Thursday, August 4, 2016

ND Legislators Pass Budget Bill in Special Session


It was a historic moment. But not a moment you really want to experience. For only the 15th time in state history - the North Dakota Legislature was called in to a special session. They were asked to pass a bill created to bridge a budget gap created primarily by the plunging oil market. Yes, it was a moment Legislators hope they never have to repeat.

You may remember in February, Governor Jack Dalrymple ordered across-the-board reductions of 4.05% to state funded agencies. That allotment simply wasn't enough to make up for the decrease in tax dollars flowing into the general fund. The Governor can only authorize across-the-board cuts. He needed to call the Legislature back to work to approve more targeted reductions and to tap other funds.

The three day special session focused only on fixing the budget. The Governor and leadership crafted the bill and while others had their own ideas on how to improve it - those concepts were not adopted.
The bill makes an additional 2.5% reduction to state agency budgets; with the 4.05% that was authorized earlier in the year - state agencies are ordered to reduce their budgets a total of 6.55% from what the Legislature approved in the 2015 Legislative Session. The 6.55% in reductions will total approximately $400 million. In addition, the bill spends $75 million in the Budget Stabilization Fund which was created for times like this (it is often referred to as the rainy-day fund). That fund will now have a zero balance. Also, up to $100 million from Bank of North Dakota profits can be used if necessary.

It is important to note that Department of Human Services will not see the 2.5% reduction and the Department of Corrections and Rehabilitation will only have its budget cut 1% vs 2.5%. These special exceptions were given to the agencies because of how detrimental further budget reductions would be to the services they provide.

These reductions follow several years of exponential growth in state government spending. The general fund budget more than tripled since 2005 primarily in response to the rapid growth in oil activity in the state. 

Following the special session, Pam Sharp, with the Office of Budget and Management gave a look at the most recent revenue forecast for the next biennium. It was prepared with the "worst case scenario" in mind; in order to prevent a situation of over-projecting revenues. The 2017-2019 forecast shows a 4.9% increase in tax revenues or $175 million more collected in comparison with the 2015-2017 biennium. The forecast  projects an increase in oil and gas tax revenues as well, while using very modest numbers. It is basing tax collections on production going down to 900,000 barrels per day and averaging $42 per barrel in 2017 but rising to $58 per barrel in 2019. Current oil production is 1 million barrels per day and the price for a barrel of oil is just below $40 a barrel.


This chart does provide an interesting perspective. Look at the collections in the first three bienniums on the chart, starting with 2005-07. Compare those with the 2015-2017 forecast. It shows we are still seeing growth in revenues over the 2009-11 biennium.

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