Groups support Measure 1

BISMARCK (AP) -- As oil prices rose and North Dakota's production almost quadrupled in the past decade, the state's steady stream of oil tax collections became a torrent -- and the Legislature's spending appetite increased along with it.

BISMARCK (AP) -- As oil prices rose and North Dakota's production almost quadrupled in the past decade, the state's steady stream of oil tax collections became a torrent -- and the Legislature's spending appetite increased along with it.

In an attempt to save some of the oil bounty, lawmakers, farm groups and the North Dakota Education Association are backing Measure 1, a constitutional amendment that would establish a "Legacy Fund" piggy bank for oil money, one that lawmakers would find much harder to crack.

North Dakota voters rejected a similar amendment two years ago, after groups representing public employees and teachers argued that the proposed trust fund locked up too much of the oil money. The amendment also required a three-fourths majority of both the House and Senate to spend any principal from the fund.

The new measure, which North Dakota voters will decide at next month's election, would set aside 30 percent of North Dakota's oil tax collections in the new Legacy Fund, beginning July 1.

If approved, the fund's principal and investment earnings may not be disturbed until July 2017, the measure says. Afterward, its earnings may be transferred into North Dakota's general treasury for the Legislature to spend, but its principal may not be touched without two-thirds approval of the North Dakota House and Senate.


The amendment puts a 15 percent limit on the spending of the fund's principal during any two years in instances where there is enough support in the Legislature to dip into it.

Dakota Draper, president of the North Dakota Education Association, has been a vocal supporter of the measure, along with the North Dakota Farm Bureau, local chambers of commerce and groups representing oil producers.

"What's going on in North Dakota is very positive compared to what's going on in a lot of other states," Draper said. "I think because of that, we have a great opportunity in North Dakota, an opportunity to really do some things to set up our future."

The 2009 Legislature agreed to put the constitutional amendment on the ballot by overwhelming margins. Its critics said the oil tax reserve was still too large, and argued that spending from the fund should be reserved for specific purposes.

A recent forecast of state tax collections by North Dakota's budget office and Moody's, an economic forecasting firm, estimated the fund will have $613 million in July 2013 if the measure is approved.

North Dakota has two principal oil taxes, a 5 percent production tax and an extraction tax of up to 6.5 percent. Both are applied against the value of the oil when it is pumped from the ground.

The state Constitution and North Dakota law already has a complex system of splitting up oil revenues, with portions going to trust funds that benefit schools and water projects, a school aid fund meant to replace any unexpected budget cuts and a fund that helps local governments finance public works spending related to oil development.

North Dakota's general treasury gets a cut of the oil money, as do cities, counties and schools in oil-producing areas. There is also a state "permanent oil tax trust fund," which begins collecting money once the general treasury has received $71 million during the regular two-year state budget period.


North Dakota's oil production, which never went above 90,000 barrels a day in 2001, averaged about 327,000 barrels daily in August, according to the state Department of Mineral Resources. It is expected to go above 400,000 barrels daily next year.

The permanent oil tax trust fund has mushroomed along with the increased production, offering a ready supply of money for lawmakers' favored projects.

During the 2001-03 budget period, the permanent fund collected $7 million in revenues, records show. In the present two-year budget cycle, which ends July 30, analysts say it will get about $886 million.

Spending money from the fund requires only a majority vote in the Legislature, and it has accounted for almost $1 billion in spending in the past decade. Of that sum, $590 million was sent aside to finance four years' worth of local property tax reductions.

The fund was also used to provide "centers of excellence" grants to North Dakota's public colleges, money for tribal colleges, aid for public broadcasting and the North Dakota Veterans Home at Lisbon, improvements to a music camp at the International Peace Garden, and financing for an effort to update computer software used by the Department of Human Services to manage the state's Medicaid program.

Lt. Gov. Jack Dalrymple said Friday that the budget impact of the new trust fund proposed by Measure 1 would be manageable.

"It does have implications on budget decision-making, but I think, generally speaking, we can accommodate it very easily," Dalrymple said. "It is a sound idea. ... It is good to have a mechanism that does set aside some of the oil revenue for the future."

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