Interim Committee Discusses Reliance of Oil Revenues on State Budget

Oil and Gas revenues have allowed the state to make may tremendous investments. But how reliant the state budget has become on oil and gas revenues was the center of discussion at the interim Government Finance Committee meeting. Legislative Council has created a presentation that provided background and facts to committee members. It provides a look at the ups and downs of the budget and reliance on oil and gas revenues. Committee members discussed how during the boom years with revenue growth and increased economic activity there was pressure for new spending and tax relief. The legislature did both by:

• Providing property tax relief
• Reducing individual and corporate income taxes
• Increase spending on:
• Infrastructure improvements for political subdivisions (housing, water, sewer, roads, bridges, airports)
• Road repairs and improvements 
• Schools 
• Public Safety 
• Human Services 
• FMAP (formula that determines the share of Medicaid costs paid by the state) 

The legislature approved these investments when revenues were substantially more than they are now which has created a budget gap. Ongoing expenditures have exceeded ongoing revenues since the oil downturn around 2015. In the 2017 Session, Legacy Fund earnings were available, and lawmakers used $200 million of the earnings to balance the budget. It is estimated the 2019-21 general fund has $700 million more in ongoing expenditures than ongoing revenues, continuing the budget gap.

During the 2019-21 biennium, $400 million of oil tax collections is deposited into the state’s general fund. In addition, there are other transfers from funds derived from oil taxes. So essentially, $1.34 billion of the $5.07 billion budget comes from oil tax collections. The point of discussion here is basically how dependent do legislators want the ongoing budget to be on oil tax revenues. The second big question for them to ponder is to what extend to they want legacy fund earnings to be used to help balance the general fund budget. This will be a point of discussion as the Legacy Fund Earnings committee is studying the best uses for the earnings during the interim. The next LFE committee meeting is February 19th and 20th in Watford City.
Click here to view the Legislative Council Presentation

Revenues Tracking Ahead of Forecast

The Office of Management and Budget provided a report to the committee highlighting how revenues are tracking ahead of forecast. The Legacy fund is averaging deposits of $56 million a month and sits at $6.7 billion. Oil revenue is currently $50 million above forecast and Director Joe Morsette says if revenues track at the current rate the state’s ending fund balance (June 2021) could be close to $400 million.

Internet Sales Tax Collections Up

State Tax Commissioner, Ryan Rauschenberger, gave an update on sales tax revenues. In 2018, the U.S. Supreme Court ruled that remote sellers be required to collect North Dakota sales and use tax on their sales in the state. According to the Tax Department, there are 6,288 active remote sellers collecting the tax. Since June 21, 2018 $37 million in sales tax has been collected, with $8.95 million collected at the local level. Another new law, which requires a marketplace seller to collect taxes, is also bringing in additional sales tax dollars to the state and local. $6.57 million has been collected in the first four months. Rauschenberger noted that this is new revenue for the state because of the new law but it essentially replaces revenue lost at the local level at “physical” retailers in the state. Sales taxes as a whole are on pace to exceed the legislative forecast.

Interim Committee Studies Taxing Vaping Products

The Interim Taxation committee discussed taxation of electronic smoking devices and even reviewed a draft of a potential bill to tax liquid nicotine. This is a conversation happening across the country. In

NCSL: State E-Cigarette Tax

early 2020, 21 states and D.C. have enacted vaping taxes according to the National Council of State Legislatures. States have different approaches to taxing these new products by either percentage of price, amount of e-liquid or a combination of the two.

Currently in North Dakota there is no tax on liquid nicotine or e-cigarettes. Traditional tobacco products are taxed at a minimal rate. In fact, the American Lung Association gives North Dakota a F grade for tobacco taxes due to the low tax rate which is the 4th lowest cigarette tax in the country.

The conversation at the interim taxation committee centered around two main ideas. Lawmakers received information regarding usage of e-cigarettes and testimony supporting a tax increase to help reduce usage, especially with youth.

The North Dakota Department of Health (NDDOH) provided testimony regarding vaping-related

illnesses in North Dakota. NDDOH has identified 20 confirmed and probable cases of vaping-related illnesses in 8 counties. Those are cases where the individual was hospitalized. Most of those illnesses are individuals 18-24 years old. In addition, 59 individuals have self-reported illnesses to NDDOH.

Raising the legal age to 21 to purchase tobacco products may help curb usage, but several who testified emphasized how that alone is not enough. The federal law was enacted Dec 20, 2019 which raised the age from 18-21. T21, as it’s called, has been a push by public health officials in several states including North Dakota over the past few years.

Tobacco Free North Dakota (TFND) Executive Director Heather Austin shared data showing how the percentage of high schoolers using cigarettes have decreased over the past 20 years but the percentage of those who are using e-cigarettes has dramatically increased to 27.5%. Austin also encouraged lawmakers to follow CDC practices and rates when exploring setting a tax rate for e-cigarettes.

Robin Lang, with the North Dakota Department of Public Instruction (DPI) also testified. She referred to statistics as reported by the Youth Risk Behavior Survey. This voluntary survey is conducted every other year for students in grades 7-12. Findings for 2019 showed 1/3 of ND high school students who took the survey reported using electronic vapor products which were mostly purchased at the store or online.

The Committee welcomed two students from Jamestown High School who shared their thoughts and concerns regarding the issue. Low prices with no tax raise during their lifetime and easy access to products were reasons the students gave for supporting increased taxation for cigarettes as well as establishing a tax for vaping products.

Sue Kahler, Bismarck-Burleigh Public Health Tobacco Prevention and Control Coordinator added

that the products are made to be concealed making it difficult for teachers to identify. The Fargo Cass Public Health reports an “alarming trend in Cass County regarding tobacco use, including e-cigarettes (vaping devices) and the number of citations given to minors” by School Resource Officers. The number of citations issued has nearly quadrupled in the last five years emphasizing how e-cigs have made an impact. Most recently elementary school students (ages 10-11) were cited.

The interim committee will continue its work to study the feasibility and desirability of applying an alternative or additional tax on liquid nicotine and electronic smoking devices. The committee did not take any action on the bill draft.

NDACo & NDCCA boards approved a resolution supporting the regulation and taxation of liquid nicotine products and electronic smoking devices.

2019‐16. Taxation of liquid nicotine and electronic smoking devices. The target marketing of electronic smoking and vaping devices has created an epidemic among North Dakota’s youth. While electronic smoking devices are defined as a product that may be used to deliver any aerosolized substance containing nicotine, the sale of such products is weakly regulated and is taxed like regular consumer products. State law regulates and taxes tobacco products separately, and at a higher rate, as it is recognized that tobacco use is the state’s number one cause of preventable disease and death, having devasting economic and serious health consequences. In order to treat all forms of nicotine delivery equally while deterring their use, particularly among youth, county officials support equitable regulation and taxation of liquid nicotine products and electronic smoking devices as part of the North Dakota Tobacco Products Tax. This Association further urges the Legislature to place a moratorium on the sale of liquid nicotine and electronic smoking devices until research and proper regulation can ensure the safety of the consumer.