February 1st, 2016 New Forecast Shows Even Bigger Impact of Low Commodity Prices Despite months of downplaying the near and mid-term economic realit

      Web Version   Preferences   Unsubscribe  
North Dakota Watchdog Network Logo

February 1st, 2016

New Forecast Shows Even Bigger Impact of Low Commodity Prices

General Fund Revenue Shortfall

Despite months of downplaying the near and mid-term economic realities, this morning, the State released its new revenue projections and it is far worse than even the most conservative estimates had predicted.

A $1.074 Billion shortfall for this budget cycle is now being officially predicted.

Many of the predicted short-term band-aids that have been discussed are already being planned.

Revenue Shortfall Strategy

On Page 3 of the new revenue forecast, we can see that the current path to balancing the budget now is to drain $497 million from the Budget Stabilization Fund's $574 million balance (a.k.a. Rainy Day Fund), to immediately allot (cut) 4.05% across the board from all agencies except K-12 Education, and to run the state's ending fund balance down to almost zero.

The first obvious critique of this approach is, why not just have a 5% allotment and at least have a little bit of a buffer?

Oil Revenue Shortfall

It is important to note that while the headlines will say that there is a billion dollars shortfall, that is just for the General Fund.

The new revenue projection numbers actually indicate a nearly two billion dollar reduction in revenue - $1.074 billion in reduced General Fund Revenue, and $967 million reduction in direct oil-tax revenue.

In addition to the impact on the General Fund, as we predicted in November, one area to get hit hard by this revision will be political subdivisions.

This particular piece will likely give local governments an excuse to raise property taxes when the next local budget season gets started. And backers of higher sales tax such as in Bismarck will also use this as an excuse to support their agenda of higher taxes.

Leaving No Room For Error

By only allotting 4.05%, and planning to drain the Rainy Day Fund down to less than $100 million, the next legislative session will be saddled with a major problem - how to avoid tapping into the Legacy Fund?

Make no mistake, the action taken today is pretty close to the bear minimum needed to make the state's finances balance out. It does nothing to solve the long-term sustainability of the state budget.

There is still a need for a course correction and change of trajectory.

Previous Warnings On Budget


-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network


Help us to continue to provide you and other taxpayers with up-to-date information on fiscal issues.

Paypal Button