On heels of Legislative Council analysis showing potential for billions in diminished oil revenue, Dems call for non-alarmist contingency planning and long-term budget volatility study
(BISMARCK, N.D.) – In response to a Legislative Council analysis showing that state coffers could collect over $5.5 billion less than previously forecast during the coming biennium if oil prices stay at their current levels, Dem-NPL legislators called for level-headed contingency planning when considering appropriations for the 2015 biennium. To minimize budget uncertainty in future biennia, the legislators also announced that they will introduce legislation that calls for a long-term budget volatility study to examine the state’s myriad funds and how they could be streamlined to guard against the ups and downs that commodity markets have on North Dakota’s tax collections.
“While the Legislative Council memorandum shows sustained low oil prices could have a multi-billion dollar impact on tax collections in the next two years, we believe the proper response is planning rather than panic,” said Senate Minority Leader Mac Schneider. “In calling for budget contingency, we’re trying to guard against overreaction by lawmakers in response to low oil prices as much as under-reaction. While putting together these contingencies requires detailed planning and cooperation throughout the legislative appropriations process, the premise is a basic one: If the funds aren’t there, they won’t be spent. But if the oil market rebounds and tax collections return to projections, we won’t have left Bismarck with critical needs unfunded.”
The attached memorandum prepared this week by the non-partisan Legislative Council shows that North Dakota could collect $3.181 billion less in tax collections than predicted in the last revenue forecast if oil averages $44 to $52 dollars a barrel throughout the biennium. If the oil “triggers” are activated due to five months of sustained oil prices below the $52.59 trigger level, the state would see a further reduction in collections of $2.4 billion in the next two years.
“While the potential reductions in collections are sobering, they must be viewed in perspective,” added House Minority Leader Kenton Onstad. “The funds both parties agree should be used to catch up to oil impacts in western North Dakota are in-hand presently. That’s because they should have been appropriated last session. Those impacts aren’t going to fix themselves, and we will not allow our colleagues to backtrack on promises made to western North Dakota under the guise of the falling price of oil.”
The Legislative Council memorandum also details the impacts the diminished collections would have specific funds. For instance, if oil remains at current prices — and the triggers are activated and remain “on” for the remainder of the biennium — the Resources Trust Fund could see deposits of $83 million this biennium. While this could potentially hamper investment in water projects, a contingent appropriations approach would ensure these projects get funded if the price of oil rebounds.
The Property Tax Sustainability Fund could also see significantly reduced allocations — $119 million if the price of oil is between $44 and $52 per barrel and the triggers are activated. Senator Connie Triplett stressed that the potential shortfall was likely to be felt more keenly in the 2017-2019 biennium, if at all.
“In preparation for the possibility that these projections play out, we may want to move funding from the Strategic Investments and Improvements Fund to shore up our commitment to K-12 education and continued property tax relief in 2017 and beyond,” added Triplett.
The Dem-NPL legislators also announced that they will introduce legislation which calls for a budget volatility study to guard against the effects of swings in tax collections in future biennia. The legislation (see the attached bill draft) would also direct Legislative Management to study the numerous funds established by the legislature in the past several decades and determine whether consolidation of these funds will increase transparency and predictability in budgeting. The Pew Charitable Trusts recently found that North Dakota has the fourth highest tax volatility among the 50 states.
“The sky isn’t falling,” added Schneider. “We still have a world-class oil play that will outlast this global gas war, but we should take reasonable steps to mitigate the effects of the low price of oil on our budget in the near term and engage in long-term planning.”
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