BISMARCK – North Dakota’s budget director ordered a new revenue forecast Friday after state tax revenues fell $40 million short of projections in November, bringing them to $152 million below forecast since July and making it “very likely” state agencies will see across-the-board budget cuts.
Gov. Jack Dalrymple attributed the weaker revenues to slumping crop and energy prices, and said the state “is going to have to do a little belt-tightening going into 2016.”
“We have a process in place, which is prescribed in law, to deal with this kind of situation,” he said in a statement from spokesman Jeff Zent. “We expect this to have very little impact on the objectives we have set out to accomplish. The state remains fiscally very sound and this process is designed to help keep it that way.”
Office of Management and Budget Director Pam Sharp said the new forecast by Moody’s Analytics will cost $12,000 and should be ready by mid- to late January.
If it projects a revenue shortfall of $400 million to $500 million, the governor will likely have to tap the state’s $572 million Budget Stabilization Fund to cover appropriations, she said. But first, state agencies would face across-the-board budget cuts of up to 2.5 percent, or about $105 million, in what’s known as an allotment.
“Given the fact that we’re down $152 million right now, I think it’s very likely that there’ll be an allotment of some percentage,” Sharp told reporters.
State agencies would decide where to cut their budgets. Sharp said it’s important to make the allotment decision soon because cuts are based on their total two-year appropriation.
“The more time they have to spread those out, the easier it is for the agency,” she said.
Sharp said K-12 education would be held harmless because its $45 million in cuts would be covered by the $643 million Foundation Aid Stabilization Fund.
Some state agencies that don’t receive general fund dollars, including the Game and Fish Department, also would not be affected.
The last time OMB ordered an unscheduled revenue forecast was in 2002 after the dot-com bust and Sept. 11, 2001, terrorist attacks, Sharp said. That resulted in a 1 percent across-the-board cut.
Sharp will present the updated revenue figures and forecast timeline Wednesday to the Legislature’s Budget Section, which must approve transfers from the Budget Stabilization Fund. The body’s next meeting after that is in March.
Some lawmakers criticized Moody’s last revenue forecast as too rosy when it was presented March 18 as oil prices were tumbling. It lowered projected oil tax revenues by nearly $1 billion but projected that general fund revenues would be $131 million higher than the January forecast from Legislative Council.
Sharp noted that Moody’s cautioned then that the now-approved Iran nuclear deal – which she said “seemed like a long shot” at the time – could lower the forecast.
“No one has a crystal ball,” she said.
Sales tax collections continue to disappoint, hurt by depressed farm commodity prices and crude oil prices that have pushed the number of active drilling rigs down to 65 from about 190 a year ago. Sales tax collections fell $50 million short of projections in November and are $163 million short in the first five months of the biennium.
Individual income tax collections continue to be strong, beating projections by $27.3 million, or 21.6 percent, so far this biennium and cushioning the blow from sales taxes, Sharp said. Corporate income tax collections are down nearly $8 million, or 32 percent.