The Budget Mess Doug Burgum Will Inherit

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December 9th, 2016

This week, Governor Jack Dalrymple issued his final budget recommendations in his final budget address. It is unknown how much of this incoming-Governor Doug Burgum will abide by.

We told you before the November election that if Measure #2 passed, that it would be used as a permission slip to raid the other trust funds.

It is very apparent that is what will happen to the Foundation Aid Stabilization Fund, as well as many of the other funds.

For months, Republicans have denied that there was any danger to the Property Tax Relief Credit. Those of us who knew the numbers always knew there was not a danger for 2017-2019, but that there very well may be in 2019-21.

Instead of funding a 12% property tax relief credit, the state will pay for all county level social services. The governor claims this will be equal to the property tax credit but that is yet to be seen.

In the governor's plan, the money in the property tax relief fund would be put into the Budget Stabilization Fund.

It is unclear at this time how this change will ensure that these cost savings will always equal the same 12% as the property tax credit, but that policy is yet to be determined.

For years, the state's politicians have fought over who should get credit for sending money back to the Bakken to take care of the needs created by the oil boom.

Governor Dalrymple's final budget will apparently get rid of the Oil and Gas Impact Grant Fund - and presumably return to the old system where oil impact money is given out based on political decisions rather than an automatic formula.

This will come as very bad news to those in the oil counties who thought the state was moving past treating re-investment as a political football.

For years, the state has poo-pooed claims that it relies too much on oil tax revenue, citing that only $300 million of oil tax revenue automatically goes to the general fund.

The governor's budget calls for a 335% increase on automatic oil tax revenue - from $300 million to $1 billion dollars.

Not only will this change increase the reliance on oil, it will reduce the revenue going into the various trust funds.

This will make North Dakota even more susceptible to wild price swings in the oil market.

This, along with capping the balance in the Foundation Aid Stabilization fund further perpetuates the problem of relying on oil tax revenue.

Likely as a result of voters agreeing to let the legislature raid the Foundation Aid Stabilization Fund, Governor Dalrymple is proposing that one of the major revenue sources for the Common Schools Trust Fund be completely diverted.

Currently 45% of the Tobacco Settlement Trust Fund revenue goes to the Common Schools Trust Fund, under the governor's plan, that money would be put into the General Fund and spent in the next budget instead.

Ironically, Dalrymple has put $454 million into the Budget Stabilization Fund (aka "Rainy Day Fund") instead of forward-funding the Property Tax Relief Credit.

This means that in all likelihood, as he is walking out the door, he knows his budget has a probability to create another shortfall needing as much as $454 million to deal with.

This is obviously because the governor knows that by funding the budget by raiding all these various trust funds, if oil prices do not recover by 2019 the legislature will be force to make even more drastic cuts - assuming there are not more allocations and special sessions.

One Dalrymple policy area that future-Governor Doug Burgum would be wise to abandon on Day One is Dalrymple's use of shell-games with the state's money. Moving money around to make things look better than they really are, and avoiding the hard budget cut decisions is a staple of budgets in recent years.

Another staple is making legislators the bad guys by requiring the legislature to fix the shell game financial strategy. When the governor leaves out spending items that he knows the legislature will have to put back in, he is intentionally distorting the budget situation and making legislators look like the bad guys.

This process has had a name for many years, it is called by legislators who do not like it: JACKONOMICS.

This policy has to end. Yes, we should consolidate a lot of the state Trust Funds and set in stone how and when they will be used, but using creative accounting is no way to run a state, and only kicks the can down the road.

There are a few good things in this budget such as abolishing the Center for Tobacco Prevention and Control and rolling those functions into the Health Department, and cutting 583 state positions, over 300 of which are from higher Education's massive bloat.

But on the balance, the legislature must find ways to permanently fix the budget situation rather than patching over the spending by raiding the various trust funds.

They must also reduce our reliance on oil tax revenue, not increase it as Governor Dalrymple's proposal sets in motion.

Instead, they should put those trust funds to work for the people of North Dakota and use the interest off those funds to offset the need for more revenue.

By doing that, they can avoid the ultimate theft of the oil boom surplus by leaving the Legacy Fund alone and letting to grow to some day wipe out large chunks of tax revenue with its interest income.