New revenue forecast will reveal whether ND budget cuts needed
FARGO -- The prolonged slump in oil prices and the resulting slide in state revenues have prompted a new revenue forecast to see if North Dakota's state budget should be trimmed by up to 2 1/2 percent, or $106.8 million.Results of the revised for...
FARGO - The prolonged slump in oil prices and the resulting slide in state revenues have prompted a new revenue forecast to see if North Dakota’s state budget should be trimmed by up to 2½ percent, or $106.8 million.
Results of the revised forecast by Moody’s Analytics are expected in January, but Gov. Jack Dalrymple said Monday the state is well-cushioned by budget stabilization funds to prevent deep cuts, if any are required.
“It’s still hypothetical,” the governor said of the need to trim the budget up to 2½ percent.
Dalrymple briefed The Forum of Fargo-Moorhead’s Editorial Board on the budget outlook on a day when the price of oil fell 5.8 percent, dropping below $38.
Despite the sharp decline in oil prices, and sagging state revenues, levels remain higher than they were two years ago, Dalrymple said.
“Our economy is still very sound,” he said, noting the Red River Valley’s solid growth.
State aid for elementary and secondary students will not decrease, even if cuts are required, because of the state’s foundation aid stabilization fund, Dalrymple said.
That fund had a balance of $614.6 million at the start of the 2015-17 budget, a healthy sum Dalrymple quipped was practically “bottomless.”
Separately, the budget stabilization fund had a balance of $527 million.
“The fact is, it’s pretty well-anticipated,” Dalrymple said.
Lawmakers years ago devised mechanisms, including budget stabilization funds, to soften cuts in lean times, he said.
If cuts are required, “Every agency will be asked to deal with it in their own way,” the governor said. “Whether there’s going to be any reduction in force, it’s too early to say.”
Because it’s early in the biennium, there will be ample time to make adjustments, Dalrymple said, including not filling vacancies or putting projects on hold.
Any cuts must be made before the budget stabilization fund is triggered.
The cuts would only apply to the general fund budget, which is the portion funded by state taxes.
The biggest part of the shortfall involves lagging sales tax collections in western North Dakota’s Oil Patch.
Sales tax collections through the end of October were $113.1 million, or 23.8 percent, less than forecast.
Individual income taxes remain healthy, and were running $8.6 million, or 7.3 percent, above forecast.
Slumping overall revenues are expected to continue, and there is no indication that oil prices and farm commodity prices will rebound soon, although Dalrymple said he would not make predictions.
“I’m not sure the bottom is hit,” the governor said. “We’re going to have to suffer through this.”
A prolonged budget slump could be further buffered by the recently created Legacy Fund, which sets aside a portion of the state’s oil wealth for future use.
By 2017, the fund should be generating interest of $200 per biennium - “not an insignificant amount,” Dalrymple said.
“The next budget is going to be interesting,” the governor said.
Although Dalrymple will not seek another term, he will propose the 2017-19 budget for the next legislative session to consider.