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Good morning. I'd like to welcome everyone to the Interim Committee on Appropriations. I'm Mike Derby. I'm co-chair of Joint Committee on Appropriations along with my co-chair, Senator Ernie Otten. And as we do for every appropriations, we start with the Pledge of Allegiance. Representative Jorgenson, will you please lead us? Thank you very much. And this represents our second meeting of the 2026 interim committee for the Joint Committee on Appropriations. I'd like to welcome all of our internet listeners on South Dakota Public Broadcasting and remind everyone to make sure your cell phones are off. And if you do plan to testify today, please make sure you are signed in. And a reminder, all questions will go through the chair. And we will, as we go through the items, we will allow some testimony and questions. So at this time, I would like to ask the secretary to call the roll.

Senators and Representatives.

Zikmund?

Here.

Kassin?

Here.

Miskimins?

Here.

Carley?

Moore?

Here.

Howard? Here. Muckey.

Yes, please.

Voita.

Here.

Novstrup.

Here. Vilhauer.

Here.

Sjaarda.

Here.

Foster.

Here.

Lapka. Here.

Derby.

Here. Here.

Here.

Kolbeck.

Here.

And Jorgenson.

Here.

Mr.

Chair, you have a quorum.

Fantastic. I appreciate everyone making the extra effort here in the middle of the dog days of summer. So thank you very, very much. And speaking of that, does anybody know where the term dog days of summer came from? summer came from? Who'd like to take a stab at that? No? Really? It comes from back in the day, the star Sirius. The Sirius star was called the Dog Star because when it aligned in the summer, the summer Sirius star was up in the sky with the sun. It was at the highest point and it was always during the hottest part of the year. So when the ancient Greeks saw the Sirius star, it was always during the hottest part of the year, so they called it the dog days of summer. Okay, there you go. At this time, we have some minutes to approve. Yes, Senator Zikmund.

I move to approve the minutes of Thursday, April 30th, 2026.

We have a motion and a second. Any discussion? Seeing none, all in favor say aye.

Aye.

Opposed?

Aye.

Thank you. Motion carries. Well, are there any announcements or personal privileges at this point in time from anybody? Senator Howard.

Thank you, Mr. Chair. So, um, over in the corner there we have Mr. Sherman and Colonel McKean, and then Mr. Rutledge is also over in LRC. So if anyone is here this next week for the remainder showings by the Pier Players of 1776, you should make sure you take that in because they do a phenomenal job. So we're joined by a couple of the signers of the declaration over there.

So very good. Thank you, Senator Howard. Any further announcements or personal privileges? Okay, very good. Seeing none, then we will start on our agenda here, and item number 1 is is fiscal year 2026 year-end report, revenues, expenditures, and reversions presented by the Bureau of Finance and Management. Please introduce yourself.

Good morning, Mr. Chair, members of the committee. My name is Jim Terwilliger with the Bureau of Finance and Management. Happy to be here today. It's been since, I think, March 10th or 11th or so since I've been in front of the committee. And so, Mr. Chair, if I might have a little latitude, I wanted to report for about a few other things that have happened since March before I kind of get into the fiscal year-end summary. Is that— would that be okay?

Yes, sir.

Okay.

On June, as you all know, from time to time we talk about our credit rating as a state. I'm happy to report that on June 15th, S&P Global who is one of the 3 independent primary credit rating agencies, reaffirmed our AAA credit rating. I just wanted to quote a few things that they had to say in their write-up. Well-demonstrated history of maintaining balanced financial operations and strong reserves and 2 rainy day funds supported by conservative budgeting and focus on structural budgetary balance. Robust management practices and policies including comprehensive long-term financial and capital planning. That is based on realistic assumptions and well-defined investment, debt, and reserve policies that require regular reporting and monitoring. Low debt and other long-term liabilities with a well-funded pension system and a lack of other post-employment benefit liabilities. And historically resilient economic profile with strong population growth and incomes in line with those of the U.S. End quote. That's from S&P Global. Follow up with that, on June 29th, Moody's Ratings, which is one of the other 3 independent agencies, also reaffirmed our AAA credit rating. And I'll quote a few things from them. South Dakota continues to stand out among U.S. states in terms of its very healthy finances, low liability profile including debt, pensions, and related fixed costs, These remain long-term credit strengths that bolster the state's capacity to attend to unforeseen challenges. The strengths listed: price-adjusted income levels are above the U.S. median, very healthy financial operations, fund balance and liquidity, low long-term liabilities burden, and low fixed costs that incorporate strong pension contribution practices. So I want to make sure that you are aware of that. A lot of good things that come Again, from independent review of our finances as state. I'd also let many of you may or may not know that I have the privilege of being on the South Dakota Retirement Board of Trustees, and I'm happy to report that the South Dakota Retirement System finished fiscal year 2026 at 100% funded level. The COLA, the cost of living projected cost of living increase for next. July 1st, July of 2027, is estimated to be between 2 and 2.1%. And the Investment Council, as you guys all know, invests all the assets of the South Dakota Retirement System. They finished the year with an estimated— this is not final yet— but an estimated earnings rate of about 11.9%. Now they have a few things with some of their private equity Partnerships and things like that that they have to finish up, but right now that they're estimating that earnings rate to be 11.9%. So I think that was, you know, definitely a good year for SDRS as well as in the Investment Council. As you guys all know, the Tax Foundation does a state competitive— state tax competitive index. We rank second on that, only behind our neighbors to the west of Wyoming. And so we have the lowest state and local tax burden among our neighboring states, which I think is a good thing. One of the other things that we've looked at over the last year or so is I belong to the National Association— our office does— of State Budget Officers. And they publish a survey. They do a survey of all 50 states. And it's called the State Tax Expenditure Report. They pull Expenditures, actual expenditures for all 50 states, and it's voluntarily reported. And all states budget very similarly to how we do— general funds, other funds, right? And then federal funds. And so something that I had my staff look into here over the last year or so is what if we took that spend, that spend, actual spend of general funds and other funds, and kick aside the federal, And I can kind of consider that state spending, if you will. And we did a per capita calculation on that. And when we looked at our region in South Dakota, looking at that from general funds and other combined, we spend about $1,200 lower than the next closest bordering state around us, 22% less than the next closest state around us. And then we're 7th lowest in the nation. And so I thought that was kind of interesting looking at and trying to, you know, make some comparisons across the state in terms of, you know, how much do we spend at the state level and XYZ. You know, I can probably go on and on about some of this stuff, but I think sometimes here in South Dakota we take things for granted and how we conduct our financial business, not only in the state budget but our pension system. We're one of— I mentioned our AAA credit rating. We're one of 14 states that are rated at that level. We're one of like only 7 or 8 states that have a fully funded pension system. And I think is what this reminds me of, Mr. Chairman, it kind of reminds me of the first day of legislative session when you have your handout of the budget principles that we kind of follow as a state. And if we stick to those principles, And we continue to do that. In my opinion, South Dakota is the best financially managed state in the country. And in fact, that's part of our vision statement that we have at BFM. It's in our vision statement. I actually talk about it with my staff. And, you know, sticking to those principles, I think the results that we're going to talk about here with state fiscal year 2026 is really as a result of those principles that you talk about, this committee talks about. So I really wanted to take the opportunity to thank the committee for, you know, those that have been around a long time of continuing to make some of those difficult decisions when they have to be done, but kind of continuing to stick to those principles. Because if we stick to those, I think we'll continue to be successful in terms of managing our budget and all things finances in South Dakota. So thanks for that, Mr. Chairman. If anybody has any questions about any of those or has any comments, Otherwise, I'll kick off the year-end.

Questions for Commissioner Terwilliger? Questions for Commissioner Terwilliger? Commissioner, I have a question on the AAA bond rating. I think one of the main benefits is borrowing and lower interest rates for debt. What are other Benefits of being— having a AAA credit rating?

Mr. Chair, I mean, that's the primary, you know, having a credit rating like that, that's the primary benefit is if we go out into the market and issue bonds for any type of capital project that we would need to do, we would get a more favorable interest rate. It's no different than if you were to go purchase a house. Or a car or vehicle loan like that, and you get a credit report pulled personally. It's similar to that, but it's just at the state level. And so the other benefit to that that some of you may or may not know about is we also allow school districts to take advantage of that credit rating through what's called the State Aid Intercept Program through the South Dakota Building Authority. And so we've got documented You know, tens of millions of dollars of savings, interest savings for school districts all across the state that are able to take advantage of that through the South Dakota Building Authority, which is a program that's been in place for, you know, a decade or more in South Dakota. And so it's not only state but also school districts that are able to benefit from interest savings and ultimately taxpayer savings at the end of the day.

Further questions? One more follow-up in regards to the Investment Council. I guess with the amount of cash we have on the sidelines waiting for a market correction, I guess 11.9%, I was pleasantly surprised that number came in where it has. Do you want to Give a little color on that?

Yeah, I mean, not to steal any thunder from Matt Clark and his investment team, but I think, you know, Matt can add a lot more color to that next time he's in front of you, or I'd invite you, anybody, to participate in a future South Dakota Retirement System meeting where they cover— Matt and his staff routinely cover and talk about their investment earnings. But yeah, 11.9%. I think is, you know, given where our investment mix is, is a pretty good earnings rate for fiscal year 2026. And I think, you know, you know, beyond that, Matt and his staff would have to, you know, add a lot more color to that. But I think for the most part, I think I agree with you, Mr. Chair, that that was a pretty good interest rate given that we do have some investments that are in a more conservative position in terms of the investment mix that the Investment Council currently has.

Thank you. Any further questions or comments? Chair Otten, any? Okay. All right. Moving on.

Okay. We're going to get started and walk through fiscal year 2026 and some of the fiscal year-end results. We'll go through year-end overview, revenue collections, and then budget reversions. On some of the revenue collections towards the end of the day, I know you have a revenue estimate update from Mr. Mehlhaff and Mr. Johnson on BFM staff, and so they'll add to that later in the day, but we'll just move forward. So as, as you all probably saw with the press release, From about a week ago, the general fund year-end surplus was just a shade under $69 million. About $30 million of that came from budget— from revenue being higher than the estimate, and about $39.2 million came from budgeted, what we'll call reversions, or lower spending compared to the budget. We kind of break this up into 2 pieces, if you will. And I'll talk about it in kind of 2 pieces because when you look at that total year-end surplus, if you look at that as a percentage of our total budget, it's about 2.7%. But of course, there's 2 sides of that equation, and you're kind of looking at both sides of that. So on the revenue side, we're about 1.1% higher than the revenue estimate, and then on the spending side, it's about 1.6%. And so when you boil it down and look at those 2 pieces, you know, I think at the end of the day are very, very close. So the surplus at the end of the day, that $69 million goes into the state's reserve funds, which is all dictated by state law. This next slide shows the history last 5 years of basically our surplus at the end of the year. And so you can see Going back to fiscal year 2022, there was years coming out of the pandemic where we had these really strong revenues coming in. Things were probably a little bit more volatile and less predictable. And so you had in '22, we had about $100— a little less than $116 million surplus. And then for the most part, those surplus numbers have been trending downwards to $90— about $97 million in fiscal year 2023. Then in '24, $80 million. A year ago, about $63 million. And then this year we were right at $69 million. And so for the most part, looking to get a little bit more consistency compared to, you know, 4 or 5 years ago in terms of the year-end surplus. Moving on, I mentioned the—

Commissioner, question. Part of that consistency will probably be in regards to unclaimed property receipts, right? With not having that volatility moving forward.

Mr. Chair, yeah, I think that's right. One of the things that's— I'm glad you mentioned that because one of the things that's with unclaimed property was it's difficult to know how much comes in because we just really don't know at the end of the day. And so with the established Establishment of the trust fund from the '25 legislative session. That helps bring more predictability about how much unclaimed property will come to the general fund because now it's outlined in state law. And if you remember last year, in fiscal year 2025, one of the reasons we had higher revenue was because we had some unexpected unclaimed property come in the spring. And that's abnormal, as you know, because the vast majority of it comes in in the fall. And so it's that, I think that adds to being more predictable on the revenue side of the equation for sure going forward.

Questions? Senator Otten.

Can you remind everybody right now what we are getting for interest money on that money? And then of course we pass, if the folks will pass the legislation, we could have that change, those 2 different numbers.

Mr.

Chair, yeah, good question. So right now I believe there's about a total of around $163 million that's in the trust. Um, that's earning interest earnings just like our normal cash flow. And so the next agenda item is investment income. So we're earning around 4% on that money right now, assuming the constitutional amendment If that were to pass in the future, that allows the South Dakota Investment Council to invest those trust fund monies in the unclaimed property trust in what we'll call the prudent man standard. So then their investment mix can be broadened to include, you know, stocks and bonds and more of a traditional prudent man standard similar to the investment of the South Dakota retirement assets, if that makes sense. And so that expected rate of return would be higher Somewhere more in the 6.5% range, give or take. If that—

any further questions or comments? Anybody online? Okay. Thank you.

Okay. Just want to give a little sense of the balance in the rainy day funds. So with the $69 million And of course, there was about $56 million that came out of reserves to help pay for that first part of the homeowner property tax reduction fund. After that, those 2 transfers are completed, just skipping all the way to the right. Right now today, we have $325 million in our 2 primary reserve funds, being the budget reserve fund, which has about $225 million, and then the General Revenue Replacement Fund has about $100 million. And so that $325 million, of course, we always look at that compared to our current budget. And so we're sitting at about 12.7% as a percentage. And as you guys all know, we've, you know, typically have managed to 10% to make sure we have at least 10%. And so Right now we're sitting at 12.7, which, you know, I think is— we're, you know, we're in a good position to start out fiscal year 2027.

Representative Kassin.

Yeah, thank you, Mr.

Chair.

We've talked earlier in your remarks about neighboring states. Can you give us an idea how we compare with neighboring states on that 10% number?

Mr.

Chair. Yeah, good question, Representative Kassin. I don't have all those numbers right off the top of my head, but I do know I would say over the last several years, states have put a significant amount more into reserves. I would say we are on the lower end of the scale where we're at, at 12.7. There's a lot of states that have gone up into the 20s, 18 and 20s. We can go look and report back on that, but we are on the lower end of the scale. I think states actually are carrying a pretty high level of reserves. At this point in time. Now, some of that may be spent down in the next couple years. For example, you know, there's there's states that we talk about structural balance. There are states that are using one-time money on ongoing operations to balance their budgets right now, and that's not a good place to be in. But we're not in that place. We're in a good spot where we have a structurally balanced budget. But we can follow up on that.

Continue.

Okay. Okay. Now we're going to move into revenue collections and how those finished up the fiscal year. This is the total revenue. Wanted to— so it's $2.78 billion, with a caveat to that. And that includes what we call unobligated cash. If you look right at the top, the $169 million, that really is kind of like last year's surplus, if you will, or unobligated cash that ends up going into the— went into the reserve funds, and then we used most of that, of course, with the special session. And so that, I mean, it's a little bit overstated. If you take that out, of course, you're about $170 million less. But you can see the pie chart, sales and use tax, a little over 55%, $1,527,000,000. And then the makeup of the other larger sources being, you know, contractor's excise tax, insurance company tax, you know, lottery revenues, $184,000,000, so on and so forth. Anybody has any questions? Otherwise, we will keep moving.

Question, Senator Zikmund.

Thank you, Mr. Chair. Commissioner, just one question on the contractor's excise tax. Are we down on that now? Because we've been up quite a bit.

I've got a chart on that that hopefully answers your question.

Okay, I mean, you don't have anything much to do with it, but I'm saying that, you know, it surprises me that we only have 8% coming in. I'm surprised that we didn't have more coming in.

Understand the 8% is the percentage of the total, of the general fund total revenue. So that's actually been probably pretty steady over the years into that 8% range. And the CET actually did grow a little bit this last year, and I'll cover that here in a chart coming up.

Okay, thank you.

You bet. Okay, this chart, I'm not going to walk through this, and I apologize for the print being small, but I wanted to give you the detail. And this is how the revised estimate, which is the far left-hand column, compares to actual collections, which is the next column to the right, actual 2026, and then the difference in dollars, and then to the far right column, the difference percentage. And so I'll hit on a couple of these and then see if there's any questions. But, you know, one of the big things that we obviously track very closely is this— is our state sales and use tax. And so that gets the most attention because that's where a vast majority of the funding comes from that you guys appropriate through the state budget process. And so fiscal year '26 actually is a pretty strong year for sales tax. We finished $17.2 million higher than the estimate. Again, these estimates were the ones that you guys adopted and revised in February. So when you do that, just to provide you a little context, you have 7 months of actuals. Through January, and then you're projecting out the final 5 months of the year. And so you're projecting forward how much sales tax are we going to get in February, March, April, May, and June. And that's where we're at now, and we're reporting on that. And so fortunately, our sales tax came in a little bit better. The economy performed a little bit better than what we expected. And so that's where one of the bigger ones to the upside were at $17.2 million. I'll mention the insurance company tax. Just to give you a little context, the insurance company tax, when we met and you guys looked at estimates in February, at that time insurance company tax was running up double digits, somewhere around 10%, maybe a little bit more. We finished the fiscal year almost flat. So we lost a lot of that growth in the last 5 months. And You know, Derek, I'd probably just kind of wait for Derek to come up here later in the day to talk a little bit more about that. But you're seeing some flattening areas in the insurance. So this is insurance, the taxes based on premiums written in South Dakota. And so you're seeing that flatten out a little bit after a few years where we're seeing, we're seeing a lot of double-digit growth. Then we have the bank franchise tax was up $5.3 million. And then one of the other ones, severance taxes, We were off a little bit by about $3.3 million. Now, we still had a record year in severance taxes. We were up 40% compared to actual collections the year before. We just missed the estimate by a little bit compared to where we thought things were going to land in February. So ongoing revenue sources, we're up $15.8 million. So I see that as a good thing starting off into fiscal year 2022. 27, especially with the sales tax being up. And then you get down into some of the one-time things. We had some prior-year bank franchise tax revenue. We had some one-time sales and use tax from a large monthly remittance that we did not— we don't expect that to occur year— month after month. And then we have unexpended carryovers and specials. Those represent special appropriations. From previous years. They typically have a 4-year life, and after that 4-year life is done, if there's any remaining funds that are unspent, those revert back into the general fund. It's actually lower spending, but the way that we have to account for it, it kind of comes in as a one-time revenue. So we separate that from your normal, what I'll call annual appropriations. That's the reversion conversation that we have a little bit later. Thank you. bit later. And so I wanted— that was about $8.2 million.

Commissioner, we had this conversation. Do a little more detail on specials, how that works for special appropriations and when those monies show up.

I think the best way to do that is just to give you an example. In the 2022 legislative session, Senate Bill 48 appropriated $1 million in general funds and $3 million in federal fund expenditure authority for the Wagner Maintenance and Readiness Center. So that was a Department of Military project. And so fast, fast forward till today. Army anti-terrorism/force protection requirements. And so they're basically— long story short is there is a delay at the federal level with this particular project. And so these— the redesign costs and all that type of stuff didn't get finalized until recently. That special appropriation reverted at the end of 2026 because they only have a 4-year life. And so that $1 million. $1 million is part of the $8 million that reverted back to the general fund. So that's a project, depending, we may need to, you know, reconsider that as part of the budget process because the funds that were appropriated in 2022 recently just reverted here, you know, in the last few weeks. So that's an example of a special appropriation. Typically, unless specifically outlined when the reversion date is, it's good for 4 full fiscal years. And so these are— most of these are special appropriations that were appropriated in the 2022 legislative session. The other piece of this is if there's any what we call contract carryovers. And so contract carryover is a situation where if you have a technology project that's going on that spans multiple fiscal years, you can encumber those funds so they don't Don't revert in the normal reversion process. And when you cover those and that contract runs out, anything that is unspent, that reverts back to the general fund. And so it's those 2 pieces, specials that didn't spend the full amount or any contracts where the full amount wasn't spent.

Thank you. Questions? Comments? Just a little follow-up. The committee I handed out, and I do have a couple additional copies if anybody wants these from the audience. But we what I handed out, Commissioner, is I did make copies of the year over year growth. I thought that's very appropriate to for me. It makes it a little easier to say, oh, sales tax year over year increased six point five nine percent. And then, as you mentioned, like the severance tax increased 40.7% year over year, but we missed our target, you know, by $3.2 million.

Yeah.

So what I handed out to the committee is the year-over-year growth on the right-hand side. I think it's one more level of Information. I think that's real handy. So if anybody else wants a copy of it, come on up.

Yeah, thanks, Mr. Chair, for making copies and handing that out. I think that gives context because when we do these comparisons, it can kind of get a little confusing because what I just showed you was comparing to the estimate. But it's helpful to know that sales tax grew by 6.6%. For fiscal year 2026 compared to 2025, which just happens to be the chart that I have up right in front of you right now. And so one of the things, um, clearly we like to track is a sales tax.

And so, Mr.

Chair, yes, this is, uh, Sjaarda.

Can I ask a question on this?

Yes, absolutely, Representative Sjaarda.

The $4 million one-time sales tax Do we have more information on that, Mr. Chair? Um, the— yeah, what I can tell you is each month when the Department of Revenue reports the sales tax for them for the month, um, you know, there's different checks that they go through. And when you look at that, sometimes There's an issue where something just jumps out that looks like an anomaly. Okay. And so when that jumps, if there's something that jumps out as anomaly, we ask the Department of Revenue to look into that. And in this instance, that 4— excuse me, $4.1 million, when we had them look into it, it was a situation where it It was something that wasn't reported previously to that extent. And looking into the future didn't seem like it was going to be reported to that magnitude. And I can't really go any farther than that. To be honest with you, I don't know any more than that, because when it comes to reporting sales tax information at the business level, that's all confidential taxpayer information, right? And so, you know, that's so— Those are things that we look at. This doesn't occur very often. It has occurred in the past, but that's something where just something just sticks out where there's kind of a one-time event, a fairly large amount comes into the state treasury. They're following state law, but we don't expect that to kind of recur into the future. Hopefully that provides a little more context.

Yes, thank you.

Follow-up?

No follow-up. Thank you.

Thank you. Any additional questions? Senator Vilhauer. Senator Vilhauer.

Yeah, thank you, Mr.— thank you, Mr. Chair. I have a question for Commissioner Terwilliger, if I might.

Yes.

Uh, could you, Jim, could you go through the, uh, the last couple items, the transfer from budget reserves and the obligated cash carried forward? Explain those a little bit.

Yep, I'm happy to do that. So, so the in in fiscal year 2026, the The $169.2 million, that's what we call the obligated cash carried forward. That was last year's cash surplus. So when I was sitting here in front of you last year, we had a $63 million operating surplus, and then you had $108 million that you guys left on the bottom line. All that money, it totaled to $169. Floated into the reserves purposefully. We knew that was going to happen to save the money to address the prison, prison special session that we had later in September. So those funds basically got, for the most part, got appropriated through the prison special session in September. The other $100 million— do you want to add to that? Derek, if you would.

Mr.

Chair, Derek Johnson, Bureau of Finance and Management. I was going to look up the bill number. It might be Senate Bill 74. But during the legislative session, there was $101.5 million that was transferred from the budget reserve into the general fund for the legislative priorities and the one-time funding decisions that were made. And so that $101.5 million comes in on the revenue side. It was spent primarily on emergency specials and those sorts of things. And just one more thing with the obligated cash carried forward, the $169.2 million, as the commissioner mentioned, that was our surplus total from last year that is transferred into our reserves. So it comes in as obligated cash carried forward in our fiscal year 2026 revenue statements. And then if you were to look at our general fund condition statement, it's going out in expenditures to the general revenue replacement fund and to the budget reserve fund. And so it's balanced on both sides.

Okay. That makes sense. Thank you, gentlemen.

Good question.

Okay.

Back to the sales and use tax growth rates. So this outlines fiscal year '25 and '26. So the blue bars are the monthly year-over-year growth rates. The best for, for us when we look at sales tax, looking at the growth rate from one month to the next doesn't really make a lot of sense because there's different changes in seasonal spending patterns, if that makes sense. So for example, Christmas sales that all occur in December, it wouldn't make sense to really compare them to October or November, you'd really need to compare them to the month, the same month the year before. And so that's what this represents. It's a year-over-year growth rate. And so kind of rewind back to where we were, you folks were meeting. We had information through January of fiscal year 2026 when you adopted the estimate. And of course, January was a big number. We had this like 13% number come in. When up to that point we were only growing at 4%. And so you kind of have to filter through that and figure out what all that means. And so we— you adopted a sales tax estimate and then go forward. We had the 5 remaining months of the fiscal year, which were all pretty, pretty strong. All of them were over 6%. And then we finished the year at 6.6% growth, which, you know, which is a good solid—

6.6%.

solid performance on the sales tax side. And so I think that's good to see starting out fiscal year 2027. Okay. Now, this shows a little bit more historical context on the sales tax. We've got about, oh, a dozen years of history here or so. This is raw collections. And so as a reminder, The rate was reduced for fiscal year 2024.

Okay.

So this is not rate adjusted. This is just total collections. So the collections came down in 2024 because the rate was reduced. That makes sense. And so, of course, in 2025 was a little bit softer. And then we finished 2026 with some, you know, pretty strong growth. As we just, as we just covered, contractors excise tax. Senator Zikmund, you mentioned this. This shows history since 2017, and so you can see 2017 up through fiscal year 2024. You know, pretty strong increases each year. 2025, things softened a little bit, but then we saw a little bit of. Growth in fiscal year 2026. That was— we were just right on the— I'd describe it right on the estimate within $500,000. But we were about 2.4% more than last fiscal year.

Senator Howard.

Thank you, Mr.

Chair.

I'm just wondering, can you— do you know right offhand how many other states have a contractor's excise tax and what the average rate is?

Mr.

Chair, Contractors excise tax is a fairly unique tax to South Dakota. So it's not common when you look across states that you would see this specific tax. There is another state, I can't think of it right off the top of my head, that has something similar. And I don't know what the rate is. We can follow up on that. But this is a pretty unique tax. My understanding, it replaced the The personal— was it like a personal property tax back in the day, back in the early 1980s?

Mr.

Chair, I see he's nodding his head.

I wasn't there in the— here in the early '80s, but contrary to what people think. But yes, I believe that's correct. I think Governor Janklow did it, the contractor's excise tax.

And that the previous tax was commonly referred to the liar's tax because you'd filled out this form every year and sent it in and XYZ.

I don't know if anybody knows any more context than that, but yes, there was only 2 diamonds in Pennington County, 2 diamond rings in Pennington County back then. Senator Howard.

Thank you, Mr. Chair. Just to follow up, so do other states have more along those lines, or do other states just not have anything along anything like that?

Mr.

Chair.

Other states have a personal income tax. Other states don't— actually don't talk about their sales tax like we do. They talk about their personal income tax because that's their largest tax source.

Follow-up?

Okay, but aren't you saying this kind of replaced a tax on what you already own, not what your income is? It was a personal property tax. Tax, right? So you had to report how many diamond rings you had, whatever. So which is totally different than an income tax. So you're saying you're— but you're saying other states have income taxes versus this. But I'm thinking those are 2 completely separate things. So do other states have more along the lines of what you said this kind of replaced was a personal property tax? Do other states have that?

Mr.

Chair, I'm not— I don't know how many other states have a personal property income tax. That's something we can try and research and provide some more context. But I think just where I was going with that is we're one of very few states that doesn't have a personal income tax, right? And so, you know, the contractor's excise tax for us is, you know, about 8% of our total revenue, give or take. You know, other states, the personal Income tax is, you know, 40 to 50% of their probably total revenue stream.

Senator Zikmund.

Thank you, Mr. Chair. Just quick history on the contractor's excise tax. Henry Carlson, when he was state senator, was the one that started the contractor's excise tax. And one of the main reasons that— and he was one of my contractors for the AGC, so Henry and I were good friends. He's gone now, but Henry and I were very, very good friends. And one of the things that he said, that we had to do something to replace just exactly the personal property taxes, et cetera. So, and that was probably one of the reasons that he lost his election next year. But he did get the contractor's excise tax through. It's been a good— the contractors understand it. The owners pretty well understand it when they come to pay that contractor's excise tax. We like it at the— not we, but the contractors basically like it. There used to be a time when also the state paid the contractors a little bit of money for collecting that contractor's excise tax. That— and we took that away from them. Okay. So, and that's what the retailers were talking about when they got the opportunity to be paid back a little bit to the retailers. But Henry Carlson, I have to give Henry the credit for that. It's brought in a lot of money to the state of South Dakota, and it's been a very good tax. People understand it. Thank you.

Senator Otten.

Just for clarification, there are 9 states that do not have a personal income tax: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming.

Mr.

Chair, okay, to follow up on the beauty of technology, I had a little genie that was listening in. So the state that has something similar to the contractor's excise tax is New Mexico. And it's gross receipts on labor and materials for contractors. So it's pretty similar. And the base rate on that is right around 5%.

Okay.

Representative Jorgenson.

Thank you, Mr.

Chair.

Just wondering how, as we look at the excise tax, that also applies to like Ellsworth and the work that's done there. And I think that was part of the reason. And when you mentioned New Mexico, I know they have a large military presence. Can you address that at all? Or maybe it's not even related.

I'm not familiar with the military presence in New Mexico and how that relates to the contractor's excise tax. But I do know Certainly when you know there's the appropriation for Ellsworth this last year, I think for eight million. Does that sound right? Somewhere in there. That was that was part of the contemplation was is you know there's a there's contractors excise taxes generated through that project.

Certainly.

Okay. Any further questions? Okay. Continue.

Mr. Chair, I'd re um. There was a question about how our reserve balances compared to other states, and so I also have some of that information. This is as of current, as in the last six months or so. Iowa's reported 9%, Minnesota 10.7%, Montana 16.5%, Nebraska 15.0%, North Dakota 30.0%. And Wyoming at 87.7. I assume Wyoming's probably includes their mineral trust fund. If anybody's looked at Wyoming, probably the reason that Wyoming ranks ahead of us in our tax competitive index is because Wyoming has about a $12 billion mineral trust fund. It's been set up since 1978. It's populated by mineral severance excise taxes, coal, oil, those types of things. It spins off about $500 million a year through the state budget process. That's just an advantage. That's just something that we don't have comparatively. We have trust funds, but we don't have $12 billion in them. We've got a little over a billion. And our spinoff is somewhere around $45 million, which is a good thing. But anyway, we'll keep moving.

Okay.

Insurance company tax. So you can see here the insurance company finished, we were about $10.9 million below estimates. And again, with context, in February this was growing, you know, in double digits. And so since then it's softened up, but we still did grow a little bit, about $1.1 million or 0.8% over last year. But you can kind of see, I mean, everybody knows that insurance rates have gone up the last number of years. It appears we're starting to see that different factors, we're starting to see that stabilize and flatten out a little bit. And you're also starting to see people probably making decisions. So, you know, changes to deductibles, those types of things to bring down the costs that are paid out of pocket, if you will, for insurance. So combination of a couple different things going on there. And so we'll, you know, keep an eye on that going forward. Okay, now we're going to shift over to the budget reversions conversation. And when we talk about budget reversions, you know, this is really unspent general funds that were appropriated through the annual budget process. Hopefully that makes sense. And a lot of times we'll break that up into personal services and operating. The personal services piece was $6.4 million. And then the operating was $32.8 million. Again, with context, about 1.6% of the state general fund budget. 95% of the reversions are within 4 agencies, and we'll hit on those. You had the sheet that was handed out. We have a list of reversions by agency that's out on our website at bfm.sd.gov, as well as this presentation. You can see over in the pie chart, the majority, vast majority, is Department of Social Services, $31.9 million. And then you have UJS, Education, and Board of Regents that rounded out those top 4. Those are all agencies that reverted over $1 million. And then everything else collectively totaled $1.8 million. Okay.

Questions? Any questions online? Any questions?

Okay.

Continue.

Okay. Department of Social Services. And so for context, I think it's helpful. We put this in a bar graph over on the right-hand side to show basically the total— the total column graph shows the total appropriation. So for Department of Social Services, about $650 million. And so you can see the actual expenditures. Was about 618, with that orange block at the top representing the amount of the reversion, $31.9 million. And so that's it's about 4.9 percent of the DSS budget. Really, that I mean at a high level, you're looking at 12.5 million of the 31 came from medical services. You know, less than anticipated or less than budgeted costs in the utilization of Medicaid services, fewer acute hospitalizations, high-dollar claims, those types of things. I asked the department look at their top 5 claims for fiscal year 2026. So the top 5 claims actually total about $10 million, which gives you a context. And so when you're setting budgets and you're looking into the future, Several months, 18 months, and then you do a revision. So we're looking 6 months into the future. You know, we're trying to predict how many people come into the hospital with, you know, various acute conditions and so on and so forth. So it's not something that's, you know, easy to predict going forward. And so, you know, $12.5 million in, like I said, in medical services. There's $10.8 million reverted in the behavioral health area. Some of that is some of the clientele in terms of eligibility status as a result of Medicaid expansion, which has a more favorable match rate, of course, which is 90/10 versus approximately 50/50. You know, we're always looking for to try and take advantage of that so that we can save as much state tax dollars as we can. A small amount was from that. We had less utilization in the substance use disorder area than budgeted. It was about a little over $4 million and then about $3 million within the mental health treatment services. Some of that we're hearing is staff shortages at the provider level without, you know, my understanding is some of those, some of those beds and that utilization is due to some of the staff shortages in those areas. We also reverted about $3 million in HSC, Human Services Center, mainly due to vacancies. And again, we're trying to hire up at the HSC, but when you have vacancies, those funds revert and get turned back over to the state treasury. We also had about $5.3 million in children's services, which is mainly in the Child Protective Services area. Some of that is being driven to lower than anticipated costs in our psychiatric residential treatment facilities. My understanding is we had some lower out-of-state placements, and so there's some savings there, and you know helps explain some of the reversion back to the general fund. And then we also had $1.9 million. Reverted in economic assistance. Another example here is, if you've heard of DSS talk about their BEEES system, which is the Benefit Enrollment and Eligibility System that went live here over the last couple years. When DSS was able to take advantage of a more favorable match rate for some of those folks. And so that helped lead to the reversion in that area. And I believe that was adjusted through the fiscal year 2027 budget. It didn't get adjusted in the 2026. And then we had about just a little over $1 million in general funds reverted from administration. There's a contract that DSS had between Lutheran Social Services to complete some assessments for foster care. Not all that work was able to get done, was delayed, and so that caused some of those funds to be reverted as well. And so in totality, that's the DSS reversion. I'll stop there to see if there are any questions before we move forward.

Questions? Senator Howard.

Thank you, Mr. Chair. I don't have a question, but I was wondering if we could get A hard copy of the more detailed information.

By like budget general bill center?

Yeah.

Yeah, we can provide that. I would offer a few comments on DSS because I know it's the biggest area. We should expect that this should be the biggest area of reversion every single year. The fact of the matter is, is the general funds that are And the, the balance that you guys have, we all have together jointly as you're putting together the budget, and I'm helping provide input on that, is budgeting the right amount. And we don't— the last thing we want to do is get to the end of the fiscal year on July 15th and we're $3 or $4 or $5 or $10 million short. I think that's a great point. So there's only 2 sides of the coin. Either have enough funds to get you through or you're going to be short. And so from my perspective, we should expect if we're doing following our budget principles that we should, but we should revert $20, $25, $30 million from DSS every year. So I don't think this should be a surprise because it's it's Senator Foster.

Thank you, Chair. So my question would be, when you're looking at these reversions, a lot of it has to do with utilization costs and workforce shortages and anticipated— like within behavioral health. Would low reimbursement rate also drive this? So if you're looking at the So that's one of the things is if we're not reimbursing and paying enough for these services, they're not going to be utilized, which then creates a harm for the community.

Mr.

Chair, yeah, good question, Senator. I think the reimbursement rate conversation, you know, happens every year. I think, you know, in these different areas where there was reversions, I think those are areas that you guys and us all together collectively through the annual budget process. That's where we should have those conversations. I know, Mr. Chair, you guys have work groups in different areas on Medicaid, XYZ. Those are things that we need to continuously look at to make sure that those reimbursement rates are appropriate. So I agree with you in a certain way, but we also have to keep in mind at the end of the day When you look at the state budget as a whole, if you go back the last 6 years or so, this is the area of the budget, the Medicaid area, and provider rates and all those types of things. We've had methodologies that have come out in different areas. And we're always kind of chasing and trying to get to this, what, you know, what's considered 100% rate reimbursement and whatever the benchmark is for that. And so those are, you know, conversations I think we have ongoing through the budget process.

Every year.

And so I think that's something in some of these areas we should absolutely look into that.

Follow-up?

Thank you. Yes, and kind of connecting to Senator Howard's question for a more detailed— can you also give us a more detailed look at the B system to see if a lot of people were, during the system change, were eliminated from their program just to see if that influences this.

That's something that we could, we can certainly look into.

Okay, thank you.

Yes, Representative Jorgenson and then Senator Vilhauer.

Thank you, Mr. Chair. Um, just want to piggyback on what Senator Foster was talking about. So I wonder if the lower utilization is a demand issue, a reimbursement issue, or a work So it seems to me that— and I don't know if you've delved into this— but across the board in healthcare, there is a workforce shortage. So that's going to impact this. So trying to drill down on what exactly is bringing this about, I guess, is all I would say. Thank you.

Mr.

Chair, good I mean, good point. And I would tell you it's probably all of the above, right? I mean, I think when you're looking at the Medicaid population, whether that's traditional and Title 19 or 21 or the Medicaid expansion, you know, the Medicaid expansion numbers kind of flattened out at 31,000 and change. So we track all of that. I mean, some of that's demand-driven and some of the other behavioral health issues. You know, we hear about the shortage of labor and, hey, we could possibly, you know, we could possibly serve more folks, but we don't have the labor to do that right now. And so I think it depends on what area you're looking at, but I think it's kind of across the board depending on, you know, which space you're in when it comes to that.

Senator Vilhauer.

Thank you, Mr. Chair. Just to comment, uh, in the conversation here, as you recall, last session we were trying to find additional places to increase the funding to the Big 3. Uh, the, the little subgroup that was formed to look at it, uh, one of the suggestions that came out of that was a $7.5 million reduction in the amount that was requested in the budget by DSS. So that, uh, to me would say that next year we might hold the cap a little bit on the reversion amount. Because of that, of that cut in the budget, Mr.

Chair. Yeah, thank you, Senator Vilhauer. And that's a good point that I didn't mention is yeah, you guys did make a reduction in the in the current year fiscal year 2027 budget in this area. And so everything held else held constant, I would expect that you know that budget will be a little bit a little bit tighter this current fiscal.

Senator Foster.

Thank you. Also within the information that we'll be receiving, can I get more information on the DSS contract for placement through— I think it's Protective Services. Just a more in-depth look at what that entails.

Mr.

Chair, when you say placement— I don't have any specifics. I've mentioned psychiatric residential treatment facilities placements. I mentioned out-of-state placements. Is that what you're referring to?

No, I apologize. For the contract for the nonprofit that was doing assessments on child protective placements.

Mr.

Chair, Brandy Miesner, BFM. That contract was with to license foster care placement options.

So they had some staffing challenges, so they basically just weren't able to complete all of the work. I believe that's been fixed now, so they'll be able to do more of the placement licensure in the future.

I would like more information. Follow-up, thank you. More information, maybe how many children were affected by this. You said that it's been remedy, but what is that remedy? And just more information on the situation.

That helps. We can follow up with that, Senator. Thank you.

Senator Miskimins.

Thank you, Mr. Chairman. Uh, Mr. Commissioner, you shared that the top 5 claims cost approximately $10 million. Do you have data on over the years approximately how many individuals would fall into that Major claim area, what risk is there on an average year?

Mr. Chair, yeah, we can follow up and see what we can compile over maybe the last 5 years or so. Maybe pick a threshold like any, any claim over $1 million or something like that. Does that make sense? All right, we'll see what we can get put together so we can share that with the committee.

Further questions? Commissioner, I have a comment. So the— correct me if I'm wrong on this, but the behavioral health basically represented about a third, one-third of the reversions for DSS. Is that correct?

That's correct.

Okay.

And I think this area, behavioral health, that's probably— you talked about work groups. I think this would be Ripe for a work group in the next session. So, God willing, and the creek don't rise, I'll be here and we'll bring it up. Sounds good. Thank you.

Okay, moving on. Okay, UJS was the next agency.

Senator Howard, missed you. Sorry.

Thank you, Mr. Chair. I was just going to I just want to make a comment, and especially for people listening online, because sometimes I listen to the discussion and I wonder, are we wanting more utilization? And I, for one, want to go, I'm celebrating less utilization, whether it's in behavioral health, medical services. I mean, maybe the people on Medicaid are getting healthier and they don't need as many services. But I mean, the reminder is these are all welfare services.

Thank you.

So lower utilization should be a cause to celebrate. And I hope we aren't looking for ways to increase utilization just because we happen to have some reversions.

So—

Senator Foster.

Thank you. I completely agree. But I think that the services that we do provide, we want to make sure that there's a pathway to self-sufficiency. And not just attrition to where we keep people either not treated and just at a lower income. So what's the best balance to find a pathway to self-sufficiency in a healthier community?

Thank you. Continue.

Okay. Next, UJS, their reversion is about $2.3 million. $1.6 million came from UJS proper, and then the other piece, a little over $600,000, was Was from the indigent legal services portion. Of course, they're, you know, kind of ramping up to that, to the level budget that represents about 3.4% of their budget. Of course, with UJS, some of the turnover throughout the year, and then they had less drug and DUI court treatment participants. And so part of that was changed a little bit, as my understanding is. When someone goes through a drug and DUI court, if if they're Medicaid eligible, they kind of get paid over out of the DSS bucket bucket, if you will. And so, if there's more folks that fit into that, you'd see less expense in UJS, and some of that falls over to DSS. And so there's a little bit interconnectivity there with that, just as a reminder. So that covers UJS.

Representative Jorgenson.

Thank you, Mr.

Chair.

I just want to go back to talk a little bit about the reversions, and I appreciate what Senator Howard had to say, and I agree with that. But what I was looking at and what I think BFM is trying to do is we're trying to right-size government and try and, when we're doing our forecasting, trying to figure out what are the things that are impacting us when we're making these fiscal responsibilities. So I think there were 2 topics that were going on at the same time. But I appreciate the clarification from Senator Howard for the other side of that conversation.

Thank you.

Very good.

Okay. Moving on from UJS, we'll go to education. So this is Department of Education and state aid. Everything kind of together here is— the reversion here is $1. $1.8 million. State aid was $1.5 million of that, with the Department of Education proper being $300,000, and then tech colleges being $56,000 and change. As I mentioned previously, the state aid is the largest single item in the budget, but the difference here between state aid and, we'll say, DSS and medical services, is with state aid, It's paid out on a formula basis, and we get that student count in the fall, towards the end of September, finalized in the fall. And so once you get that student count, which the formula is based off of, then you can make adjustments during the upcoming legislative session, which is what we did. And so you can get a lot closer to the state aid number. Now, does that mean you're exactly on? No, there's different things like cross-border agreements with school districts that are out on our borders. There's placements with PRTFs through the school systems that get spent out of the state aid budget. So you're not exactly on, but you can get a lot closer, relatively speaking, than the DSS budget. Hopefully that makes, makes some sense. So I wanted to mention that. Okay, moving on. Board of Regents had a A little less than $1.5 million, $300,000 in personal services and $1.1 million in operating. Most of this is related to utilities that were not fully expended, lower than— lower costs than budgeted for utilities across those— all the campuses, it looks like. And then there was some reversions from— The School for the Blind and Visually Impaired for some personal service vacancies of positions that were open throughout the year. And then a few smaller amounts in some, you know, we had some veteran— veterinarian grants and opportunity scholarship amounts that were just a little bit less than budgeted through the central office. Okay, moving on. So this is the detail by agency. If there's any questions on any specific agency, I'm happy to try and address those now. Otherwise, that concludes the first agenda item.

Additional questions for the commissioner? Any questions online? I'll open it up. Is there any testimony? Anybody here to testify regarding this topic? Nobody online? Okay. Moving on to item 2.

Okay.

Thank you, Commissioner.

Yeah, thank you. The next item is the To certify the proration of fiscal year 2026.

I do have a comment. Having gone through all this, I would be remiss if I didn't thank our Joint Committee on Appropriations for all the hard work and due diligence that we put into the budget-making process and how I think remarkably well and close we got to Putting a budget together, and it just doesn't happen. It just doesn't happen. And it's a it's a effort of our everything from our revenue setting committee, which is a bipartisan committee, to our bipartisan committee of Joint Committee on Appropriations, and then with LRC is is nonpartisan. We get advice from LRC. And we put together a budget and we look at it 16 months in advance. And I'm always pretty well amazed on how well we do. And BFM provides half of the equation and LRC provides the other half. So I just wanted to take this chance to say thank you to everybody.

Yeah, thanks for those comments, Mr. Chair. And just to add on to that a little bit, I mean, when you think about it, You know, a $2.5 billion budget. You're sitting here, we're talking about reversions are at 1.6% of that total appropriation. You know, just from my perspective, in that 1 to 1.5% range seems seems pretty appropriate. So you're right close to that range at 1.6%, and you know, I think that's a. It's a good process. And then on the revenue side, you can have way more unknowns, right? The biggest unknown with the revenue side is what's the economy going to do over the next 6 months to a year? And if we all knew the answer to that, we probably wouldn't be sitting in this room. We'd be— we'd have our own island somewhere and we'd, you know, we'd be kicked back, right? And so with all those unknowns getting this close, Having the sales tax come in higher, I think those are all positives going into this next budget cycle.

Thank you, and I do want to thank Representative Cassin for. I thought it was an outstanding article talking about the budget process. And Representative Cassin, do you want to add anything? Okay, thank you.

Okay.

Okay, next we're moving on. Do I have a document up here? Oh, here we go.

Look at this.

Okay, the next is the, uh, to certify the proration of fiscal year 2026 interest earnings, which is required under SDCL 4-5-30. And so, um, if you guys remember this process from year to year, As new funds are created, or we have to track funds a certain way, track it separately, we create what's called a cash center on the state accounting system. And so these cash centers, we have to designate them as either participating, where they get to keep their own interest earnings, Or non-participating, where the general fund gets the interest earnings. And so there's criteria that lay all this out. And so this is essentially what this memo says. And so I'm going to click on the Attachment 1, which is the second page. And so this year there are 4 new company cash center combinations that we are recommending as participating in the interest proration process. And then there's about, I don't know, 18 or so non-participating company and cash center combinations. Again, all this is tracked on the accounting system. We track it on an average daily basis. Okay, so the Investment Council invests all the idle cash. We keep track of it, the average daily balance. And so that percentage of the total is what Either if you participate, that's how much you get in your interest. So a perfect example is the incarceration construction fund from a couple of years ago. That particular fund, when it was initially put into law, was non-participating, meaning the general fund got the interest. Well, Representative Casson brought a bill to change that so that it participates in the interest. And so part of the way that we paid for the prison in the special session was the interest earnings of the money that's in that fund. Hopefully that makes some sense. And then the Section 2 is we always do a review if there is any designations that need to be changed. And so there's 3 that we're recommending that were previously participating that now we're recommending to change to non-participating. So the action the committee is taking is just to designate that interest earnings designation for these company, company and cash center combinations, I'll call them. So here's the state law that dictates this, asks that the Appropriations Committee, based on our recommendation, and then Appendix B here, these are the general guidelines to where we designate participating. And so You know, talks about the general fund. Clearly, general fund participates in its own interest, and then other funds. There's different criteria. Then we have federal funds, clearing accounts, and then trust funds, right? And so these are all the criteria that we go by. And so when any there's any new company account center combination that's created, we kind of go through this whole questionnaire process with the state agency, and then using this criteria, and then I come forward to make a recommendation to you. Next, this last page here. This is kind of jumping ahead forward a little bit, and so this is unaudited receipted income for 2026. And so for the current year, this is essentially the interest earnings on what we call the cash flow portfolio. It's about 100 and. $114.2 million, and then we have some undistributed from prior year and then current year that we have to make adjustments for. So, and then the general fund is the $53.3 million, and then of course the school and public lands, we have to make an adjustment for the fees because they— essentially the general fund pays for those investment fees for the school and public land trust. So the projected interest income for the general fund is that bottom number, a little over $53 million. That'll come into the general fund here in a couple months once all this stuff gets finalized and so on and so forth. So that's jumping forward to a later conversation today, agenda item number 5, which is an update of the revenue estimates for fiscal year 2027 from Mr. Mehlhaff and Mr. Johnson. That was pretty fast. I'll stop there to see if there are any questions.

Senator Howard.

Thank you, Mr.

Chair.

Could you just briefly go through the 3 that changed and what changed about them to go from participating to non?

I'll do my best, yes.

Okay.

I believe all 3 of these are where we're actually closing a cash center. So when you close one, there's no place to go put the money, if that makes sense. So the money needs to come back to the general fund.

Okay. Follow-up?

Questions?

Questions for the commissioner online?

None online.

Senator Vilhauer.

Uh, Mr. Chair, I have a question for Commissioner Terwilliger. Yes, uh, Commissioner, roughly how many— how— what's approximately— what is the number of participating cash centers in existence today? Just, just ballpark.

Give us one second. We have about approximately 1,800 total. And then I'm waiting for— to see if we have a number of participating versus non-participating. Give us a couple minutes here and we'll have an answer for you.

Okay, that's fine.

Okay, any further questions? So the item we're on is to certify the proration of the fiscal year 2026 interest earnings per SDCL 4-5-30. Do we have a Motion. Senator Novstrup.

Thank you, Mr.

Chair.

I move to certify the recommendation of the BFM commissioner as to the prorations of funds specified in Attachment 1, starting on page 2 of the memo provided to the committee.

Okay, motion by Senator Novstrup. Second was by Senator Howard. Discussion on the motion? Is there any discussion on the motion online? Any discussion? Okay, Secretary, call the roll.

Representatives and Senators Jorgensen.

Aye.

Zikmund.

Aye.

Cassin.

Miss Simmons.

Aye.

Carly Moore.

Aye.

Howard. Aye.

Muckey.

Um, Voita?

Aye.

Novstrup?

Aye.

Vilhauer?

Aye.

Sjaarda?

Representative Sjaarda?

Sjaarda's an aye.

Okay.

Foster?

Aye.

Lapka?

Aye.

Uh, Auch?

Auch is an aye.

Kolbeck?

Aye.

Derby?

Aye.

And Otten?

Aye.

16 yeas, 2 absent.

Motion to certify the proration of fiscal year 2026 interest earnings hereby passes. Okay, we are running—

can I answer that second question?

Yes.

Yeah. So this Centerville, Howard, you asked about the number of cash centers. There's about 1,800 total and 586 are participating.

Okay, so it is— go ahead.

Yeah, go ahead, ask your question.

No, I'm just going to say it is a significant amount that you track. It's a significant number that you track that have to be appropriated.

It is. It is. And there's a lot— I'll use the emergency and disaster fund as a good example. So the emergency and disaster fund, when you guys are in this room and we think about appropriating money to backfill it, you think of that as one fund. Every time there's an emergency wherever it's at in the state, you've got to create a new cash center to track all those costs separately. So if we need to go ask for reimbursement from FEMA and XYZ, all that has to be accounted for at an individual lower level. And so that's a kind of a good example where you're going to have, you know, literally dozens, you know, possibly hundreds, you know, over the course of multiple years where You have to deal with that.

Sure. Thank you, Commissioner.

All right. Thanks, everybody.

Thank you, Commissioner. We're running a little ahead of schedule. We will lunch will it's going to be a working lunch will be available at noon. That's when it'll be ready, correct? And so we're going to take a 15-minute recess and have Commissioner Greenfield come up, and we'll start and then. So, I'm going to be a little herky-jerky and go get some lunch, and then he can finish his presentation. So, we're at recess. Okay. Welcome back to the Interim Committee on Appropriations, and we are on item 3, and then we'll break for lunch. So, item 3 is the Richmond Lake Dam progress update. Welcome, Commissioner. Please introduce yourself and look forward to it. Thank you.

Thank you, Mr. Chair and members of the committee. My name is Brock Greenfield. I'm the Commissioner of School and Public Lands. My home is now in Pierre. So I do want to bring you up to speed. I also have a couple of folks in the room. Whitney Kilts is here from the Department of Ag and Natural Resources, the Water Rights Program. And Stacy Waters is here from the Office of the State Engineer. And I will be the first to tell you, they know a heck of a lot more about the ins and outs of this project than I ever will. They're the experts, so I'm very thankful to have them here. By way of my prepared remarks, I'd like to share the following with you. The Richmond Lake Dam Rehabilitation Project, managed through the Office of the State Engineer, has advanced through its early construction phases over the past now 10 weeks. Contractor Sioux Falls SFC Civil Constructors, supported by several key subcontractors, has completed substantial mobilization, achieved the target initial drawdown of Richmond Lake, and has made meaningful progress on the low-flow channel, the working pad, sheet piling, and seepage cutoff wall preparations. The lake reached the target elevation of 1,349, and that's something I've mentioned in every, every presentation I've made. They had to draw the water level down from 1,360.6 to 1,349 in order to proceed. They hit that target on July 3rd, allowing that phase of the project to transition from aggressive dewatering to maintenance operations. While weather, mechanical challenges, and a diesel fire incident on July 3rd have caused some schedule slippage, the use of RFIs to enable concurrent work activities and prompt corrective actions have helped maintain overall momentum. An updated project schedule is forthcoming from the contractor, and we just had an update. Literally, I no more than got off that call and I received the the note that I should be prepared to be up here in 15 minutes. So I haven't incorporated anything from today's status update into my comments, but, but we have had another conversation since I prepared these remarks. During the first 3 weeks, SFC focused on partial mobilization, including delivery of office trailers, dewatering pumps, a crane, and other equipment. Traffic control measures were installed, including closure of 382nd Avenue, along with sedimentation best management practices. Partial construction on the low-flow channel began, and dewatering operations commenced with the activation of 3 30-inch pumps. SFC also worked with neighboring homeowners to install vibration monitors so they could keep an eye on how the sheet piling installation was affecting those properties. The Brown County Highway Department established a detour on a township road. It's 127 up north, just north of Richmond Lake, and Brown County blotted it to improve travel conditions and to inhibit dust pollution, and they continue to maintain it. Dewatering progressed steadily despite occasional mechanical issues and maintenance downtime. By mid-June, the lake level had dropped significantly. And supporting activities such as silt fence installation, sheet pile cutoff wall work in the auxiliary spillway, borrow area preparation, and roadway milling progressed at the same time. In weeks 4 through 7, the team completed key elements of the low-flow channel, including placement of filter sand, gravel drain, and riprap by subcontractor Foothills. The working pad saw partial construction in approved areas, with full-scale approval granted on July 1st. Sheet pile pairing began in the laydown yard, and drive point piezometers were installed for embankment monitoring. Erosion control measures, including silt curtains and the upstream cofferdam footprint, were expanded. Bauer Foundation. The seepage cutoff wall contract subcontractor fully mobilized, assembled their batch plant and crane, installed guide walls, and progressed through the test section with primary primary panels completed by week nine. Maintenance pumps were set up to hold the lake level, and preparations for cofferdam earthwork are underway. By weeks eight and nine, sheet pile driving for the upstream cofferdam had started. And topsoil stripping and excavation for the working pad continued. It hasn't all been roses. The project has faced several hurdles that impacted the original timeline. Dewatering operations ran slightly behind schedule due to pump mechanical problems, caution around potential downstream flooding, and precipitation events. Including a notable rise in lake levels in early June, which was subsequent to the 7-inch rainfall up north in the Leola area. And then they had another significant rainfall a couple of weeks ago. The drawdown rate averaged about 4 inches per day when the pumps were fully operational. And of course, they had to drive the Foot Creek several times throughout the course of a week, usually twice a day. just to monitor downstream impacts and to see if there was anything that was being encountered that was unexpected. So they were, they were very plugged into what was going on.

Commissioner, what— explain, what was that one term used? Foot Creek? Foot— what was that?

Sure, Foot Creek. That's the—

What is that?

That's the creek that basically was dammed up in the first place.

Okay.

So you've got Foot Creek flowing from the north and then going down south into southwest Aberdeen and beyond, and then that empties into Moccasin Creek, which eventually hits the Jim River. So they have had to monitor the levels in all 3, frankly, the main emphasis being on Foot Creek and secondary emphasis being on Moccasin Creek. And then when the James River was particularly full, And Moccasin Creek wasn't draining particularly quickly. You know, they had to monitor— they had to manipulate the flow of the pumps to make sure that they weren't flooding property. They tried to keep the level of Foot Creek at about 8 feet. 9 feet is the flood stage. So they were very deliberate about keeping it at 8 feet throughout. The most significant event occurred on July 3rd when a diesel tanker truck leak led to a fire near the primary spillway. This incident damaged the 3 main dewatering pumps, a vibratory hammer, and a vibratory hammer power pack. The crane, which was close in proximity to the 4,000-degree fire, had to be checked for damages before it was cleared for continued use. Environmental contamination from the fuel is being remediated, and the broader schedule impacts are still being quantified. SFC and the project team have responded effectively to these challenges. Several, several RFIs were approved early on to allow simultaneous work on the working pad, stilling basin, approach walls, and guide walls, helping to offset delays. Pump repairs, routine maintenance, and intake clearing improved dewatering reliability. Damaged instrumentation was repaired and confirmed functional, and concrete barriers were added for protection. The non-compliant working pad section was removed and rebuilt under supervision, following— followed by a detailed coordination meeting on specific— on specifications and testing. Following the July 3rd fire, SFC engaged Geotech Engineering for environmental cleanup and is focused on equipment repairs and contaminated soil disposal. The parties involved have been very specific that verbal directions have been replaced with formal written field orders to improve clarity. Notices for 24/6 operations have been submitted for sheet pile driving starting today, if all goes according to plan, and cutoff wall production starting approximately next Monday. As of the most recent report, this project is well positioned with the lake at target elevation, the low-flow channel complete, and major components such as the working pad, cofferdam, and seepage cutoff wall moving into fuller production. Weekly progress reports will continue to provide detailed tracking, and as I mentioned, we generally do that on Mondays unless Monday is a holiday, and then we bump it usually to Wednesdays. Quality assurance testing performed to date, including in-place density tests on filter sand and impervious earthfill, has passed project requirements. Independent testing support for the cutoff wall test section included additional on-site oversight. That concludes my remarks. I would just— I would be remiss, you know, this has not been without challenges. There's a lot of misinformation and disinformation being perpetuated on social media. My wife was reading some things last night and some people were saying that there's nothing going on out there. Well, I tell you, there's plenty going on out there and it's going to really, really ramp up in the very— I mean, it's ramping up right now. That dewatering phase was super important and they weren't able to proceed until they got to that 1349 level with a lot of the processes. But now they're Charging forward, so it's very important that this job gets done right and that it gets done timely and efficiently. We are up against you know one of the concerns is the the cutoff wall has to be completed before inclement weather, the snow and cold hits. And as of my conversation with the folks with SFC last week. They were looking at potentially August 26th as being the day of completion or somewhere thereabouts. And of course, I'm sorry, I misspoke. That was the original target date that, that was pushed out a little bit based on the, on the hiccups that we had with the fire and the rainfall events. But they're still well poised to be done in time that they won't have to contend with snow flying and cold weather. So that's where we're at right now. And if Whitney or Stacy heard anything that needs to be clarified, I'd ask them to come forward and, and clean up my mess. And otherwise, I'll stand by for questions. But I would tell you they'd be better directed toward those people who are much more experts than I.

Questions for Commissioner Senator Otten.

And so with the fire and whatnot, insurance is going to be taking care of all that, and and we're not going to be looking at more money.

That's correct.

It's contractors insurance.

Yeah. Yes, Senator Otten. Thank you for the question. And I just. Looked at Stacy, and she confirmed what I was going to say. Correct that we will not be on the hook. It's up to the contractor's insurance company to take care of of any of those concerns.

Representative Jorgenson.

Thank you, Mr.

Chair. That was my question.

So thank you, Senator Otten.

Representative Moore.

Thank you, Mr. Chairman. I've been out, of course, I live up there, and I've been out there a few times, and they look like they're doing a really good job.

This is more of a technical question.

They talk about the cutoff wall. Are they going to dig down into that dam grade? Is that the plan?

Yep.

And then create a wall?

Yep. So if I could, Mr. Chair, I was out there on Wednesday, 2 weeks ago, a week and a half, call it, and I watched part of this test plot being done and they were sending a clam— what's it called? Anyway, they were sending something down and pulling out a bunch of the muck, you know, and they were having— it was actually quite the deal because they didn't anticipate having to be so thorough in clanking it all off. It was, it was not exactly coming out as they had planned. So it was slowing up progress. But yes, they will go down on the ends. They'll go down 40 feet till they hit bedrock. And in the middle, sounds like it's going to be about 107 feet deep till they hit bedrock. And that's how deep the, the wall will be, 40 feet on the edges and 107 feet in the middle. And that will inhibit any seepage that was, you know, causing problems in the past.

Thank you.

Yep.

Senator Zikmund.

Thank you, Mr. Chair. Commissioner, I apologize for not being in here on your first— when you first started. Who's your general contractor?

General contractor is Journey Group, doing business as SFC out of Sioux Falls.

Okay. They're a good company. So glad you stayed local.

Well, we we opened it up as you know to prequalified bidders, and after we went back for rebids, they came in as the low bid. So I've heard good things about them.

They'll do us a good job. They're a good company. Thank you, Mr.

Chair.

Yep.

Reps in North Strip.

Thank you, Mr. Chair.

The commissioner apologized at the beginning that he was a non expert. He seemed to come across with a lot of detail and a lot of knowledge, so I would challenge him on that first assertion that he was not very knowledgeable or an expert on this topic. But the question is, what's the final completion date?

It's still projected to be next year. It's a 2-year, 2-construction-season project, with the one caveat that inclement weather could push off the bridge replacement to the following year. I mean, they've had to build in certain contingencies. That's not the hope. That's not the desire. But it's a possibility. But otherwise, you'd be looking at sometime in the fall, late fall probably, of 2027.

And then the question that the constituents are asking, which is a trick question, is what day will the dam fill back up again?

Sure.

And I did a little sidebar with our engineering firm, Barr Engineering, back in October, at the request of some of the locals, and they came back with a report. And I've posted that, you know, I've provided that to the locals, and it's been posted on our website. The expected length of time to refill ranges from 49 days to 247 days. But we were hearing all these horror stories from people who were in front of their computers, and they were doing web surfing and coming up with all these horror stories about it could take 4 to 6 years to refill. So Barr Engineering came back, and they were confident based on their, you know, based on historical data. If the inflow is relatively minimal, it should be 247 days. If it's substantial, it could be as few as 49 days. So you're looking at less than a year.

Thank you.

Thank you.

Any additional questions? Any online? Any questions online? No. Representative Jorgenson.

Thank you, Mr. Chair. Just some clarification. So at this point, since it is drained, there's no— the residents are safe, right? We don't have to worry about the dam breaking or any of that at this point? Where are we at as far as safety issues?

Sure. I don't ever want to say that, oh, that's impossible. I would say that we're in a much better situation. In fact, Dating back to that 7-inch rainfall up in Leola and the floodwaters that came down and entered the lake, we were, in my opinion, we were really fortunate that we had begun the dewatering because I think that could have staved off a catastrophic event. But yes, I mean, the water level is at 1,349. The pool of the lake is much lower than it had been. To that point, some of the locals are doing cleanup projects along the shorelines and improving that area. They've said this is a once-in-a-lifetime opportunity, so they've begun to work together in order to, you know, through collaborative efforts, do some improvements that they wouldn't have otherwise been able to do.

Thank you. Thank you. Any additional questions, comments for the commissioner? Okay, Commissioner, close, close us out.

Sure. Mr. Chair and members of the committee, I do appreciate the questions. I want to tell you that I've been up there several times just trying to get eyes on the, on the situation. To the, to the question about the truck. The debris that remains, they're removing that tomorrow and Geotech will be on site. And I'm told that DANR has a plan for any remediation that has to take place. So I really do appreciate everybody who has had a hand in this, all of our partners. You know, I've been the face of this, so to speak. As Senator or Senator Novstrup says, this is one of my other duties as assigned. Not really central to the mission of our office, but it is one of our duties. And so I'm the least qualified when it comes to the expertise, but I've tried to be a quick study and I've tried to be there so that I can garner more information and have answers for you and for the people in that area who ask those questions. So I do just really thank everybody for all of their efforts on our behalf.

Thank you, Commissioner. Senator Novstrup.

Thank you, Mr. Chairman. Very interesting observation on the fact that when we did get that 7 inches, that could have been the end of the dam.

So that's—

we were blessed in many ways to get to have our timing as we did.

So thank you.

Yeah. And then just to put an exclamation point on that, you know, in that moment when you're seeing that the water level is rising rapidly, you're like, oh, this is terrible. And then you're like, wait a minute, if we wouldn't have had all the dewatering processes that had gone on, this could have been what breached it. And that would have been a travesty. Thank you.

Thank you.

Thank you. All right. Thank you, Commissioner. And we are going to be at recess now for 15 minutes. Lunch is next door in room 363. It will be a working lunch, so come back and then we'll pick up item 4, opioid settlement funding. Thank you. I'd like to reconvene our interim committee on appropriations. And we are currently on item 4, opioid settlement funding, Department of Social Services. Good morning, Mr. Secretary. Please introduce yourself and your team. Thank you.

Mr.

Chair, my name is Matt Althoff. I'm privileged to serve as the cabinet secretary for the esteemed Department of Social Services. And as requested by the committee, we're here to give an update on the opioid settlement. I'd like to spend just a minute providing a little bit of context. Settlement implies that there's been an arrangement. In fact, that's true. This is in part to hold providers, manufacturers accountable. There is a wonderful analgesic element to opioids. There are some real harmful effects if you're not careful, even to the point of death. And so this settlement, which is now Under the administration of an MOA, an agreement across the 50 states. It creates a trust. It has a lot of provisions that sort of point us back to— this is really meant to mediate or mitigate against the harmful effects of opioids, especially those that are prescribed. And I think that's really important because, you know, when there's a large sum of money that's perceived to be accessible to all, it can kind of lead to of misperceptions. And so I think what you're going to find here today in our presentation is sort of a reset. What did we accomplish since all of fiscal '26, and more importantly, since we all were together last back at the end of session?

Right.

Brian is going to give you an update of where, where all those major grants landed and what all we're watching for, for gap filling, and what we're evidencing, gathering for evidence. Then I'm going to transition and give you a little bit of an update of what we've done in the interim as well. We got through fiscal '26. We were long awaiting a needs assessment. We'll talk through some of its key findings. And then we went into a strategic planning session. And then we'll go through each of those initiatives that we've identified in some of the— might call them buckets. But that's what our intent here today with the slides for all of your benefit. Again, aggressive behaviors by persons that are looking to cover up bad effects has created a sense that, oh, these are really good things and there are no harms to it. And that, of course, is a really important lie to draw out, because if that has been a large part of our vernacular, we think back to major sports figures like Brett Favre that had Vicodin and some of these— there's individuals that think that these are just really almost a miracle drug. And I think that's really relevant because the journey back from that is pretty significant. The journey back from saying, hey, I was made to feel good and I shouldn't have any harms, can be really, really difficult for those in South Dakota who might be struggling with an opioid use disorder. And that's why it's really important we stay focused on this mitigation against the harms that have been done. So I appreciate the opportunity to be with all of you. Brenda's going to first of all give you an update of what we did in Fiscal '26 with those major grants. Introduce yourself.

I'm Brenna Koedam. I'm the Chief of Behavioral Health for the Department of Social Services. And over the last year, or a little bit better than last year, I've had the privilege of being able to really work with the team in terms of looking at opioid settlement and how we can most strategically and most steward it as a steward of those dollars ensure that it is seen across the state. And this slide that you have put up right in front of you right now, as you all know, DSS did receive $12 million in other fund authority from legislature to be able to fund some different projects over the year— over fiscal year '26. You will also see that we were able to obligate almost that entire amount of $12 million. We are just shy in that obligation. And the majority of these dollars, just over about $10.8 million, were distributed through those community grant programs that we had talked about the last time we were all together. The program initially launched with a single round of mini grants, which by history is kind of how we had allocated dollars. But then in November of 2025, it transition to that 3-tiered system that I presented the last time I was here. That new structure, if you recall, included the resource, organizational, and those transformational tiers, and it was designed to better really support the communities based on their readiness and the capacity while scaling those impacts across the state.

Senator Howard.

Thank you, Mr. Chair. So how many more years Will we be receiving funds? We—

the opioid settlement fund goes until 2038. Okay.

A quick commercial, if I could, too. On our website, you'll see that it doesn't all just come in all at once. We did have a lot of front-loading by some of the manufacturers. So there was— I would say the fiscal '26 allocations are what we obligated. It's probably going to be a high watermark, I would predict, going forward, you're going to find a lot less of that coming in each year. So, a little bit of a forecast for what's to come. Please check our website that has all that predicted out.

To feather a little bit more into that, the dashboard also has a page dedicated to future allocations— or not allocations, future revenue that we anticipate we will be getting in over the course of those years. So this slide really just is here just to remind us all of those 3 tiers and what those funding levels were as we broke up those different 3 tiers. You all should have received in an email earlier or late last week a copy of the grants that we did allocate funds for over the course of fiscal year '26. And so a real Just a brief highlight or a really brief summary in regards to those grants is 2 awards went to support parenting and pregnant or postpartum women. 6 of the awards that we gave out in fiscal year '26 focused on youth and children. 4 addressed criminal justice-involved jail or reentry populations. 1 award was specific to the unhoused individuals with substance use needs. 1 award also assisted foster families supporting children impacted by substance use. 2 awards supported work with the tribal nations and 13 awards that were more general in nature, in nature, but were allowable through the MOA. And many of those were awareness-type programs. Just to kind of maybe make it a little bit more broad in terms of the MOA categories, 11 of the awards that I just referenced supported prevention and intervention efforts. 7 enhanced treatment services ranging from detox all the way through clinical care, and then 10 of those awards really focused on long-term recovery supports, which included such things as peer supports and recovery housing.

Senator Howard.

Thank you, Mr. Chair. Listening to some of these, I can't help— some of them sound like we're money for ongoing issues. How are you guys addressing the fact that these are grant funds, that it is one-time funding? How are you guys really trying to ensure that this isn't going to fund something that they have no way to keep going after that?

That was part of the rationale behind going through the 3-tiered system. When you're looking at resource funding, obviously things that are up to $5,000 a cost are going to be those things that are definitely going to be one-time funded, right? Making a quick purchase for something that is needed to support opioid treatment or opioid service, maybe bringing in a speaker. You know, some of those things that we highlighted the last time that we came to visit. In terms of the organizational projects and the transformative projects, but probably more so in line with the transformative projects, is as we were contracting with these individuals, we had conversations about sustainability. Even prior to some of the awards, we were having conversations about what is— how do you anticipate to sustain this if whatever pilot or whatever project that you are suggesting will fill a gap or will fill a need works, right? Because we hope they all work, right? If they work, how are you going to sustain those? So those are ongoing conversations that we have with them.

Thank you.

I would just add, if I could, Mr. Chair, you know, we are trying to help them understand there is no money in the budget. We can't always promise that they're not going to say, hey, can you give us more money at the end? So we try to be very, very forthright with that. And we experience this quite often. The provision in behavioral health space, if I get enrolled in Medicaid, there's an expectation I get a contract now to serve those that are income qualified. And that's not the case. We allocate that. So we do say no quite often in this space and we do affirm that one-time monies cannot be expected to fit into our ongoing budget appropriation.

Senator Foster.

Thank you, Chair. So I did have a question regarding— I know that some other states have used their operating funding for innovative treatments such as ibogaine. Has there been any interest or movement on those types of innovation treatments here in the state?

Mr. Chair, so the approach the department took is that we really felt that providers know the gaps in resources available to the clients they serve best, and that's exactly why our application process started with What's the gap in resources that you're trying to fill? And we felt that was the right approach for those that want to pursue novel treatments, try different things to sort of, you know, go explore that space. And we also then followed up that question with, if in fact it is a gap to be filled, how will you know whether or not you've filled the gap? And then the third test of that was, will this be sustainable? And so I would say that was our approach rather than sort of prescribing this or Prescripting what we were looking for. We really left it open-ended in the gap-filling approach last year. That particular drug, I don't recall off the top of my head. I don't remember seeing a single application coming forward for it.

Follow-up?

Okay. Thank you. Any questions online?

Okay.

Continue.

Okay.

Then moving forward, you will see just kind of a real quick high-level summary of how those— how that $12 million in authority was broken down into those 3 levels of community grants. And as you can see, you know, the largest amount of dollars did go towards those transformative grant awards that we spent quite a bit of time sharing and talking about and exploring in the past. Additionally, not only were community grants the focus of the fiscal year '26 funding, but also we had some ongoing obligations, ongoing things that the Opioid Advisory Committee had suggested would be important things to move forward and continue to spend dollars on in fiscal year '26. These are also things that aligned with the state opioid grant goals or the state opioid funding goals.

Just to add on this one, you know, government provides infrastructure, as we all understand, and in the infrastructure-related opioid settlement, there's local share. This is all state share. So while you might have an individual recipient on some of these, particularly on this page, you know, they're providing a service. We use prescription drug monitoring program actually administered by the Department of Health and the Pharmacy Licensure Board. That's a resource that's actually accessible to every single provider in the state. And so I do want to emphasize that we've taken a statewide share on these administrative additional obligations. These are things that infrastructurally we're able to touch essentially every community in South Dakota. And we're also available, not in any way overlapping with those local efforts that are ongoing with the local shares.

And as you will also see as we get into talking about specifically what we're looking at for fiscal year '27, many of these things carry over into ongoing spends or ongoing desire to spend.

So transitioning in a A little bit of a full disclosure. Due to transition in personnel and a couple of other factors, our needs assessment would have preferred to have been done before we did fiscal '26 granting. That was our idea, our plan. God had different ideas. And so we did get that needs assessment completed. It did not get delivered to the department until about April when we were sort of seeing that. And we simply wanted to say we've been at this for about 4 years at that point. Are we hitting the marks? Are we finding things? That's what we wanted to have data inform it. So that report, which was conducted in 2 parts, one was a Steadman Group based upon— a group out of Denver. They won on a very competitive RFP, and they were looking at the treatment side primarily. And then we had a USD collaborative that helped us in looking at the prevention side. That's in simplistic terms. We had these 2 vendors that are out there. What did they do?

Right.

It definitely was a qualitative and a quantitative needs assessment. It was an awful lot of conversation with providers. We gave them a lot of lists of licensed providers. We asked them to do all that they could to understand what are they seeing from their particular vantage point. What are the— what are the needs for our providers since they're the essential infrastructure, oftentimes through contracted through the government? There was also a lot of quantitative. So we looked at where are the Medicaid expenditures. I'm using Medicaid a little bit loosely here. There's a lot of non-Medicaid expenditures as well through our Division of Behavioral Health. But where are they at? Where are they intersecting? What do we know from our licensure team? What do we know from our professional competencies, those that have the licenses? So that was a needs assessment that was delivered and presented to our Opioid Advisory Committee. Opioid Advisory Committee was sort of memorialized as an entity that the department must interact with and seek input from and take counsel from when we went into this opioid settlement, the memorandum of agreement. That group gave us a full-day exercise on May 12th. We took a deep dive. What is the needs assessment saying? We had some ongoing internal discussions. We also spent We spent some time corroborating. This is where we're leaning. We'll get into some of those particular initiatives where we had some touchpoints with particular provider groups to sort of confirm. So that's what's gone on since we transitioned out of awarding a lot of money and finally in receipt of our needs assessment.

Senator Vilhauer.

Thank you, Mr. Chair. Mr. Secretary, question for you. You partially addressed what I was going to ask. And that's concerning duplication, overlap of efforts at a local level. Remind me again, what is roughly the percentage breakdown that comes directly to the state versus what goes directly to the towns and counties?

Mr. Chair, 70% has been allocated in the settlement per the terms of agreement for the state share, and then 30% of the overall settlement goes to locations, locals, and of course that was municipalities and some counties. They had to, they had to of course enter into that agreement. So they have done the same thing the state has, and we're not going to sue any of you manufacturers. That's the sort of the settlement agreement. And so that is all distributed. The 30% then is distributed based upon the number of communities that entered into that agreement, and it's on a pro rata basis.

Okay. Thank you.

Any further questions? Senator Howard.

Thank you, Mr. Chair. You know, this— I don't know if anybody watched the documentary, and I can't even think of the name of it right now, but one of the major drug companies that promoted OxyContin and kind of led us down this road of opioid abuse, I believe. It's great that we're getting these funds to address the issues that we see because of the addiction, the addictive nature of opioids and the overprescribing of opioids. But how are we addressing— I mean, opioids do have a purpose. I personally know someone who they could not function in society due to spinal issue, you know, without an ongoing prescription. I mean, but with it?

Yeah.

They're a functioning, working member of society. So there are times where it's necessary, but at the same time, we know it's over— it was overprescribed. Are we addressing the physicians and ensuring that, you know, when these funds go away, we aren't going to have this money coming in after 2038, are we addressing the underlying cause of what has gotten us to this point?

Mr. Chair, unequivocally South Dakota's prescribing rates are far below national averages. Really commend all of the providers who do their due diligence looking at research. Really grateful we have a large part of our healthcare delivery in South Dakota is under 3 systems. It's not entirely a solution. I recognize there's many other independent providers out there, but those 3 systems have done an awful lot. Educate prescribers. Really grateful for their efforts there. And lastly, I would say this PDMP, the Prescription Drug Monitoring Program, among other things that we could say in response to this, Senator Howard, is that is physician accountability. And so that is saying, hey, this, you know, this particular prescriber, we're seeing a lot of prescriptions going, hitting multiple pharmacies. That's going to hit this. And then there's a way of recourse to say, hey, let's talk to that prescriber about how many times they're hitting. It also has the effect of looking at those that— drug seeking is another phenomenon we see in patients. I didn't tell you about the 14 other doctors that I've seen recently, but I'm going to tell you, oh, it just hurts. Will you just give me this OxyContin? I used your analogy. And this PDMP is also going to sort of identify that this individual that's seeking that has obviously found prescriptions too many times, and We need to intrude on that. So it's an accountability factor. Anything you'd add to that, Brenna?

Yeah, just to add, you know, not only looking at when the prescribing is being done, but we do know we had some grants that came in that they were asking, okay, if we're not prescribing the opioids, what can we do to help alleviate the pain that is very real for some of these people? And so we did have a transformative grant that was provided. to really start looking at how we can address pain differently than just prescribing medication through— it was— I'm kind of going off the top of my head here. It really was looking to train physical therapists in some different approaches or some different ways that they could work to reduce pain. So definitely are taking a look at that full picture.

Senator Miskimins.

I'd just like to comment that as a As a prescriber, getting organized and working with PDMP is a pain in the butt. But it's a great program for accountability and the state being aware of people who are using different doctors to get multiple prescriptions. So I think it's a wonderful program. It's not easy to comply and get all organized with, but it works. And it helps control abuse of the system. So I want to commend everyone that worked with that program.

Thank you. In this case, Dr. Miskimins. So appreciate that.

Representative Jorgenson.

Thank you, Mr.

Chair. I just need some clarification then on this prescription drug monitoring program. Once this is in place, it's not just for opioids, it's for other drugs as So, Mr.

Chair, full disclosure, I think it would be better for us to take a mulligan on that question or defer that question. That is actually run by our state pharmacy licensure board and such. I think it would be good for them to sort of give a summary of all that they do. I would not want to in any way mischaracterize what they do. That is my caution. Secretary Magstadt and her team could bring the licensure board Here at some point. They do the yeoman's work in operationalizing it and then making sure the communications out to providers are there.

Any further questions online?

No?

Continue.

So I appreciate that, Mr.

Chair.

So what we received back in concert here, and this is a very high-level summary For everybody's sake. I would emphasize a moment of pride, if you'd permit me. You know, I have a great fortune having a lot of colleagues in the Department of Social Services, and a lot of them are really dedicated to this work in our Behavioral Health Division. And a lot of these things that you see listed are not revelation, they're confirmation. They're this reality. Yep, that's consistent with how we see it. It was not something that came out of left field. field that surprised anybody. But having third-party corroboration of something is exceedingly helpful because we all, of course, have relational bias. We all have bad— good, bad, or otherwise experiences with other people that would inform our working understanding of a particular community or particular provider. So we think it was a good, valuable use of our time to go through this third-party exercise. But no shocker. Regional disparities of resources when we think about the full spectrum. There's discrepancy when we when we look at our state, very consistent with about everything that this appropriation committee probably looks at is that you certainly have a lot of limited numbers of persons that carry out qualified, competent, licensed service delivery in certain parts of our state. Recruitment retention continues to be an inhibitor to— you have ambitious business owners, nonprofit operators that are looking to expand, definitely see additional needs in their community, unable to serve that because they're not able to find the reliable workforce to join them in their community. There is sustainability. And Mr. Chair, you and I have had a number of conversations even in this setting in the past about the sustainability question. And this was sort of a reserve.

Yes.

Right. The fact is federal funding does compose an awful lot of our ongoing funding, and there's a reality that that has vacillated. And so there's a concern that if you have existing infrastructure that is ongoing, but you do see changes in that ongoing, that does create a vulnerability in our service delivery. Again, we've heard it, having a piggy bank, a rainy day fund for that is not That's something we want to make sure we put the monies to work, and we'll revisit the needs of whether or not we actually build a sustainability fund down the road. But it is noted that there's a lot of ongoing federal funding that does seem to be subject to changes in Washington. Unequivocally, nothing surprising here, we find that in our tribal communities it's even more difficult to gain access to services. You run into transportation barriers as a result. That's exactly why the need for local providers is perhaps even more acute than it is in other communities where there are also no services delivered in some parts of our state. Youth continue to be an area that are subject to these opioid use misuse, and so building out youth services needs to be Absolutely. And that's going to be a high priority based upon our needs assessment. Continue to see the stigma. The first step is to admit we have a problem. How do we overcome that? How do we understand that it's okay to ask for help? It's okay to seek treatment. You can't shake. As one prescriber has shared with me, opioid is a different addiction, and it's unlikely you're going to be successful in beating it if you don't use use medically assisted treatment. That takes a prescriber to achieve that. So there is, there is a reality perhaps that this is a more intense addiction once you get to that level of opioid use disorder. We still see, as so often the case, the justice involvement. Laws get broken, they become incarcerated, or they become prosecuted, and they are also struggling with addiction that was Right. An influencing factor for why the poor decisions those individuals made— individuals may have made. And then obviously the— this is close to home in Medicaid space. You see this often where you have ingestion while in utero. Parents, those are some of the most important mothers that become pregnant, are also addicted, continue to use during this pregnancy. Very, very important place for us to go. This one actually has a grand opening next month in Yankton, opening up another resource that helps address this gap. Thanks for the partnership of Lewis and Clark and Avera Sacred Heart down in Yankton. And then utilization is something that was kind of a topic with Commissioner Terwilliger here earlier today in the same seat. Again, that has to do with workforce. It's interrelated. But if you've If you know you have waitlists, which we do see in our dashboards, and your providers are telling us, I could serve more if I was able to find the right help, that's where you lead to these gaps. And that makes it hard for us to say, per this morning's conversation, that there's a reversion happening, because we still look out and say we still see a demand for these services for the income qualified. We still see the bodies that are out there that are looking to find help but are having to wait to get in because providers cannot see them, you know, on demand like we might wish and hope for everyone. So that was a lot of our summary, what we came up with. Again, nothing profound. Pretty, I think, endemic. My guess is you'd see a lot of these exact same themes arising from any needs assessment that you've done, any service delivery That's going on in South Dakota. The team then really grappled with that and said, what's bubbling up? Where do we really want to emphasize our funding? What's going to be our priority? Because rather than an open-ended— what we knew going into fiscal '27 is that the probability of us saying, hey, it's open-ended, you tell us the gap, you tell us how you're going to, you know, decide whether or not you've been successful in filling that gap, we figured that was probably going to be a one-and-done. And so we wanted to get back to the points where we're going to more— be more directive and not so open-ended about not naming the gaps. And so that's what you essentially have is that we need additional augmentation to the infrastructure that exists today. That's what you're going to find in these initiatives is that while we have infrastructure in place, we can build it out further. And we ought to play to those strengths. strengths that we have to make sure they're built up and they're sustainable. So you're going to see here 9 that are going to be walked through by our Chief of Behavioral Health, Brenna, today. But these are essentially some of the things that, number one, align to the tenets of the MOA. They're on base for what we can and are able to spend monies for. Number two, they're corroborated with our strategic needs assessment that we underwent with the help of third parties. And number 3, you're gonna find that there's a budget allocation to that in percentage terms. That's just a roadmap based upon what we see for actual costs we would anticipate that some of the providers are sharing with us their needs would be. So that's where the percentages you'll see as we get into these initiatives. So we'll turn it over here to Brenna, then she'll walk us through step by step.

So really, to help us guide our strategic use of the opioid funds, the opioid settlement fund, as stated earlier, the Opioid Advisory Committee— and I am going to apologize in advance if I call it the OAC, that's just how we refer to it, so I'm going to try not to use the acronym— but the Opioid Advisory Committee did convene in May for that strategic planning session. During that meeting, the members of the Opioid Advisory Committee reviewed the comprehensive statewide needs assessment that Secretary Althoff just alluded to. We analyzed those key findings and we offered— and they offered recommendations to the Department of Social Services in regards to how they felt like we could address some of those needs that were highlighted within that needs assessment. Then internally, we, DSS, and many members of my team was able to conduct a deeper review of those existing programs, just kind of as a reminder, looking at the qualitative and the quantitative needs as we began to develop this strategic plan. I'm going to walk through each one of them, each of the 9 individually, and just kind of give you some of the conversation, kind of where we're headed high level. So the first thing that as an opioid advisory committee and as a— and in internally, we identified is there really needs to be some kind of support or something we can do to assist those individuals who are justice-involved. We know very well that individuals involved in the criminal justice system face significant and well-documented challenges related, related to substance use, not only opioid use, but substance use in general. So we decided we really need to look at supporting them for treatment, recovery support, and even some effective reentry strategies. The Opioid Advisory Committee initially discussed expanding the MOUD, or Medications for Opioid Use Disorder, within the correctional settings, and that was a huge part of a conversation that we had during the May 12th meeting that we met here— when we met here in Pierre. However, upon collaboration with the correctional partners, it revealed that really the MOUD access while they're incarcerated is not necessarily the primarily primary gap. Instead, what the the largest challenges that they identified occur at release, particularly around the continuity of care, follow through with those medications that maybe were initiated and. started during incarceration, and then at release, you know, following through with the outpatient treatment, the outpatient services, and those discharge-type requirements that they give them, or those release-type— I'm talking like a clinician— those release-type requirements that they have upon release from incarceration. What we also learned is that they did not feel— they being correctionals— correctional system did not feel like they had the adequate tools to monitor medication adherence after that release. And so we also visited with UJS and talked a little bit about what our parole and our probation system kind of looks like across South Dakota, and we can help support those needs as well. Both agencies, both DOC and UJS, shared and emphasized the need for a comprehensive data tracking system. That they did not have a good comprehensive way to do ongoing tracking of those individuals that were released and medication adherence. And so they did identify though that there is a certain state model, if I recall off the top of my head, I think it was Arizona, that had a fairly good tracking system that they would like to be able to somewhat replicate. DOC also noted concerns concerns with the secure storage and the dispensing of the medication. And so they identified having some kind of a pharmacy dispensing system purchased as a one-time investment would significantly improve operations. The DOC did state that they were prepared to be able to manage any ongoing maintenance costs that would be associated with any type of those dispensing systems. They were asking for potentially 8 of those systems to be able to secure those medications and make sure that they are only obtainable in the right hands and not misused. UJS expressed interest in digital engagement tools that would better help support individuals who are on probation and parole. And again, both talked about the stigma surrounding MOUD that remains another barrier for them. DOC shared that they can start individuals on medication monitoring or medication management programs while they're incarcerated, only to be taken off of that medication when they transition back to either a county jail system and/or a transitional housing environment that doesn't maybe support MOUD within their walls. So we know that that's an ongoing issue, and it's one that we need to address with stigma and continue to get the education out there in regards to how effective these medications can be and that they are an evidence-based practice for those individuals who are struggling with opioid use disorder.

Quick question, what is MOUD?

Yep, MOUD stands for Medications for Opioid Use Disorder.

Okay, Senator Foster. Representative Jorgenson.

Thank you, Mr. Chair. Thank you, Senator Foster. So what I'm wondering is, will What is the average length of treatment? Are we— I mean, they're going to be incarcerated, they're getting the treatment, then they get out and they're not getting the treatment. But as we're looking at these funds coming in, what are we looking at as far as average treatment? This isn't a lifelong thing, is it?

So my best answer to What I would say to that is that that is going to vary from individual to individual in regards to what they need to support their ongoing recovery. As Secretary Althoff alluded— well, directly stated that many of the funds that we have are braided funding. So it's not that opioid settlement funds would have to continue to be the ongoing support for many of these individuals while in treatment.

Okay.

in treatment. We do have other means of being able to support those who are income qualified for those ongoing services, no matter how long they need to remain in a treatment program.

MOUD can be a chronic condition that somebody— you've been justice-involved, you go out and get gainful employment, you now have health insurance, you're receiving a prescription regularly because you're ongoing care received from your care provider. So that's going to be a common phenomenon, we hope, where somebody is out there and that's all under the direction of their prescriber, their provider.

Senator Foster.

Thank you, Chair. So my question is loosely around the MOUD. It was stated that it was not identified to be needed within— while a patient is incarcerated. Was anything addressed for substance abuse and addiction that may not be prescribed that can be addressed while incarcerated? Because I know that a lot of inmates are self-medicating, so there is some type of need that's ongoing.

Yeah.

I want to be very clear that what we're aiming here with this initiative, Senator, is that this is jail and prison-based. And we're trying to make certain that these carceral settings have all the tools that they need. The fact is these can be really important periods for those individuals if they can address this through the clinical aspects, the MOUD, which is a new knew this is a standard of care.

If they—

if the facility, the carceral setting, has that in place, that is the goal, is that setting those individuals up for reentry in a far better place. That ultimately is what we're trying to say here with these buckets.

Follow-up?

Yes, I apologize, that was a really muddy way to ask the question. I guess, is addiction or substance abuse being addressed with any of these Mr.

Chair, not presently. This would be, this would be a new space that we've identified the needs assessment that is something that can go. Again, do they have prescribing? Do they dispense inside carceral settings? MOUD? Yes, they do. That's been confirmed. Multiple jails and prisons have confirmed this for us. So But there are additional infrastructure for safety purposes there, and there's additional ways that we can make sure these warm handoffs are happening and that they're better suited to have a more successful reentry is essentially what we're aiming to help those carceral settings set up for.

Senator Zikmund.

Thank you, Mr. Chair. Number one, I want to thank you and congratulate you folks for— there's so much of a need out there. And I want to thank you folks for doing— and you're trying to do what you can. Do you work with— the question is, Mr. Chair, is do you work with other— some other groups other than these eligible recipients? And I'm speaking— let's say you're familiar with Glory House, right, in Sioux Falls. Do you work with those other groups and how do you work with those? You know that Glory House is looking for a new exec. But my question is, do you work with those Glory Houses? Do you provide funds for them? Do you, et cetera? Thank you, Mr. Chair.

So, yeah, and just to level set, Senator Zikmund, what we're looking at is one of 9 initiatives. We just happen to be on the first one here that we're getting through. But Glory House is one of our partners that we work with both on a licensure perspective. We have the OLA division that reviews for accreditation and licensure. They are also a service provider for us that we contract with, and they provide a lot of services for the income qualified. So the goal would be is providers, not necessarily in this particular initiative, because this is more in the carceral settings as we're trying to achieve a highly successful reentry with those carceral holdings. That's what this first initiative is working on. But we'll get to others where Glory House and others similar to that same space would have eligible— make application to receive funds. So I hope that answers your question.

Senator Howard.

Thank you, Mr. Chair. Sometimes I listen to this, you know, and I go, okay, there must be a whole lot of people out there with OUD that, I mean, I must live in a very sheltered world that I don't see this. But can you talk a little bit about how does this addiction compare to— and I know that this is to prescription opioids, but how does this compare to the meth issue, you know, the illegal drugs, cocaine, meth, heroin, whatever?

Do you have a number off the top of your head? Off the top of my head, Mr. Chair, I'll say it for effect. It'd be a lot easier if this were a meth settlement in South Dakota. It'd be even much easier if this were an alcohol settlement, because that is by far the most addictive substances, most often cited by those who are struggling with addiction. Those are their substances of addiction. Opioid is I think it's a very, very, very far distant third in South Dakota. And we can come back with exact numbers based upon surveys.

And then I kind of want to— thank you, Mr. Chair. I want to just tag off Representative Jorgenson's because I didn't really hear a concrete answer, and it's probably because you can't. But I mean, Surely there is an end date for some people. I mean, it almost sounded like this is just going to be ongoing. They're always going to need medicine to, you know, another drug to deal with this drug addiction, which we're just trading— I get it, it's a safer addiction, I'm sure, but we're trading one addiction for another addiction.

Is—

I mean, on average, do most people get to be done after a while?

Yes.

I'm going to let the clinician in Brenna answer this.

That could be dangerous, but no. Thank you for that question because I think it's a common question people have, right? And I guess my best answer, my quickest answer for a very complicated— that would probably come with a very complicated response, right? So my very simple answer is this is a medication That allows that individual who takes it to function the most successfully that they can in their life with an addiction that otherwise would probably consume absolutely everything about them if they did not have that medication. Now, very overly simplified when I say this. I want to be clear when I say that. I really liken it to other medications that we tend to use for maintenance. I mean, we use high blood pressure medication for maintenance. We use psychotropic medication sometimes to help people with maintenance. And so MOUD is no different than that for that individual who is on that prescribed medication. So an answer to your question is simply put, some individuals will remain on their MOUD for the course of their lifetime because it helps them function at their highest level. Where others are able to wean themselves off. Same thing as maybe somebody, again, oversimplified, with depression maybe stays on their antidepressant for a lifetime or maybe stays on it for a short duration to help them over the hump.

Thank you. Thank you for that. So, but then you made me think, okay, what about people who have other addictions? Like meth, cocaine, heroin, whatever other drugs are— is this another way of dealing with that issue? Do we also deal with that issue with medicine? Or, I mean, I'm totally clueless. I'm sorry.

Well, I think first of all, you remember the 12-step works for some. So what you're always trying to do is create a spectrum of service delivery. And so Brenna describes the MOUD. There's some that becomes a maintenance drug for them, others that are able to go 12-step, others that go cold turkey. You know, this is the human experience and that's the reality. So we want to emphasize that we see a lot of providers out here, some that do not use MOUD, others that say this is a standard of care. And it's not the department's role to sort of steer anybody into one particular chute. Our goal is to have as many chutes as possible because we're not cattle, we're human beings. And so our paths to recovery are very different from one to the next to the next. Do we find many that are in— a word that was used in a couple of these hearings was the nexus. And so the answer is yes, if there are those that are at risk for using opioid, are also using alcohol or also using meth, our goal would be to treat them comprehensively. And that's something that our treatment providers are very comfortable in and confident in. They can deal with all sorts of addictions. They subspecialize, but they also see the spectrum. And they've— they work with each of those individuals, meeting them where they're at and finding the best course given the evidence that's out there.

And I'll just feather in I'm not a prescriber, so— but there are some of those medications that do also work for some of those other substances, just based upon the way that they work within our brain. And not to do a neurology lesson, but there are some that will work with other substances as well. And again, our prescribers have the knowledge in terms of what medications work Follow-up?

Thank you, Mr. Chair. I'm assuming, but correct me if I'm wrong though, that these funds are unable to be used for someone that solely has a meth addiction or whatever. They have to also have the OUD for these funds to be used?

We feel it's our responsibility at the MOA to focus on those that primarily— we do want to emphasize we see that broad Broadly, so grateful for the Attorney General's interpretation of that, that it's those are also who are at risk for opioids. So, that's the nexus comment of a minute ago, is that we focus core on opioid, but then we think about next steps, you know, 2 and 3 risk factors that people are experiencing that puts them— makes a greater susceptibility to the opioid.

Thank you.

You kind of answered this, but my question was going to be, within the corrections system, is the MOUD being explored for other alcohol and drug addictions support?

This falls into FDA labeling, and I will just say that there are, there are studies out there to see Studies to say, do the same drugs that are used for opioid, medically assisted opioid use disorder treatment, do they work for other drugs? I'm not here to say what the outcomes of those studies are, but I am aware that they're happening. And wouldn't it be great if it became more of a wonder drug?

Senator Zikmund.

Thank you, Mr. Chair. I'm going to have to ask you, do you folks get involved with our veterans and their veterans Can you tell us a little bit about that? I don't need to go 2 hours, but as you know, the veterans are my people. So everybody's people. But do you do— do you work with the veterans and veterans programs?

Inasmuch as it relates to the opioid settlement, Senator, I appreciate the question. It was an all-comers application process for the grant. And I would say we're— these funding pathways that we'll be showing here today, they're suggestive, but we definitely would see a lot of concert with the veterans groups that solely work on it. All of our programs are income-based, and so that is not in any way, you know, that shows no favoritism except for what's your 1040 show. And so that's where our focus is in the Department of Social Services. We have a lot of them that— a lot of the providers that are receiving opioid settlement monies that do not exclusively serve DSS-referred individuals. They serve many. And so we would presume that there are veterans within both of those camps, both those that are income qualified, but also those that are being served by providers that we're, you know, providing supplement to, but they are also serving veterans at the same time.

Thank you, Mr. Chair.

Continue. So the second initiative of the 9 that the Opioid Advisory Committee and DSS has felt compelled to focus some targeted funding on this year is, again, deals with that reentry portion of treatment for our justice involved individuals. We've really highlighted this, really kind of talked about this a little bit, about the importance of the need to have good supervised engagement as they are reentering into our communities. And again, it's just another initiative that's focusing on that reentry portion, not so much of the what do they need while incarcerated, but now really focusing on that reentry portion. And again, visited with UJS and got some ideas from them in terms of what they really felt like would be helpful for them in this space. And those are some of the things that you're seeing underneath the eligible expense— expenses column. We've chatted about this one already today too. This is our overdose— oh, well, I take it back. But this is our— I'm going to introduce it for the first time today. I mixed it up with something else in my head. My apologies. But this is our overdose follow-up program. This is something that you saw on our fiscal year '26 strategies. And our— we lovingly refer to it as our PORT program. And our PORT program is entering into its 3rd pilot year in fiscal year '27. It's continuing, and we're going to continue it at its previous funding levels. So Emily's Hope and Project Recovery were the original entities that were selected in that competitive RFP to operate our overdose follow-up services. Just really quick, high level, what that does is if there's an individual who ends up in an emergency room with overdose, Emily's Hope and/or Project Recovery were able to go in and meet that person where they're at in that emergency room and then continue to follow them ongoing, kind of navigating the system, navigating the process, and giving them that additional support through peer supports as they maneuver that early recovery phase of a lifetime of recovery. Project Recovery, however, did withdraw in fiscal year '26, noting that their existing peer support efforts already covered a lot of that support type work, and eligible individuals fell underneath another category within their agency. And any additional participation that would come through that PORT program, they felt was duplicative in nature to their already existing peer support. So Emily's Hope, however, is continuing to work through our overdose follow-up program.

Okay.

And a major focus in fiscal year '27 for them will be supporting— for us will be supporting Emily's Hope actually in increasing their port utilization across their participating counties and actually adding some additional counties to their current catchment area.

Senator Howard.

Thank you, Mr. Chair. So I've noticed a couple On the other, a couple from the earlier slides, but then this one as well, that I just kind of want to dig in a little bit more because especially this one, Emily's Hope holds the contract for a pilot, you know, this is a pilot program. Maybe specifically, how will— how are they saying they will keep this funded after these funds go away?

Thank you for that question. I appreciate it. Again, knowing that it's a pilot program, this may not be something that continues beyond because we know that our peer— like Project Recovery discovered, the current work that they do with their peer supports is already engaging a lot of that work. So it could be something that we're just going to continue to see through the evolution of our peer supports across the state to be able to begin to initiate some of this work. And those are conversations that we're having.

Thank you.

We're currently having and will continue to have in regards to how this pilot program will play out.

Okay, follow-up. But surely before you guys decided to award them any dollars, you had to assume it's a raging success. How is it going to keep being funded?

What we do know is treatment isn't the only thing that persons need to have to go through in order to become sober. And anything that we can do to provide on a less expensive level, either on the prevention— always the least expensive— or on recovery supports, the lesser expensive than the most expensive being treatment. So a pilot is meant to say what's the most impactful way to provide a commonly used expression of peer supports. That's what we're looking for in a licensure package this year with the help of the The BAT board. And those are the types of things, Senator Howard, that we'd look for. I would say it might be the money— the peer supports might be the best money spent because you spend less for peer supports than you do for treatment. In other words, the answer is don't keep adding to the most expensive level of this infrastructure we're creating in place. That's how I'd look at this. But there is no guarantees in this pilot contract.

Okay.

That this would continue. And I feel the look in your eyes about don't grow government there, Secretary Althoff. I see that. And we really sincerely are looking at that very honestly. But I think ultimately peer support is something that we have to be open-ended about, open-minded about. How are we using that to continue and achieve sobriety long past the point when we hope it would be done just because you've Follow-up?

Follow-up?

Okay. I'll be honest, I'm not thrilled with that response because what I— it's like, okay, I didn't really hear that there is a plan other than maybe cost savings elsewhere.

Okay.

But what about like going back to the previous 2, the vocational and educational services? Educational programming. You know, if we're starting new programming within Department of Corrections, UJS, I know you said Department of Corrections starting the tracking system, they said they had the funds to cover that. That's great. Although then when an agency says they have the funds already to cover something ongoing, then I go, well, are we giving them too much in their budget?

Yes.

So, you know, how are they addressing this new programming that is starting up? And are they saying they already have the money in their budget?

Mr. Chair, a lot in that. Let me just say that cost savings in peer support is going to be found because you don't have to go to— you don't have to repeat treatment. And that— there's data on that. I mean, there's data where people go back to treatment multiple times. Maybe not over the course of a fiscal year where it needs, you know, tightly fits into our appropriation in one fiscal year, but that ultimately is what you find is if the peer support is successful and you meet them where they're at and you accompany them on that journey and you give them the supports they need, they will become successful. You know, that's just being demonstrated time and time again in clinical study. So that's where a pilot in that space is I don't want Secretary Lamb to feel like his team has somehow betrayed him by saying, hey, we need these costs. I think ultimately what they're saying is that the better data, the better are those who monitor our individuals that are in recovery but also under our supervision outside our carceral settings, the better they can provide direction and support for individuals that have had previous, you know, incarcerations previously.

Yeah.

convictions in their history. That's really what I hear the team saying, speculating, but there's been no commitments made with those respective departments. It's just concepts that they know corroborating that the justice-involved is an area where we saw in the needs assessment a lot more help is needed to help these individuals stay in reentry successfully.

Okay.

Continue.

So moving on is the critical infrastructure investments. And that is allowing us to continue to support the programs that may have begun as pilot projects, relied on braided funding, or were initially grant-funded but needed additional support to reach that full sustainability, whatever they identified as being the the mode to that sustainability. This approach actually is replacing the sustainability initiative that we had talked about in fiscal year '26. So it is offering a more structured and targeted framework for directing funds where they can have the greatest long-term impact. So really taking a look at some of those things that need to continue to have a little bit of extra support.

Yes.

Because they're being found in the community to be successful, but they maybe just need a little bit more time to get to full sustainability. Do you have anything to add?

It's increasingly a demand in our communities that there has to be a common entry portal. Where do I find help? And this is exactly what we've heard from our 2 larger communities who disproportionately see people seeking help but don't necessarily know where to find the door. This is not earmarked or targeted necessarily, but these are the two that have been very commonly discussed in the media and in this setting is the Link in Sioux Falls, Care Campus in Rapid City. That's where those function. They're not the exclusive common entry portals in our state, but they're the most— those that are serving by far the largest volumes of individuals who are hitting rock bottom, as the expression might be, who have nowhere else to turn, who have burned all of their social and political capital and have no longer find themselves with any supports. They are the ones that these agencies have been erected to serve, and that's what this group recognizes is if you have a common entry portal that is sustainable, that does make good warm transfers to where they can take the next step in their pursuits of recovery, we might be very more successful, if you will, in helping those individuals get back to a life of productivity, a life of contribution, instead of taking away from society.

So—

Thank you.

I'm sorry. We already have had a brief conversation about the Prescription Drug Monitoring Program. And so, as you can see, this is an initiative that the Opioid Advisory Committee and DSS feels passionately enough about to want to continue to do. We refer to it as the PDMP program, but the Prescription Drug Monitoring Program is a mandated system, and it has continued to lose some of its funding. And it has portions of that original funding over time, and that is causing sustainability problems for our friends at the South Dakota Board of Pharmacy. And so this is an initiative that we're continuing to help them through the time of finding a more secure funding mechanism for the PDMP program. So the 3 The 3% allocation you see up there is the cost of the unfunded portions of that program for them for fiscal year '27.

Anticipating the question, this was created when the federal government took back grants. So obviously that's something we're watching and working closely with because it was erected under federal promise, taken away So this has been a backfill, but we don't see this as the long term, and we're going to continue to build towards how do we have that in place for the years to come.

The needs assessment also clearly highlighted the importance of expanding prevention and intervention training programs across the state. The Department of Behavioral Health currently maintains statewide contracts with providers to deliver those services. Primarily funded through our federal grants, most notably our strategic prevention framework. Additionally, since the launch of the opioid settlement fund, a significant portion of the community mini grant awards have focuses focused on prevention and intervention efforts. In fiscal year 26, both the transformative grant and several organizational grants supported substantial expansion of prevention activities. The state is also We did recently broaden our Strategic Prevention Framework grant coalitions through RFP awards into 2 additional regions promoted— which is promoting more equitable prevention statewide. However, as we move into the— as we moved into that strategic planning process and hearing from our needs assessment and continued conversations about how important prevention and intervention is, the Opioid Advisory Committee did determine that they felt like it was still important to dedicate prevention and intervention initiatives. So the initiative here is aiming not only to expand the types of providers eligible to deliver prevention and intervention services, but also create a more targeted structure through competitive— through a competitive RFP process, taking a look at some of those prevention and intervention gaps and actually specifically having a targeted RFP to address some of those gaps in some of those areas. So the intent is to support— is to potentially support some pilot projects with clear focus and positioning them for sustainable funding beyond the initial investment. So details of a potential RFP are still really being finalized, and conversations are continuing to evolve regarding what that may look like. What specific prevention focus will be. Another one of our ongoing— you've seen a couple different times through our— since the inception of opioid settlement funds being able to be spent is our naloxone saturation project. And so in fiscal year '27, the Opioid Advisory Committee did decide that naloxone saturation is an ongoing funding initiative that they would like to continue to fund. The Opioid Advisory Committee recommended continuing these efforts and— but also stressing the importance that resources are dedicated to the prevention of substance use, not solely to responding after an overdose has occurred. So that was also a conversation that we had that took some valuable time in terms of talking about, do we want to always address it at the back end, or do we want to be able to address it at the front end? And that's also what helped lead us to know that we wanted to allocate some dollars or a percentage of that funds towards that prevention and intervention work as well, which I just spoke about. But at the same time, saying all of that, we also recognize that naloxone is life-saving and it's a continued funding essential to support individuals who may face those life-threatening overdoses. So targeted efforts. Use data to identify high-risk groups and populations across the state, ensuring naloxone reaches those most, those most in need, most at high risk and need. The Department of Behavioral Health will lead that work to ensure targeted distribution. Anonymous distribution also plays a role within targeted efforts, and that differs in its approach by providing naloxone to individuals who anonymously receive the product through though making it available through those distribution boxes that you have seen probably statewide, maybe picking up a kit at a local community informational fair and through other combined anonymous efforts. So through targeted and anonymous distribution, we are going to continue to look at saturation, naloxone saturation throughout fiscal year '27, and we will continue to partner with Emily's Hope as they are the ones who are really focusing on that anonymous distribution. One of the other items—

Before you go on, Representative Jorgenson.

Thank you, Mr.

Chair.

Just need some clarification again. Anonymous distribution. I'm assuming this is a controlled So I guess I just need some more clarification.

Naloxone has a remedy effect. It's almost immediate. If you've overdosed and you are administered this, you will recover. And so it is not actually controlled. You can find this on the shelf. The point of it is to have it at the right place at the right time. And so distribution by anonymous means that somebody can grab this and take it with them, They may not be at a point in their life where they're disclosing to friends and relatives that they're having a struggle. More commonly, we hear from these distribution sites that it's persons that are suspicious that a loved one is struggling, is not yet prepared to talk, and so they want to have it on board because, of course, they will be the one administering it. So that's a little bit of where it is. I do want to emphasize a large number of— this all starts from the settlement. Prescribers are actually administering this at the pharmacy. They can get it there. This is not the only place where you can find naloxone by any means. So there's a lot of other ways to get it than just our efforts to saturate this space.

Senator Foster.

Thank you. How is this being tracked? And how, how do we know that there How safe is it that someone could just privately, randomly use this and there's no tracking mechanism or follow-up?

There lies the great mystery. I mean, we're relying on some voluntary reporting, but it is not very well tracked. We're struggling with that mightily. It has a life-saving effect to it, so it's hard to sort of weigh up against that, but we're in constant discussion. refining how we're providing naloxone. So I appreciate the question, Senator.

I will just feather in as well that through the targeted distribution, our DBH epidemiologist is really focusing a lot on the data that we are seeing in regards to overdose desks, where those are located. We also have data that comes in that tells where maybe our most high-risk populations are. And those are the entities that we are really focusing with that targeted distribution piece. And, and many a times that is through ensuring that our first responders have it on board the, the ambulance, have it on board in a patrol car, wherever they may need it in case they run across somebody who is potentially experiencing an overdose.

Follow-up.

Thank you. Where can I find that, the data of how I guess just the data of where, how many, and of these overdoses.

We have a saturation map we can get to you and look at, and I apologize, my answer to yours was on the anonymous side. What Brenna said is actually quite, you know, we're always giving it to the hands of first responders so we can show you where we've mapped out where we've seen overdose deaths and use that as a concentration space.

Continue.

Thank you. The community needs— the support for local community needs is another initiative that the Opioid Advisory Committee has felt was very— has been very effective and an area that they wanted to remain within our fiscal year '27 strategic plan. And really, what this is, is our community resource grants that we have— that I talked about here a little bit ago. I will say, though, moving into fiscal year '27, we will be pausing the resource-level grants, which was at $5,000 or less, and applicants are really going to be encouraged to maybe talk with their local government if they have some Localized funds for those smaller dollar amounts. Same will be said in terms of the transformative grants. They, at this point, may look a little different because we're really working more on those targeted things that you're seeing throughout the initiatives, 9 initiatives based upon those needs assessments that we have. And so there may be just a little bit more targeted focus than what we received in fiscal 2018.

Thank you.

26, which is just an open call for whatever they felt was a gap or a need within their area that they wanted to address through the use of transformational funds. The one that we will really be focusing on yet is those organizational levels, that up to that $50,000, which we know can really be used to start some pilot ideas, really explore somebody's idea, and to get get some good data to see if this is something that really can take hold and can really make a difference. But we're really going to focus those maybe more a little bit too in regards to what the needs assessment says instead of having that being more of that open format as well.

Community grants, as Senator Vilhauer asked a few minutes ago, they don't go very far. It's on a pro rata. Our look would be first to say what is the community doing and could the statewide share help them get to something even bigger because the statewide share is there. But their money in first would be my first recommendation. Second of all, a major error on my part, and I learn as I go— gap focus in fiscal '26. I was thinking and implying and thought I was clear that this is resources that South Dakotans are experiencing gaps in them specifically, that you can build out the resources. It became very clear to me that a lot of people were interpreting that, I have gaps in my ongoing funding and I'm a government and I'd like to have help with that. And I regret that that was a misinterpretation by our definition of gap. And so I want to be very clear that that isn't what these grant award— community-based awards would be going to, is let me cover expenses for a particular county or a particular city so that they can do other things, you supplant our ongoing funding obligations. That's something that won't be considered under this community grant process. So gaps will be in resources. Resources will be focused on those that are services that South Dakotans are relying on.

Okay.

Continue.

And then finally, as noted on this— Finally, as noted on our last slide, the settlement allows for up to 5% of funding to be used for administrative oversight. However, we are not currently utilizing that full allotment and feel that a 2% adequately meets our needs for managing and overseeing the settlement funds, allowing that 3%, the remaining 3%, to go back directly towards other priorities and getting it into the hands of more South Dakotans. Administrative efforts include award notifications, contracting, providing technical assistance to the grantees, processing invoices, ensuring compliance with settlement regulations, developing and maintaining the dashboards, and facilitating opioid advisory committee meetings while monitoring revenue and expenditure accuracy. So those are just some of the things that go into administrative oversight of the opioid settlement funds.

Representative Jorgenson.

Thank you, Mr. Chair. Okay, so at the beginning you talked about the $12 million. You said that the opioid settlement, the companies were basically front-loading this, and this is going to go until 2038. So if you have— I don't know if you've hired a full-time person to run this, but what I'm hearing is that over time the amount of money coming into the program is going to diminish, which means that your 5— please correct me anywhere along the way when I'm done— but as it— as those funds go down, you still have to pay for that ongoing support. So have you planned for that? Have you looked Mr.

Chair, administration here really reflects the MOA and the obligations and duty of the department to be the Medicaid— I'm sorry, the settlement agency. So we're designated for that. So that's really what these obligations— they actually cease. A lot of things that Brenna just articulated, those daily tasks, they cease when the settlement concludes. So that's really what it's related to. So I don't personally feel that there's a concern there that, you know, that we all of a sudden have a lot of personnel that have been staffed up. We actually do a lot of this through a contracted service. That contract ends when the settlement is done.

So—

Follow-up?

Thank you, Mr. Chair. Right, I understand in 2038 this is going to end, but between now and 2038, you're going to see diminishing funds coming in for the settlement, which means that the percentage that you're able to use from those funds for those— for that ongoing support is also going to diminish.

Sure.

So that's really what I'm getting at, is that in between, before it ceases, if you've looked at that and kept that in mind, that you may not be able to continue to fund.

I appreciate that, Mr.

Chair.

And obviously, it's exactly why we depicted percentages up here, because it will then— it will translate to subsequent years where we have different appropriations in the form of other spending authority. But that's why we've used percentages as opposed to costs, and we'll adjust accordingly as you see that compression, as you described that. I appreciate the urging there.

Thank you.

Representative Jorgenson.

Senator Howard.

Thank you, Mr. Chair. I like that reaction. Okay, so early— one of the earlier slides, it talks about the resource funding up to $5,000, organizational up to $50,000, and transformative over $50,000. And when I first asked about ongoing funding, you guys admitted that the resource funding projects are much easier to Those are one-time. There's not going to be an ongoing expense for that. But then towards the end, I heard you say that you want to go away from those, or you're trying to steer away from those so much and trying to encourage people to ask for local funding for those projects and trying to steer more towards the transformative projects that are over $50,000, which, as we know, if that's successful, that will require ongoing It's going to require ongoing funding. And I've been here long enough to know that once a program is started, it never goes away. I mean, that's how we've gotten to the size of government that we've gotten. So I just— I don't feel reassured yet that I— there's so many vocational and educational programs in the IMLEs, all these new programs that are being started, so many, and I just don't know how taxpayers are going to be able to fund all these going forward. Have you considered, when somebody comes and asks for this grant, have you considered saying, I need your commitment that you aren't going to ask for ongoing dollars from this? I think the taxpayers would love that, because these are not dollars— these are federal dollars that come in, and yes, I would love to use them to the best advantage possible for our citizens, but I don't want to tie the hands of future taxpayers, my kids, my grandkids, and say, well, I'm sorry, you're going to be on the hook because we're going to have to keep these going.

Quick clarification. They're not actually federal dollars, remember. They're corporate dollars given in settlement.

True. Sorry. Yes.

So it's different than government money. $83 million, thereabouts, in asks. We awarded just short of $12 million. We said no a lot more than we said yes. And why did we say no? Because we saw that was not sustainable. That was not leading towards multiple revenue sources for service delivery that will ensue after you use one-time money to start up a service. And we're dealing with this left and right, hand and foot, with Rural Health Transformation focuses on transformative, focuses on sustainable. One-time monies can be really impactful to get a service delivery set up. But if it is not pointing to a service that is reimbursable through third-party payer, it's not sustainable. And we see that very clearly. And we've said no a lot more than we've said yes as we continue to examine, you know, both— In concert right now in the department, both in the opioid settlement space, but the same principles on rural health transformation.

Follow-up?

Just a follow-up. Thank you. That does make me feel better. So thank you for that. And again, I will also compliment you guys on your dashboard. I love your dashboards. You guys have the best dashboards of any agency that I've seen out there. So if anyone's curious about any of this stuff, go to DSS's website.

Senator Miskimins.

Thank you, Mr. Chairman. I'd just like to thank you for your efforts to invest this money as wisely as you can to help all the people of South Dakota with opioid addiction. It's way more pervasive than many people realize. We all know about our at-risk, our incarcerated individuals, maybe Our reservations maybe being at higher risk perhaps, but it's all around us, folks. I can tell you as a practicing dentist, one of my finest ladies in my practice was arrested for stealing medications out of a medicine chest at a rummage sale because she was addicted and hiding it from everybody in the world. She was a Sunday school teacher. I had a young lady that was a 4.0 student, an athlete who hurt her back in athletics, got addicted to pain medication in high school. Last year, in her 40s, she took her own life because she couldn't overcome or stay off of the medications and the drugs. So this is something that's an ongoing problem. It's not just at those high-risk groups. It's all of us, and it's all of our families, our grandkids, our wives, our neighbors. This is something to use these funds as wisely as we can to change and make a difference for the future of South Dakota.

Thank you.

Thank you. Any further questions? Anybody online have a question? Representative Jorgenson.

Thank you, Mr.

Chair. I also want to say thank you. I know You have a pretty heavy load, and you do an excellent job. And I appreciate you being here today and taking all our questions. So thank you.

Any further questions? Well, Mr. Secretary, you want to close us out, and then we'll ask for testimony, any testimony.

I just really want to appreciate— express my appreciation. First of all, on dashboards, if we're the best, we can only go one direction from there. So we emphasize better every day in the department, but I appreciate the fact that it is resonating with people that are looking to consume our data. Because in the Department of Social Services, we have an awful lot of data. We have old systems that make it sometimes very difficult to get it out, but it is our desire to be depicting that to all South Dakotans. Senator, Dr. Miskimins raises something that I appreciate everybody having, and that is, while this is a lot of Interesting things to talk about in infrastructure, the reality is that opioid addiction has a very grave consequence. Whether the decision is to take life by suicide, whether the decision is to inadvertently ingest too much such that you go into respiratory arrest and you die, it's real. And that ultimately is our motivation, is that there is a very seriousness, grave seriousness to what, what this work is about. So I appreciate the reminder of that. Thank you all very much for your attention. Sorry for so many details and so many fancy words that you only hear when you're talking behavioral health and addiction space.

So.

Okay. Thank you, Mr. Secretary. And we'll open it up for any testimony. Anybody here in the audience? And we checked online. There's nobody. Okay, very good. We're going to take a 5-minute recess while Mr. Johnson gets set up here, and then in the meantime, Tyler, could you come up here, please? I'm going to nominate Tyler as a page of the day, and could you please hand these out to the good senators and House members here.

Okay.

All right. We will be at recess for 5 minutes. Welcome back to the Interim Committee on Appropriations. We're on item number 5, the fiscal year 2027 revenue projection per SDCL 4-8A-6. Mr. Johnson, State Economist from the Bureau of Finance and Management. Welcome, and please introduce yourself and maybe just cover why we do this. Thank you.

You bet. Thank you, Mr. Chair, members of the committee. Again, I'm Derek Johnson with the Bureau of Finance and Management to provide you with BFM's interim revenue estimates for fiscal year 2020. I'll reference a couple of documents this afternoon. One is just a printout of the slides so you have a little closer view, and then we also have an interim revenue projection booklet which goes into a little bit more detail on all of the various revenue sources that are projected each time we do this. So I'll reference both, but my comments this afternoon will be pretty brief. As was mentioned, this estimate is in accordance with South Dakota Codified Law 4-8A-16, which was put into place, I believe, in the 2014 legislative session. This law was put in place and kind of the basis for it is outlined in the memorandum to the JCA committee and Governor Rhoden, which is found on page 2 of the booklet. BFM, according to the law, BFM and LRC are required to present revenue estimates prior to July 30th each year. If either of the estimates project a shortfall in excess of 2.5% of the general fund budget in the current fiscal year, then BFM and LRC shall propose measures to the governor and this committee. And if either of the estimates project a shortfall in excess of 5%, then the governor shall propose measures to eliminate the shortfall. So that's kind of the basis of the estimate and of the law. It's kind of just a check to see where we're at as we begin this new fiscal year. The BFM—

Mr. Johnson, so just to clarify, if we hit any of those criteria, then there would be some action to be taken. But I'm assuming today this is information only. There will be no formal action to be taken?

That is correct, Mr. Chair. BFM's revenue estimate today is 0.34% higher than the legislative adopted revenues, and so therefore no action is required per the law. And I believe LRC's estimate is about 0.5% lower, and so again, no required action based upon the law.

Thank you.

You bet. So I'll move through these first couple of slides fairly quickly. The first slide here that I have up on this, on the screen, is just simply a review from this morning that Commissioner Terwilliger went over, just as a reminder to kind of set the stage before we begin talking about the upcoming or the current fiscal year. Just a review of the fiscal year that just Closed, we finished 2026 up $15.8 million in ongoing revenue and one-time revenue up $13.9 million for a total of $29.7 million. And so up about 1%, 1.1% over what was adopted, and in the ongoing, up about 0.6%. The next slide then comes from page 6 of the revenue estimate booklet, and this is comparing the actuals from fiscal year 2026, which were just completed, versus the legislative adopted level of revenue for this current fiscal year. And so basically what we're showing here, just focusing on the top half of the chart, Our ongoing revenue actuals were just under $2.5 billion. The amount that was adopted back in February by this body was $2.55 billion. And so in order to meet the legislative adopted level for fiscal year 2027, our revenues would need to grow by about $56 million or 2.24% in, in the current fiscal year that we've just started.

Senator Howard.

Thank you, Mr. Chair. And yes, in the effort to keep this short, I'll try and be as brief as possible. But okay, what, what I would love to see, and I don't see it on here, is kind of a combination of— I want to see actual '26 with BFM's interim.

Do we have that anywhere? Yeah, in the bigger packet that I passed around with the blue on the front, if you go to page 7, page 7 is going to compare the actual 2026 to the BFM fiscal year 2027. And so the, the 2 pages that I think you all will find most valuable are going to be page 7 and page 8. Page 7 is comparing '26 versus the estimate today. Which is growth of about 6— just about $65 million. And then on page 8 is comparing what was adopted versus the revisions up of $8.7 million. Okay, moving on to the next slide here then. This chart comes from page 8, as I just mentioned, and this is the slide that we'll focus on here. This is a summary of the fiscal year 2027 adopted levels for each of the revenues and the BFM interim revenue estimate today. You'll see that the revisions in total are up $8.7 million. The one-time receipts there of $68.9 million, that's listed because it is going to come in on the revenue side of the budget. It already has. But then it also goes out in the expenditure side of the budget as a transfer to the budget reserve fund. And so when we're looking at this, we— there's not, based upon this estimate, $77.6 million in ongoing money. There is $8.7 because the $68.9 million has been transferred to the reserves. Just to highlight a couple of these revenue sources that I'll have a slide on each. I'm going to focus on sales and use tax, which is revised up $20.3 million; insurance company tax, which is revised down $12.9 million; bank franchise tax; and investment income and interest. So again, a slide, a review of sales and use tax. Sales and use tax finished fiscal year 2026 At 6.6%. If we focus on the far right of that chart, just want to remind you all the last time we were here talking revenues and giving revenue estimates. At that point in time, it was, you know, middle of February, and we were looking at fiscal year 2026 with 6 months of growth that averaged to about 4% through December. And then a January where we had over 13% growth. And I think we were all kind of sitting in here, what do we do with this big bar here? And so sales tax, obviously, along with all the other revenue sources, was adopted. But since that time, February, March, April, May, and June, we've had growth of 6% or greater in each of those months. And we finished the fiscal year at 6.6%. So for sales and use tax for fiscal year 2027, again, sales and use tax finished fiscal year '26 up $17.2 million or 1.1% above the estimate for fiscal year 2026. The growth was 6.6% greater than fiscal year 2025 on an ongoing basis. And so for this revenue estimate, BFM is revising fiscal year 2027 up $20.3 million, or 1.3% from what was adopted back in February. This would be growth of 4.6% over the actuals in fiscal year 2026. And I want to provide just a little bit of a sidebar on that. We talked a little bit about the $4.1 million in one-time sales and use tax this morning. I believe Representative Sjaarda had asked that question. And if you'll remember back to February, that revenue actually came in in January, and so BFM had identified that as one-time at that point in time in January, $4.1 million. And so nothing actually changed with one-time sales and use tax. And 5 months since we, since we last met. But the reason I bring that up is because if, if you don't count that as, as one-time sales and use tax revenue and rather put it in the ongoing, it brings the, the 2026 actuals up and therefore the growth rate down to, to 4.3%. And I believe that's the way that Jeff shows it. And so, and so if you're comparing the sales and use tax revenue estimate for BFM versus LRC today, in order to get an apples-to-apples comparison, it would be 4.3% growth. And just to provide one more level of detail, if we rewind back when we adopted revised fiscal year 2026 sales tax and adopted fiscal year 2027, I believe it was 4.4% growth. And so, and so this estimate today is, is right in line with the growth from '26 to '27 that was adopted back in February. Next revenue source I wanted to provide a little bit of detail on is insurance company tax, which finished $10.9 million below the estimate in fiscal year 2026. Receipts, actual receipts in 2026 were $1.1 million higher than fiscal Thank you, Mr. Chair. In February, we revised fiscal year 2025, or 0.8%, which was obviously a much smaller growth rate than we had seen for the past several years. Today we're revising down fiscal year 2027, down $12.9 million, or about 8% from what was adopted back in February. This would be 4.9% growth over fiscal year 2026 actuals.

Representative Kassin.

Yeah, thank you, Mr.

Chair.

I just wanted to confirm. So going back to the sales and use tax, so if I heard correctly, from FY25 to '26, our growth rate was 6.6%, and from FY26 to what you're predicting for FY27, the growth rate is 4.3%? Well, 4.6%.

Mr. Chair, yeah, you're right on, Representative. Depending on if you want to count that $4.1 million as one-time or not, if you don't count it as one-time and instead count it as ongoing, then our growth rate in '26 is 6.9% and our growth rate in '27 is 4.3%. I believe that's how LRC will show it. So if you pull that out as one-time, then the ongoing is $6.6 and $4.6. But it really nets to the same. But yes, you are correct, Representative.

Okay.

So on to insurance company tax. Just provide a little bit of context here with what we're seeing. The first 6 months of fiscal year 2026, insurance company tax was up about 10.6%. And then in the second 6 months of fiscal year 2026, insurance company tax was actually down versus fiscal year 2025. And so kind of digging into this to try to figure out what's happening with insurance company premium taxes, companies have experienced positive weather cycles the past year and a half, and rate increases have been smaller, which the rate increases are what drives, ultimately drives the insurance premium tax. We have even seen some decreases in property and casualty premiums. The health insurance market was also relatively flat in premium increase in 2025— or 2026, excuse me. But it is expected that there will be larger increases in the health market in 2027, which All of these things are kind of good news for consumers, but not as good of news for insurance premium tax growth. Also, anecdotally, you might hear of some consumers reducing coverages, raising deductibles, or possibly even dropping policies entirely, you know, just to try to keep costs stable or save money. And so I think that's kind of—

Right.

some of maybe what we're seeing. But the forecast is for 4.9% growth over fiscal year 2026 actuals. Next one is bank franchise tax. Bank franchise tax finished $5.4 million above the estimate for fiscal year 2026, and our 2026 growth rate was 35% over fiscal year 2025. Our estimate today is revising fiscal year 2027 up $5.9 million from the adopted fiscal year 2027 number. That would be 1.5% growth over fiscal year 2026. The reason for this, and I believe this is one area where maybe we're a little bit higher than the LRC estimate, we believe that loan demand is still there. The Fed policy at this point in time is for rate cuts. Rates to— the expectation from most is for rates to kind of stay where they're at through this calendar year, which kind of provides a steady baseline for yield generation for banks. And so basically expect bank franchise tax to be about the same level as what it was in fiscal year 2026. And also some of the tax on the trust companies, which are also financial institutions, and has been a growing revenue source, also comes into this area of revenue in the state general fund. Then the last one is investment income and interest. Investment income and interest is revised down $9.6 million. The primary source of funding in this category is from the interest proration to the general fund, which you all heard about this morning from Commissioner Terwilliger. And that is Appendix C of that memo, page 5, which showed that we're receiving about $53 million in interest to the general fund from last fiscal year, fiscal year 2026 earnings. The, the earnings from last fiscal year come in to the general fund in August, and so once we have that information, by and large, we, we kind of know at this point what we're going to be receiving from that That source. There are a few other things, a few hundred thousand dollars that come into that area, but, but for the most part, that revenue is, is in there. So, so we missed a little bit on this, about $9 million. In terms of overall interest that was collected from the cash flow fund, our estimates were pretty close, both from the BFM and the LRC standpoint. But the share that went to the general fund was quite a bit less than what was anticipated. Because when we're looking at that cash flow fund, there was a decrease in the general fund average daily cash balance from previous years and a little bit lower than what was anticipated. There was also a decrease in the federal funds as those are being spent down. The general fund was collecting interest on those, and so that's a change. We've also had changes in the unclaimed— the trust fund for unclaimed property, which is a participating fund, as well as the incarceration construction fund. And so overall interest is kind of where we expected it to be, but the general fund share was a little bit less. And with that, this is back just to the slide. The total slide showing that our forecast today is for an increase of $8.7 million at this point in time. But with that, I would just stand by for questions.

Senator Otten.

Going back to our memorandum, what is the percentage that if we're off that we have Is it 1 to 2% if we're off the budget line?

Mr.

Chair, yeah, the 2 benchmarks are 2— if we were projecting a deficit of 2.5% and 5% are the 2 benchmarks. 2.5 would require a plan to the JCA and the governor, and 5% requires governor Action on a proposal.

Additional questions online? Anyone online? I do have a question, Mr. Johnson, on severance taxes. So legislative adopted fiscal year 2027, $24,831,000. And then our target for 2026 was $23,988,000. So we've been a little bullish. 2 years in a row, we were more bullish on severance taxes, and you're revising down on severance taxes, correct? And then we didn't make the target. We missed it. by $3 million. Any reason why? Why were we so bullish on severance taxes, and why are we not hitting the numbers?

Yeah, great question.

With record gold prices.

Great question. So in fiscal year, based on what we revised our severance taxes up significantly when we met in February. I don't have that number right in front of me, but Jeff might. But we saw great collections in the first half of fiscal year 2026. And so when we were in this room in February, we revised severance taxes up pretty significantly. We didn't hit that mark. But if I go back to this comparison— oh, maybe it's— I don't have that slide. In the revenue packet, if you go to page Page 3, page 3, and look at severance taxes. You'll see that in fiscal year 2025, we collected $14.7 million, and in fiscal year 2026 that we just finished, we collected $20.7 million. And actually, page 4 might even be the better place to look at it because you'll be able to see that Our severance taxes collections did grow about $6 million, or 40%, from fiscal year '25 to fiscal year '26. However, when we revised fiscal year 2026 back in February, we were, we were a little, a little high. And gold production is the, the largest source of severance tax in this category. Gold prices were high. That certainly plays into it. Gold prices are still high, although not quite as high as they were this winter. But gold prices at this point in time are are quite a bit higher than they were last year at this time. And so, if you expect similar production, which based on annual reports is kind of where my estimate comes from, pretty similar gold production, continued prices of four. $4,000 an ounce or more, do expect that revenue source to remain at least stable compared to where it was in fiscal year 2026. So in short, severance taxes are up significantly, not quite as much as we had forecast back in February.

Additional questions? Any additional questions for Mr. Johnson? Online, any questions? Okay, well, we'll thank you very much, and we'll turn it over now to Mr. Mehlhaff, Interim Director, Legislative Research Council.

Those are nice socks he's got on.

Good afternoon. Please identify yourself. Thank you.

Good afternoon, Mr. Chairman. Jeff Mehlhaff, your interim director. I think this might be a first where a director Director has interim director or director would have presented the revenues. Maybe history, I don't know. I'd have to go back and do some more digging. What I want to cover for you today, I'm going to keep it relatively short. I want to talk about inflation first. So what you see in front of you is overall inflation. So overall inflation, this goes back 6 years from before COVID kind of up through COVID, and then you can kind of see it's been trailing back down to maybe the Fed's 2% level. We saw a spike here recently in overall inflation. You could put that towards energy prices with the price of gasoline maybe spiking it back up. The expectation is that would go back down. The fear is, is that inflation starts to spike up like you— like we saw during COVID That would be a concern because there was money during that time to bail out that high spike in inflation. So we may not get that again. So let's dig a little deeper into core inflation. So back in 2019, prior to COVID, And then during COVID we were on a very similar path to what you saw during the '70s for inflation. Because I remember presenting this chart back around 60 months in, and there was concern, well, where is inflation going to go when it was 4.1%? Was it going to go down like the Fed wants, or is it going to go back up like we saw during the '70s? So 90 months in now, we can kind of see that That trend has continued down for core inflation. We're not seeing the 1970 trend repeat itself. We're going kind of back to normal, if you will, for inflation. We're at 2.6% core inflation growth through June, still above the 2% target. But you can see it's been trending down for about 3 years. Still sticky. So your, your cost of everything is still going up. Just not up as much each year. So I wanted to touch on this graph because I've shown it a few times, and it does not look like we'll have a repeat of that '70s, which is really good. So getting into the overall revenue outlook, LRC's forecast for July is $2.538 billion in total revenue, which would be 1.5% growth over actual FY26. This is $24 million less, or 0.9% less, than LRC forecasted in February. Based on the number this committee adopted, this forecast is $13.3 million less available, or a half percent decrease less than budgeted. So before I get into all the reasons why, let me go over a couple of graphs for you that kind of maybe paint a bigger picture for sales tax. So this graph of sales tax takes us all the way back to 2010 going forward. And so we've only had a couple years where we've had a negative decrease in overall sales tax collected. And the one in '24, we all know that's because the sales tax rate went down. So maybe that's not really a decrease, but overall it's a decrease. In 2017, the rate went up. But outside of those years, there's only been 2 years where you've actually seen maybe an actual decrease in revenue: 10, which is maybe coming out of the financial crisis, and then fiscal year 25. So everyone would have expected fiscal year 26 to see a very moderate high rebound in in sales tax collections because the year before we saw a negative 1.4.

Right.

And so going forward, the 6.9% was even above where LRC was in February, where I was an entire year ago. So that 6.9% overall increase in sales tax was a bit surprising to me. I knew it would be higher growth. I didn't— just didn't expect that much growth, which leads me to pause a little bit for '27. Because typically, When you have a high growth year like that where you exceed your expectations, the next year will usually produce a below average return. Because you just can't have high growth upon high growth unless we're during COVID times, because there you go to the COVID years '21 through '23, we had high growth upon high growth where you saw double-digit growth for multiple years. That's not normal. And so what I've done for LRC's sales tax target for FY27 is I kept it the same. It is the same number I provided to you in February, and I believe that number is still the best number. So instead of a 4% growth, it is now a 3.5% growth rate over what we collected last year, which you can see if I take out the outliers is a bit below average. If we were to exclude all the outliers, the average sales tax growth is about 4.6%. I am estimating 3.5%. You guys adopted 3%. So my overall sales tax number is about $8 million or so higher than you guys adopted, which isn't exceedingly high, but I think we will experience a below-normal year for sales tax because hitting those monthly— hitting 4% or more on those monthly growth targets that we saw this last month will be difficult. Because you heard Mr. Johnson talking about we had 6% growth these last 5 months, right? So you're saying next year we have to hit 4% every one of those months as well. So you got 10% in 2 years. That's high growth. And I just don't think we'll quite reach that level, which is why I'm a little bit more on the conservative side with keeping to my original number back in February. So that's sales tax overall. I just wanted to kind of give you a history of kind of where sales tax has been. This next graphic, it kind of looks at overall ongoing general fund receipts. So once again, '17 you saw a rate increase, '24 you saw a decrease in rate, and we also reclassified unclaimed property as well. So that's why you don't see as much of an increase after those years, because before those years, part of those increases was unclaimed property being in the ongoing revenue And since then, we've kind of moderated that out. So overall, on average, for total revenue growth in the general fund, we should see about 3.4% if we're excluding those outlier years. The LRC July forecast is 1.5%, which I will tell you is below average. And I was kind of surprised by this myself. But forecasting below average growth because we're coming out of a year where we're seeing above average Okay. So I would expect a little bit below average for the following year. Now, I could be wrong, and I'd like to be wrong, but I guess I'm being a little more conservative at this point. Which gets us to the total change by each revenue source here. And I'd say the biggest reason I'm probably down is the investment income down here. So if you look down towards the bottom, investment income and interest, you see that's been revised to $53.3 million. $63 million from the committee's adopted $62.8 million, which is about $9.5 million less. And this is kind of for the same reason that Mr. Johnson talked about, where we just expect less percentage of that investment income to come to the general fund. Another area you'll see here is my severance taxes are down. I'm estimating $20.8 million. $20.9 million. So just a slight increase from where we ended fiscal year '26. And this is because gold is down over $1,000 per ounce since February. If we go back to February, gold was at all-time highs. Gold has come down since then. So with, with gold being at lower prices, and even if they keep production the same, I think we're going to see about the same amount of revenue. as we collected this year. Could be slightly less depending on what gold does over the next 12 months. So those 2 areas together, you know, is about the $13.3 million. That'd be different from adopted. Some of the other areas would be the insurance company tax, $11.9 million there. We just missed that estimate by $10 million and way over-projected there. So that one's been revised down to about 5.5% growth.

Okay.

Which is due to kind of the moderation in the rate increases, not just big increases year after year. My contractor's excise tax is down a little bit from the adopted, not much, but about $1 million. I just see a little bit more tapering off in that excise, in that contractor's excise growth and development with rates still being really high. Just a little bit less, not a whole lot of difference. Probably a slower growth in lottery too than what Mr. Johnson had there. I'm just at 185.16, so a little smaller growth there on lottery. But I would say those are most of the differences. The other one I'll talk about a little bit, which I was surprised by, was the alcohol beverage tax. We did miss that target by about 4%, and that's also been revised down. That has been more negative, and I think that's just due to the younger generation not drinking as much, so you don't see it reflected in the revenues as much. And so I'm not sure where that new baseline for alcohol beverage tax is at yet. We may not be at that new baseline, so this trend could continue down until we stabilize at a new baseline. So we'll have to keep an eye on that and see where that goes. But Mr. Chair, as far as prepared remarks, I think And that's all I have, and I'll stand by for questions. Thank you.

Thank you, Mr. Mehlhaff. Questions? Yes, Representative Kassin.

Thank you, Mr. Chair.

So, so going back to the same question I asked Derek, so 2025 to 2026, we ended at 6.6% growth. '26 to '27, BFM is estimating 4.3%. And if I'm reading this chart right, you're estimating 1.5%. Or am I completely missing this?

Mr. Chair, I am— my July LRC forecast is 1.5% growth over what we actually saw in '26. The committee had adopted 2.1% growth over actual '26. So you are correct, Representative Kassin.

3.5%.

So 1.5% or 3.5% growth?

So if we go back to February, the committee had adopted—

2.1%.

2.9% growth is what I have from the committee's sheet here. 2.9% over— that was over what the committee had recommended for '25. But what I'm showing here on screen is 25, 26 actual, 27 growth over actual '26. From session and other numbers, those were estimates on estimates. Those were growth on estimate numbers. Now I'm looking at growth on actual numbers.

Thank you.

Additional questions? Yes, Representative Jorgenson.

Thank you, Mr.

Chair.

I'm just wondering if the sales tax— not reforms, but shifts that we did during this last session where, sure, the half cent will go directly to the counties and that will offset property taxes, will that— have you looked at that to see if that would increase maybe additional spending. Do you take any of that into consideration when you look at these bills that we passed last session? Thanks.

Mr. Chair, to answer that question, I'll maybe take it in 2 parts. One, my model does not take into account rate changes because the model that I use, it doesn't know the rate is changing. It just sees the monthly amount that's being collected every month, right? So there's some extra work that I'd have to do to look at that. And that can be— and that should be looked at and taken, because that's an extra weight on the formula that happens. And if you don't take it into consideration, you're going to miss it, right? So answering the one part, the model does not take that into account. The second part is it's difficult to know which counties are going to implement this versus not. That— because You really don't know. I know of one county that's proposed it. And then actually, a sales tax rate increase generally leads to less consumer spending. Usually people pull back on spending when the rate goes up. It's very elastic that way. Think about like, if the cigarette tax went up by $2 per pack, you're going to see less people Smoking, right? Because the cost to smoke is higher, right? So if the cost of my goods are higher, I've only got so much income. And if the cost— I have to cut back, right? Because I only have so many dollars to spend on goods, and my dollar goes not as far if the rate's higher, right? Now, people don't look at it like, oh, I've got a dollar to spend and that thing's $1.05 now, right? They probably just buy it. But you, you generally, in theory, should see Follow-up?

Thank you, Mr. Chair. Great, great answers. Thank you for putting that in perspective. But I guess I'm also curious sometimes when, for instance, in this case, homeowners are going to get some property tax money back in their pockets, which the question is then, is that going to to be something that might stimulate the economy for people to go out and spend more money? Just a thought. Thank you.

Mr. Chairman, yes. So when you have an increase in a tax and a decrease in a tax and that net offset is more money in your pocket, consumers generally will spend that money. So if you're a homeowner and your sales tax is going up, let's say half a percent, But you're saving more through property taxes, you probably will spend that money. And you may actually end up then spending more money than you would have otherwise, right? So that could lead to increases in sales tax. Now, on the other hand, if you're a renter, you won't see any of that, and your rate could be going up. So will that wash out? It's, it's really tough to say, depending on the number of— depending on where you live, the number of renters versus the number of homeowners. And then you have to make an assumption on how much of that money are people going to spend out of state versus in-state. A lot of people will probably spend that money in-state, I would think. But hopefully that answers your question.

Representative Kassin.

Okay.

All right. Any further questions or comments? Any further questions or comments for Mr. Mehlhaff online? Is there Anybody online? Yes, Senator Vilhauer.

Thank you, Mr. Chair. Uh, I want to make sure I understand what, what Mr. Mehlhaff has just gone through with us. If, if your projection, Jeff, is spot on, uh, versus what we budgeted back in February or early March, And expenditures were exactly what we budgeted, we'd be looking at a $13.3 million deficit for the year, correct?

Mr. Chairman, that is, that is correct.

Okay, I just want to summarize in a way that I could— that it makes sense to me when I see what you're doing, Jeff. Okay, thank you.

Mr. Chairman, if I could clarify one thing, that assumes no one-time revenue coming in as well. If we get to that.

Correct. Yep. Yep. I understand that, Jeff. Appreciate it.

Very good. Any further questions? Any comments? Did that generate any further questions for Mr. Johnson while he's here? I don't see any. Thank you, Mr. Mehlhaff. At this point, we've gone through our agenda. Is there anything else for the good of the cause before I turn it over to my co-chair for closing comments? Any, anything else for the good of the cause? Senator Otten, you want to close us out?

Yeah.

Just wanted to thank everybody for their hard work on this. This is not easy. We're kind of into the realm of speculation and whatnot, but I've learned that you guys are pretty doggone good at your work. So, and for the committee itself, coming into a new group I don't know who's going to end up sitting here, but it has been an honor to get to serve with you guys. You are a class act. So with that, that's all I got.

Thank you, Mr. Chair. I will echo those comments and at this time entertain a motion to adjourn.

So moved.

Motion by Senator Zikmund, seconded by Senator Howard. All in favor say aye. Aye.

Opposed?

Motion carries. Thank you.