State leaders debate on how to allocate millions in oil revenue

There is an ongoing debate over tens of millions of dollars in North Dakota oil revenue, which could potentially impact future generations.

Revenue from taxes on North Dakota oil has fluctuated since the start of the pandemic, and state leaders grapple with how to distribute the funds.

Figuring out how oil extraction taxes are dished out in North Dakota is a complicated process. State Treasurer Kelly Schmidt compared it to the inner machinations of a pinball machine and said unless focusing on the process is your job, it is easy to get lost.

"This is a very complex, very convoluted, very challenging distribution formula that we do," Schmidt said.

Voters approved the Legacy Fund —commonly referred to as a "savings account" for the state— in 2010, and it currently has more than 5 billion dollars. A similar savings initiative, the Common Schools Trust Fund allocates funds for North Dakota schools, reaching more than $288.3 million in the 2017-2019 biennium.

According to Article X in the state constitution, 10% of taxes from oil produced in the state must go to the Common Schools Trust Fund, and 30% to the Legacy Fund.


This is the sticking point.

"We've been trying to find clarity in this discussion going all the way back to 2007," Schmidt explained. "I've got an 11 by 18 in. document here of all the bills and amendments that we've tried over the course of years to get clarity."

State Treasurer Director of Finance Ryan Skor said about half of the oil tax revenue coming from tribal lands are given back to the tribe.

By 2011, the state agreed to interpret the constitution like this: The state gets oil tax revenue, splits it with the tribe, and then the state funnels 30% and 10% of the remainder into the Legacy and Common Schools Trust.

"Contribution from the tribes, because that money goes directly to the tribes," Skor said. "It doesn't run through any formulas, it's just their share of what was produced on tribal lands."

This was brought up in the 2019 legislative session when state lawmakers decided the Common Schools Trust Fund was short. Lawmakers passed Senate Bill 2362, transferring just over $64 million to the fund.

"Based on the clarification, they determined there were dollars they wanted to have transferred into the Common Schools Trust Fund and a bill was put forward that would bring those dollars back in," Schmidt explained.

Democrat representative Marvin Nelson said this still isn't how it should be distributed. He explained the constitution doesn't allow for agreements, like giving the tribe half the money before distributing to funds. He said the Common Schools Trust Fund is about $130 million short, according to his calculations.


"The tax department reports it as revenue, it's the same tax on the reservation than it is anywhere else, and so I don't know any way that we have the authority to make an agreement that excludes 50 percent of the revenue," Nelson said.

He does not think the money is being stolen, nor does he think tribe leaders had anything to do with this decision. Nelson firmly believes it is a misinterpretation of the constitution.

"This is not, somebody is running off with the money, this is not we're using it for something it shouldn't be used for," Nelson said. "This is the constitution, the frame in which we operate, says it's this percentage of revenues collected, and I believe all of this money is revenues collected. I don't believe shorting the schools and the state from their trust fund, the legacy fund, is the proper way to do this."

If the funds are coming up short, Nelson said it will be the people who miss out.

"It's really future generations," he added.

But Schmidt believes Senate Bill 2362 solved the problem.

Still, Nelson believes the bill only partially fixed it.

Schmidt does not expect this will be brought up in future legislative sessions but isn't counting it out either.


"I will never doubt that the legislature will come up with ideas because many times, things change, and we maybe never considered the change that they bring forward."

Nelson is calling it a non-partisan issue which he hopes gets looked into further.

Schmidt said they are periodically audited.

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