December 10th, 2014 The Governor's Budget (Note: an audio discussion of this topic can be heard by clicking here) Last week, Governor Dalrymple un

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December 10th, 2014

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The Governor's Budget

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(Note: an audio discussion of this topic can be heard by clicking here)

Last week, Governor Dalrymple unveiled his budget proposal for the 2015-17 legislative session.

A brief overview of the Governor’s budget looks like this:

▪ Total spending is increasing from $13.7 billion to $15.7 billion (a 12% increase).
▪ Once again, by shifting major spending initiatives out of the general fund and appropriating direct from other funds, the Governor has managed to make the general fund spending increase look smaller than it really is. The term “general fund equivalent spending” will continue to be used to be able to compare apples to apples from a budget standpoint.
▪ The Governor’s budget assumes $74 oil for the remainder of the current biennium, and $80+ oil for the next biennium.
▪ The budget also adds 247 state employees and 40 higher education employees – despite both levels still claiming they have too many unfilled positions.
▪ On taxes, the governor’s budget offers what amount to crumbs: $100 for individual income tax reductions, and $25 million for corporate tax reductions.

Total Approps

After the exponential growth of the state budget over the last several sessions, it really should not be a surprise that the trend is continuing. What is surprising is how the governor is seemingly trying to downplay the role that the oil economy plays on the state budget.

The Williston Herald reports that the governor is trying to minimize the impact on the state budget that oil actually has.

“We don't run the state on oil revenue,” the governor said. “The Bakken is so productive that the four major oil producing counties have the lowest cost of production per barrel in North America, third lowest in the world. In a situation where people start shutting down drilling, we will be among the very last.”

Revenues

The only reason state spending has gone through the roof is because of the oil business.

It is absurd to downplay oil’s role in the state budget, even if you think the good times will never end.

We know that half of the total revenues are directly from oil/gas.

We also know that sales tax collections would not have increased from $1 billion in 2007-09 to $3 billion (governor's estimate) in 2015-17 without oil.

Personal income tax rates have been cut by 40% since 2009, yet revenues have increased from $681 million to $951 million in the 2013-15 biennium.

Local Subs

The property tax buy-down program, as bad of a public policy it is long term, would not exist without the direct and in-direct oil revenues.

The governor and the legislature cannot hide oil’s impact on the state and the state’s ability to spend massively increasing amounts of money. Those in the oil industry and the areas impacted by oil should be a little offended by this approach.

The Oil Factor

In the last two weeks, much of the focus has shifted to the world oil markets and the fact that the price of oil on the global market has fallen 40% since June 2014.

While this market correction does not mean the sky is falling, it does mean that the pie-in-the-sky notion that this would be the boom that never goes bust has definitely fallen to earth.

The impact in North Dakota will not be immediate, but it is coming.

Already in November, reports that Bakken permit applications are down 29% over last year indicate the industry is preparing for the worst.

One particular driller is planning to cut its rig-count from 16 to 6 in the next couple months.

So what are North Dakota's leaders doing?

Downplaying the importance of oil to the state.

Does that make any sense?

Hopefully, the legislature will realize that the time is now to focus on infrastructure, but to base growing other parts of the state budget only on whether the revenue actually is there to support it. Otherwise, they might fight themselves back trying to fix it later.

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-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network

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