December 15th, 2015 Moody's Turns Gloomy On N.D. Moody's projections for oil prices are already public, and it doesn't take a rocket scientist to fi

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December 15th, 2015

Moody's Turns Gloomy On N.D.

Moody's projections for oil prices are already public, and it doesn't take a rocket scientist to figure out what it means for North Dakota.


Slightly late to the realization, the state of North Dakota is finally asking its economic consultant for a new forecast that will be delivered in January or February to lawmakers.

At the same time, what appears to be a direct rebuttal to an editorial last week, Moody's is sounding the alarm on North Dakota's economy saying that the state could be in trouble and needs to prepare for a full blown recession.

While some papers' editorial boards will call this sort of thing "chicken little thinking" the fact is that this is the company that the state's leadership has chosen to rely on for over a decade.

On CNBC today, the report is that Moody's is lowering it's price target to an average of $40 for 2016.

Going further, according to Moody's press release, for 2017 and 2018 they are now putting the price estimates at $45.

This means the state of North Dakota needs to prepare for having over 20% less oil tax revenue (when combined with the oil tax rate reductions passed in 2015).

Rainy Day Just A Bandaid

One-Time Spending

While state officials are trying to calm everyone down and say that the tools in place to do small 2 & 1/2% cuts along with the Budget Stabilization Fund will solve the problem - this is just a short-term band-aid.

The state's general fund budget increased from $1.8 billion in 2003-05 to $6.8 billion in 2013-15. The slight decline to just over $6 billion in 2015 was completely due to a reduction in one-time spending as the on-going budget actually went up!

The state’s general fund spending is still TRIPLE what it was just a decade ago.

Long-term Cuts Will Be Required

As much as lawmakers and state officials will deny it, the next legislative session will be about cutting rather than spending.

With the current revenues $152 million below expectations after only 5 months of the biennium, assuming things don't get much worse - the state will be looking at a $500 million to $750 million revenue shortfall. This will drain the state's Rainy Day (Budget Stabilization) fund which has $572 million in it.

There is already talk of what will happen beyond that.

First on the list for things that will be on the chopping block is the 12% property tax credit the state is paying on behalf of local taxpayers in addition to the increased education funds over the last 6 years that have reduced school district mill levy. This is said to be on the chopping block because during the 2015 legislative session, an attempt was made to back the state out of the tax credit by a mere 1%.

Next will come cuts to "one-time spending" mostly because the amount of money that will be left in the SIFF (Strategic Investments and Improvements Fund) will have dwindled down.

Legacy Fund To Be Raided

Given the lack of fiscal restrain over the last decade, it does not take a big leap to assume the Legacy Fund will be raided in 2017, and that will be the legislature's first chance to get at the principal and earnings of the fund.

With a balance of over $3.2 billion from oil tax collections, the next legislature will have access to the interest and 15% of the fund with a 2/3rd vote of both the House and Senate. This will amount to roughly $450+ million.

If the money raided from the Legacy Fund is not spent outright, this will likely be used to replenish the Budget Stabilization fund once it is nearly drained to deal with the over-spending in 2015-17.

Tough Leadership Needed

There simply are not a lot of people still in the process that were around when times were actually difficult. The next governor is not going to have a lot of fun.

The next four years won't be about ribbon cuttings - it will be about budget cutting.

Over the next election year, our lawmakers need to be told that will not suffer a backlash as long as they recognize what needs to be done. Kicking the can down the road is no longer an option.

As former Governor Ed Schafer says , it's time for a "conservative correction".

Previous Warnings On Budget


-Dustin Gawrylow, Managing Director

North Dakota Watchdog Network


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