As the gavel thuds Wednesday to open North Dakota's 60th legislative assembly, lawmakers will begin four months of work on an enviable task that's likely to dominate the session: divvying up a budget surplus of more than $500 million.

The surplus, projected for the 2007-09 budget cycle, is a result of strong income and sales tax collections, as well as new tax revenues from the state's booming energy industry.

Gov. John Hoeven’s $6.3 billion budget proposal, unveiled to lawmakers last month, calls for a 24 percent spending increase over the 2005-07 budget. The increase includes greater state aid to both K-12 and higher education, and an addition to the state prison.

Already, a slew of other ideas on how to spend the windfall are bouncing around the Capitol.

Proposals include a one-time, $20 million appropriation to the state transportation department for road improvements and a program to offer free in-state college tuition to North Dakota high school students.

Tax cuts also could be on the agenda.

Hoeven's budget calls for a 10 percent reduction in property taxes for homeowners and a 5 percent reduction for farms and businesses.

Ideas from the Legislature include cutting the state income tax and eliminating taxes on home heating fuels.

"We're ready to go to work," said Sen. Bob Stenehjem, R-Bismarck, who serves as Senate majority leader.

Stenehjem said one of the session’s biggest challenges will be to keep new spending and tax cutting at a level that can be sustained well into the future.

"We can't be spending outside of our sustainable growth level," Stenehjem said.

For House Majority Leader Rick Berg, R-Fargo, the top priority is using the windfall to invest in North Dakota's economic future through workforce development, education and tax cuts.

"One of the reasons we have the surplus we have today is because of the environment we've created during the last four years," he said.

Republicans control both the House and Senate, and will therefore set the agenda in both chambers.

But their control in both chambers is by slimmer margins than during last session.

Democrats picked up six seats in the Senate this fall, resulting in a narrow 26-21 Republican advantage, and seven seats in the House, where Republicans still hold a 61-33 margin.

Democrats have said they'd like to see less emphasis on tax cuts and more on increased state funding to schools, which could spell property tax relief at the local level.

Although the surplus will likely dominate discussion, other issues expected to come up include lack of space for inmates in state prisons, the K-12 school funding formula and the death penalty.  Â

Legislators will get to work Wednesday morning when committee meetings begin. The session officially convenes later that afternoon to hear Hoeven’s State of the State address.

The session has an 80-day limit, set by North Dakota's constitution. During that time, it's required that every bill proposed be discussed and voted on.

"It'll all come up in discussion," Stenehjem said. "That's what's so great about our citizen Legislature."

(Reach reporter Jonathan Rivoli at 250-8264 or jonathan.rivoli@bismarcktribune.com.)