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N.D. legislative leaders to propose reforms to avoid future shortfalls

BISMARCK -- After dealing with the fallout from a budget forecast that has missed the revenue mark by nearly $1.4 billion, North Dakota legislative leaders said Thursday they plan to propose reforms next session aimed at preventing similar situat...

BISMARCK - After dealing with the fallout from a budget forecast that has missed the revenue mark by nearly $1.4 billion, North Dakota legislative leaders said Thursday they plan to propose reforms next session aimed at preventing similar situations in the future.

Lawmakers got their first look Thursday morning at projected revenues for next biennium, just minutes after adjourning from special session to balance a projected $310 million shortfall in the current 2015-17 budget.

The preliminary forecast for 2017-19 projects tax revenues flowing into the state's general fund will increase by 4.9 percent, or $175 million, over revenues for the current two-year cycle, from about $3.59 billion to $3.76 billion.

The outlook was prepared by Moody's Analytics, the same consulting firm that prepared the revenue forecast lawmakers relied on in early 2015 when setting the state's two-year budget at a record $14.4 billion, including a $6.03 billion general fund budget.

Since then, state leaders have had to use budget cuts and fund transfers to offset a $1.07 billion shortfall identified in February and the $310 million shortfall forecasted last month.

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House Majority Leader Al Carlson, R-Fargo, said Thursday he will propose a bill during the 2017 session that would allow the Legislature to hire its own forecasting firm as legislatures in other states have done.

"We should be more involved in the forecasting," he said.

Carlson said he's not sure anyone could have predicted the wild swing in crude oil prices over the last two years, but using its own forecaster would allow the Legislature to compare with the executive branch's forecast prepared by Moody's.

"We need to be as accurate possible, and then we won't be back in situations like this," he said.

Senate Minority Leader Mac Schneider, D-Grand Forks, said the Democratic-NPL caucus will work together, and hopefully with the GOP majority, on a budget reform package. That could involve revisiting the allotment authority that allows the governor to make across-the-board budget cuts when revenues fall short of projections, or looking at having the full Legislature meet more often to make budget adjustments.

Schneider also indicated he may resurrect his failed resolution from last session that would have required a study of the state's revenue volatility and how to mitigate it.

"We can't control what's going on in the oil markets. What we can do is control how we react to it," he said.

State Budget Director Pam Sharp said the preliminary forecast for next biennium is "not a lot higher" than a worst-case scenario. But some lawmakers were still skeptical, given Moody's recent forecasting history and oil prices dipping below $40 a barrel this week.

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The forecast projects oil tax revenues will rebound 17 percent, from $2.9 billion this biennium to $3.5 billion next biennium. That assumes the price of oil will average $42 a barrel through next June, $52 a barrel in the first year of 2017-19 and $58 a barrel in the second year.

"I think we're a little optimistic," said Rep. Gary Kreidt, R-New Salem. "I don't see that happening."

The forecast assumes oil production, which was at more than 1 million barrels per day in May, will drop to 900,000 barrels per day by next June and remain flat through 2017-19.

Lawmakers will receive an updated forecast in November before the regular session begins in January.

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