Port: North Dakota's general fund/special fund spending shell game needs to stop
When we talk about North Dakota's general fund spending, we talk about less than half of the dollars state lawmakers appropriated. We need a better way to measure state spending.
MINOT, N.D. — "Burgum proposes record-high budget as North Dakota sees huge oil tax windfall" reads the headline over our Jeremy Turley's report from Gov. Doug Burgum's budget address today.
That headline is entirely accurate. The total budget, which includes federal dollars, is about $18.4 billion, which would be "the biggest budget in state history," as Turley reports, though this is just Burgum's proposal to lawmakers. Many changes will be made before budgets are finalized in the spring.
But that number is also a bit misleading. In a press released that accompanied his budget address, Burgum's office notes that, in terms of general fund spending, what he's proposing is actually down a bit from when he took office in December of 2016. "Burgum is proposing a general fund budget for 2023-25 of just under $5.9 billion, which is $162 million less than the general fund budget when he and Lt. Gov. Brent Sanford took office in December 2016," the release states.
This is also correct. And also kind of confusing, because that general fund figure leaves out a big chunk of the appropriations Burgum is proposing.
Which is the problem I want to talk about in this column.
The total spending figure that Turley cites is made up of three components: General fund spending, special fund spending, and federal spending.
Think of general fund spending as the state's checkbook. Tax revenues from things like income taxes, and sales taxes, flow into the general fund. Then our lawmakers make appropriations out of the general fund for various state needs.
Federal spending, meanwhile, is federal appropriations that are sent to our state for administration. North Dakota's leaders don't like it when federal dollars are reported in budget figures. Those appropriations, made in Washington, D.C., are mostly pass-through dollars. Our state leaders get the money and directions on how to spend it from the feds. From the taxpayer's perspective, that's our money too, so it needs to be acknowledged, but I can understand state leaders not wanting to be on the hook for budget increases driven by federal policymaking.
Don't get me wrong, our state leaders like federal spending. Or most of it, anyway. But it's not fair to hold them responsible for spending they had no control over.
The third part of the total budget is where things get really confusing, and that's special fund spending. A lot of North Dakota's tax revenues don't go into the general fund. They flow into special funds, like the Legacy Fund, or the Common Schools Trust Fund, or the Strategic Investment and Improvement Fund, or one of the other laundry list of state funds that you've never heard of but which contain copious amounts of state dollars.
When I started my journalism career, in the early years of John Hoeven's term as governor and before the oil boom, the special funds weren't nearly the factor they are today. Some of them didn't exist, and others weren't very large, but oil revenue has changed that. A recent report, commissioned by the oil industry, found that, over the last five years, more than half of the tax dollars collected by the state have come from the extraction and production taxes on oil activity.
The bulk of that money flows into special funds.
And here's where lawmakers and governors have played a little trick: They appropriate those tax dollars directly out of the special funds, bypassing the general fund completely. The dollars get spent, but they don't show up when we discuss increases or decreases in general fund spending.
It's like spending money directly out of your savings account instead of running it through your checking account. Did you spend the money? Absolutely. But did that spending show up in your checking account register? No, it did not.
This happens a lot. This graph, prepared by Legislative Council , breaks North Dakota's appropriations down by category — general fund, special fund, and federal — going back to the 2011-13 budget cycle.
As you can see, in recent cycles, we're appropriating more money directly from special funds than we are from the general fund, even though most people would think of general fund as reflective of most state spending.
This clouds the picture taxpayers are given of state spending. If we talk about general fund spending, we're leaving out most of the appropriations are state officials have made, but if we talk about federal spending, we include a lot of appropriations they didn't.
You can see how this benefits the politicians. The represents less than half the spending they actually did, and they can claim the other is distorted by appropriations decisions they aren't responsible for.
There's an easy fix to this, and that's for lawmakers to require that any special funds they spend be routed through the general fund before they're spent so that when we talk about general fund spending, we're getting a full picture of the budget state officials are responsible for.
That's how I do it with my household budget. When I want to spend some money out of my savings, I put it in my checking account so that later on, when I want to reflect on my spending decisions, my checking account is a complete picture.
I'm fine with leaving federal spending out in its own category. While we can debate the types and amounts of federal spending happening in our state, those decisions are made in Congress, not in Bismarck, and it's ok for our in-state budget accounting to, well, account for that.
But we need to end this special fund/general fund charade regarding state spending.