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ND leaders anxiously await revenue reversal

GRAND FORKS—North Dakota has seen sunnier financial days — and if recent calls for budget cuts are any indication, things might stay cloudy for a while.

Gov. Doug Burgum proposed cuts in April throughout state government, asking agencies for 5-10 percent cuts in ongoing expenses — with another 3 percent flagged for further reduction if necessary. Burgum also called on many agencies to cut 5 percent of their staff.

"While we have reason to be cautiously optimistic," Burgum said earlier this year, "we know our modest projected growth won't be enough to bring general fund revenues in line with our current ongoing expenditures."

There are exceptions. Medicaid and K-12 state school aid would be spared from those proposed spending cuts, and smaller state agencies and higher education groups were spared staffing reductions. But the cuts are just the latest rollbacks for a state that has hemorrhaged revenue in recent years, as oil prices, commodity prices and sales tax income all recede.

"Unfortunately, we made a lot of long-term spending commitments based on what would be short-term revenue booms," said state Rep. Corey Mock, D-Grand Forks, the House minority leader. "The bust happened before anyone was truly ready. We had a lot of unmet need."

But the recollection of the state's of boom-to-bust can vary from one state leader to another. State Sen. Ray Holmberg, R-Grand Forks, chairman of the Senate Appropriations Committee, defends state spending over much of the last decade. Though he's since said he would change a vote to support tax cuts, he said last week that they put dollars in North Dakotans' pockets. And though he allows that big infrastructure projects — like UND's medical school — are large in hindsight, he said they're also an investment in the state's future.

"We invested in the kinds of things you do if you have a few dollars in the bank and you need a new water heater or you need new windows," Holmberg said. "We needed the roads, we needed the bridges, we needed a new medical school. Those were the things we needed."

Changing fortunes

North Dakota's fortunes were different not long ago. A report prepared last year by the Legislative Council shows about $3 billion in general fund revenue in the 2007-09 biennium, a figure that soon skyrocketed. By the 2013-15 biennium, that figure — which includes the fund's beginning balance — had more than doubled to about $7.2 billion.

The state was flush with cash not only from more direct forms of oil income, but indirect forms as well. The general fund saw sales tax income increase enormously over the same time period, a phenomenon fueled by infrastructure expansion — notably in western North Dakota and the Oil Patch. The state population climbed from less than 650,000 to about 750,000.

And when cash was easier to come by, the state spent more. The Legislative Council report shows the general fund's one-time appropriations soaring from $315 million in 2009-11 to $2.4 billion in in 2013-15. Ongoing general fund appropriations — oftentimes departmental salaries, state programs and the like — were at $2.98 billion in 2009-11, and ballooned to about $4.57 billion during the 2015-17 biennium. Joe Morissette, director of the state's Office of Management and Budget, said much of the ongoing spending has been for higher education, K-12 education and Medicaid costs.

The state also cut taxes. According to data provided by Tax Commissioner Ryan Rauschenberger, the state rolled back personal income tax enough to forgo about $1.7 billion in revenue from 2009 through the 2016 tax year. In 2009, personal income tax rates ranged from 1.84 to 4.86 percent. By 2016, those numbers were down to 1.10 and 2.90 percent. Corporate tax rates have also cut hundreds of millions of dollars in revenue over the same time frame, and the oil extraction tax was notably lowered in 2015.

By February 2016, the state had to rein things in. Oil prices were down, as were the prices of commodities like corn and soybeans. Facing a $1 billion revenue gap, then-Gov. Jack Dalrymple called on many state agencies to roll budgets back by more than 4 percent. The boom years were definitely over.

Just two years later, the state is still looking to lower spending, though there are some silver linings. Estimates of 2017-19 general fund revenues are on track, and Rauschenberger points out that the tax base has greatly expanded over the past decade.

"When the revenues dropped, we had a period of time when revenues were less than what we were spending, and we were able to keep those government services rolling with our savings account or reserve fund balances," Burgum said earlier this year. He offered tempered optimism: "We're not risk-free."

Waiting for rebound

There are plenty of ideas for how to get things right if and when North Dakota gets a second chance at a boom. An April report indicated that oil and gas tax collections were 22.8 percent ahead of forecasts, though lawmakers are still feeling wary of proclaiming a second oil rush.

Multiple Democrats proposed a tax system overhaul they said will fit the state's needs moving forward. Mock said he's interested in a system that has a "relief valve," or "tax holiday" that allows for less revenue in boom times, but climbs as the boom recedes.

"I really wish we would have not permanently cut our tax rates," Mock said, lamenting that state lawmakers, loath to vote to raise taxes, are left without easy options as revenues fall. He added that he'd like to see a "task force" appointed to assess the budget and plan for coming decades.

"Unfortunately we look at everything in silos, and independently, and everything is interconnected," he said.

Morissette, the Office of Management and Budget director, said the state's general fund revenue projects are on track. Leaders will be closely watching the price of oil and related indicators, he said — like well completions — and he's feeling positive about the future.

Holmberg called Burgum's budget guidelines a "work in progress," and something that lawmakers will certainly adjust. He called potential cuts in higher education "troubling."

"It's going to change, and the Legislature will change it a great deal—because we always do," he said. "Let's see how it goes forth from here."

Sam Easter

Sam Easter is a City Government reporter for the Grand Forks Herald. You can reach him with story tips, comments and ideas at 701-330-3441.

(701) 780-1108
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