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ND tax revenues $63 million below forecast in December

BISMARCK - North Dakota suffered its worst revenue shortfall of the current biennium so far in December, with tax revenues arriving more than $63 million below forecast and further darkening the state's budget picture as an advisory group prepare...

BISMARCK – North Dakota suffered its worst revenue shortfall of the current biennium so far in December, with tax revenues arriving more than $63 million below forecast and further darkening the state’s budget picture as an advisory group prepares to meet Friday to discuss a new forecast.

Last month’s shortfall brought the total gap for the first six months of the biennium to $215 million below the forecast that state lawmakers had when they adjourned in late April.

Office of Management and Budget Director Pam Sharp said that makes it “very, very likely” that state agencies will see across-the-board budget cuts and that the state’s $572 million Budget Stabilization Fund will be tapped to cover any remaining shortfall.

Sharp said it also affirms her decision last month to request a new revenue forecast from Moody’s Analytics.

The state’s Advisory Council on Revenue Forecasting will meet with Moody’s officials at 9:30 a.m. Friday at the Capitol to discuss factors for the new forecast, including taxable sales and purchases and the price of crude oil, which has dropped by more than half since lawmakers adjourned.

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If the new forecast predicts that state revenues will be $400 million to $500 million below projections, it will trigger automatic budget cuts  for most state agencies of up to 2.5 percent, or about $105 million, Sharp has said. State law allows the governor to use the Budget Stabilization Fund to cover any shortfall beyond the 2.5 percent.

The last widespread cuts occurred in 2002, when then-Gov. John Hoeven ordered a 1 percent budget cut.

House Majority Leader Al Carlson, R-Fargo, said Wednesday that he would like to see deeper agency cuts of up to 5 percent, rather than spending down reserves.

“I think there’s enough excess in most of the departments,” he said. “Most of them should be able to deal with that.”

Sharp said it’s difficult to predict what share of the shortfall will fall onto agencies.

“We’ll make the call once we know what the actual forecast is,” she said.

She hopes to have the new revenue forecast by Feb. 1, but noted it could take longer depending on what happens at Friday’s meeting.

“Our goal is to get it out ASAP so that agencies can begin dealing with whatever the ramifications are,” she said.

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December’s $63 million shortfall was the biggest of the biennium so far, surpassing the $49 million shortfall in October.

Sales tax revenues continue to come in well below forecast because of the ripple effects of reduced oil activity in western North Dakota and lower farm commodity prices, Sharp said. Sales tax collections were $30 million below forecast in December and are $193 million, or 27 percent, short for the biennium to date.

Corporate and individual income taxes also fell well below projections last month, respectively, but Sharp said that’s partly because the state tax office moved some of the revenues into its refund reserve in anticipation of some big tax refunds. Officials won’t know how income tax revenues shake out until after the filing season that began this week ends in April, she said.

Carlson, who sits on the revenue advisory council, noted that House lawmakers last spring unsuccessfully urged Moody’s to lower its forecast for sales and income tax revenues.

Still, the sky isn’t falling, he said, pointing out that oil production has held steady at between 1.1 million and 1.2 million barrels per day.

“Is it going to be long-term? Nobody knows,” he said of the downturn. “We could see this coming. We just didn’t anticipate it being as bad as it is.”

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