass.

The second bill, S.F. 61, clarifies the requirements for the statement of need and reasonableness (SONAR) that agencies must prepare before adopting a rule. Currently, agencies must list the probable costs of complying with the rule, Betzold said. The bill specifies that the agency list the probable costs and include the portion of the costs that will be borne by affected parties, such as governmental units, businesses or individuals.

Sen. David Senjem (R-Rochester) offered an amendment requiring agencies to determine if the cost of complying with a proposed rule will exceed $100 million over the first 10 years the rule is in effect. Further, the amendment specifies that if the cost exceeds $100 million, the rule may not take effect until the rule is approved by the Legislature. Betzold argued the amendment should be submitted as bill, rather than as an amendment to his bill. He also said the amendment has the effect of making the Legislature act twice on essentially the same item. Senjem withdrew the amendment.

The bill was approved and sent to the Senate floor.

State Government Budget Division
Legal Aid, judicial system overviewed
The financial realities of Minnesota's legal aid and judicial systems were the focus of the Mon., Jan. 27, meeting of the State Government Budget Division. Representatives of legal aid providers and the state courts stressed the countercyclical nature of the judicial system to the panel.

Kent Germander said the Legal Services Coalition, which is made up six regional legal aid programs, has already taken cuts in funding from other sources. Germander, a former president of the Minnesota State Bar Association, said the coalition's annual budget, which is distributed to the aid programs, is about $22.5 million. Of that, he said, one-third is state funds, one-third is federal support, primarily from the federal Legal Services Corporation, and the remaining third is made up of support from foundations, attorney registration fees and interest on lawyer trust accounts. Germander said legal aid makes the work of the court system more efficient by screening cases to turn away potential plaintiffs that have no case and by finding non-court solutions, such as mediation, for other cases. Legal aid also keeps families together, helps ensure the collection of child support and makes sure those who should be getting state benefits are getting them, he said.

Steve Witort, corporate counsel for 3M Corp., said legal aid services are philosophically and pragmatically necessary in a nation of laws. "An independent judiciary has no meaning without access," he said, and legal aid provides access to the courts for those who would otherwise lack that access. Women, he said, represent 70 percent of legal aid clients in Minnesota. Every year, Witort said, the legal aid system recovers over $5 million in child support payments, saving the state that money in support for the deserving recipients. Additionally, legal aid recovers $4 million in Social Security payments, he said. Screening cases, Witort said, saves the court system about $1,000 per case, or $5.1 million a year. Legal aid efforts also keep families out of subsidized housing and homeless shelters, he said. Judge Thomas Mott, chief judge of the Second Judicial District, said legal aid is in even more of a countercyclical position than the courts. As the economy sours, he said, the need for the services provided by legal aid increases sharply.

State Court Administrator Sue Dosal said almost all aspects of the judicial system's work are grounded in the state constitution. Not only must the courts handle both criminal and civil cases, but they must do so promptly, she said. The states 297 judges, supported by 2,900 employees, handle about 2 million cases a year, Dosal said. She presented data showing that major case filings-for felony and gross misdemeanor criminal cases, general civil cases, probate cases and family and juvenile cases-have increased by 50,000 over the past 10 years, an increase of 33 percent. During the same period, Dosal said, the number of judges has increased only 12 percent. Two years ago, Dosal said, the legislative auditor studied the judicial system and found that it meets or exceeds the processing times of other states and that Minnesota judges carry a caseload, per judge, 49 percent higher than in comparable states. To meet the average caseload of other states, Dosal said, Minnesota would need 130 more judges. Because of the larger caseload, Dosal said, "an assembly line approach to justice" has evolved. In addition to the caseloads, she said, the courts have taken on three major initiatives: a children's justice project, CriMNet and the state takeover of court funding from the counties.

Dosal said the governor's proposed reductions in the judiciary's budget will result in the reduction of law clerks at the Supreme Court and delay the major initiatives. Chief Judge of the Court of Appeals Edward Toussaint said the governor's proposal will result in an increased backlog at the appellate level and delay consideration of all cases. Mott, the Second District's chief judge, said the trial courts will see a slowdown or even a shutdown of case processing. In some Greater Minnesota courts, he said, there may be only one judge or one law clerk. Mott said some prosecutors may look at their charging policies because they will not be able to prosecute every case in a timely manner. If that happens, he said, it is likely some nonviolent offenders will not be tried, even at the felony level.

Panel tours agency
The State Government Budget Division, chaired by Sen. Jane Ranum (DFL-Mpls.), devoted their Tues., Jan. 28, hearing to a tour of the Dept. of Administration.

Contracting procedure discussed
How agencies handle professional/technical contracts, and how the Dept. of Administration enforces existing contracting procedures and statutes, were the focus of the Wed., Jan. 29, meeting of the State Government Budget Division. Sen. Jane Ranum (DFL-Mpls.), chair of the division, said that even though many members were bothered by recent news investigations of specific contracts entered into by the Dept. of Transportation (MnDOT), her intent was to examine the broader picture of contracting procedure.

George McCormick, Senate Counsel, reviewed laws covering contract procedure for division members. He said statutes give primary authority to the commissioner of administration. As of Jan. 1, 2002, McCormick said, the commissioner of administration was specifically ordered to review all contracts entered into by MnDOT. He also reviewed the power of the commissioner to delegate contract oversight. Statutes require that such instances of delegation be specific in scope and that documentation of the delegation be filed with the secretary of state. McCormick said three delegations of contract oversight were made by the commissioner of administration to the commissioner of transportation during April and May 2001. Of the three, he said, only one was specific to single contract, while the other two were broader in scope. McCormick said the two delegations also made reference to a memorandum of understanding dated May 1, 2001. However, he said, the memorandum was not included in either filing and was, in fact, not completed until several months later. "One could certainly make a good argument," McCormick said, that the delegations were not legal.

Legislative Auditor Jim Nobles previewed a report on professional/technical contracting procedures. He said state laws are tough and rigorous about contract procedure, but that a conflict exists among government officials and workers between getting necessary work done and following good contract procedures. Nobles suggested that division members interested in a case study of conflicts over contract procedure read a May 2002 investigative analysis conducted by the Office of the Legislative Auditor (OLA) into a specific MnDOT contract. He said recent newspaper reports have been more interesting to read than an audit, but both activities have brought the issue to the front burner for policymakers. Even the OLA, Nobles said, confronted a MnDOT that was hostile to oversight, unwilling to admit it was ever wrong and focused on image control and spin. However, he said, the people who set that tone at the agency have since left it.

Jo Vos, OLA, presented the report to the panel. Vos's presentation was similar to the presentation she made to the State and Local Government Operations Committee Mon.., Jan. 27. Ryan Church, who also spoke at the earlier committee hearing, presented a study conducted by the Dept. of Administration into contract procedure.

Sen. David Knutson (R-Burnsville) said it seemed strange that contractors are entering into agreements with state agencies and beginning work, even though the contracts have not been fully executed or funds encumbered for the work. He said contractors should be put on notice that they will not be paid if work begins before the agency has completed the contracting process. Commissioner of Administration Brian Lamb said better controls do need to put in place, while also allowing for special circumstances. Nobles said a potential for legal hazard exists, because an aggrieved party may sue the state and contractor over a range of issues, including contract procedure violations.

Ranum said she believed the governor had recommended changes to contract procedure in his budget reconciliation plan and the other body had included those recommendations in its bill. McCormick said H.F. 74 does contain the governor's recommendations, which make it easier for agencies to enter into contracts. He said the bill repeals requirements that agencies seek state employees to do work, instead of contracting for the work, that the Dept. of Employee Relations keep an employee skills inventory for agencies to access before seeking contractors and that the Dept. of Administration provide central printing and duplicating services for the state.

Lamb said PrintComm, the state printing office, has lost about $1 million. The services it provides, he said, can be performed most capably in the private sector. The state, Lamb said, cannot continue to subsidize PrintComm or other money-losing operations. The department had attempted to shut PrintComm down, but a judge said two state laws prevented it from doing so, Lamb said. He said the administration is trying to provide flexibility for agencies as they examine various business functions and prioritize what they can afford to do.

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