Tax relief, more money for oil counties in N.D. budget plan

BISMARCK – Gov. Jack Dalrymple outlined a two-year budget proposal Wednesday that continues to chip away at income and property taxes, pours $3 billion into roads and other infrastructure projects and carves out an additional $1 billion for western North Dakota counties seeking a bigger share of oil tax revenue.

With falling crude oil prices on the minds of many, Dalrymple asked lawmakers to increase the state’s total budget to $15.7 billion in the 2015-17 biennium, a 14.3 percent increase over the current biennium and more than triple the state’s $5 billion budget in 2003-05.

“This budget plan is ambitious, but we have once again taken great care to make sure that we have developed a budget that is balanced and sustainable,” he told a joint session of House and Senate members. “We must always be cautious of overexpansion, a looming threat any time revenues are strong.”

The Republican governor recommends boosting general fund spending to $7.2 billion for 2015-17, an increase of 5.4 percent but far from the greater than 60 percent increase this biennium.

That increase reflected a historic $2.4 billion in one-time spending, largely to address needs in the Oil Patch. Dalrymple is proposing $2.2 billion in one-time general fund expenditures for next biennium, including money for road and water supply projects, affordable housing projects, school construction, park improvements and fast-tracked money to jump-start construction in oil-producing counties next spring.

Democrats found some areas of agreement but said the governor’s budget doesn’t go far enough in other areas, including tax relief, college affordability and early childhood education, and is late to address funding needs in western North Dakota.

“I think the bottom line is more can be done to address our challenges,” said Senate Minority Leader Mac Schneider, D-Grand Forks.

Link to budget document

Formula change well-received

In what’s expected to be one of the most contested issues of the session, Dalrymple’s budget answers the call from oil counties to bump up their share of oil production tax revenue from 25 percent to 60 percent, dropping the state’s share from 75 percent to 40 percent.

With the formula adjustment, he said the tax will generate $1.7 billion for oil counties and their political subdivisions – $1 billion more than what the region is expected to receive this biennium.

Dalrymple also is asking lawmakers to fast-track $873 million in “jump-start” funding so the state’s oil and gas region can start construction projects as soon as possible next spring.

The funding includes $300 million for cities in the 10 largest oil-producing counties: $75 million for Williston, $50 million each for Dickinson, Minot and Watford City, and $75 million for other cities in those counties. Non-oil counties and townships would receive $100 million, and $450 million would go to the state Department of Transportation, primarily for bypasses and four-lane work in western counties.

Senate Majority Leader Rich Wardner, R-Dickinson, who released a similar plan with western GOP lawmakers in September, said the governor’s proposal “addresses most of our concerns.”

Schneider said the “catch-up” funding should have been dispersed after last session, when Democrats unsuccessfully pushed for an 80-20 split of production tax revenue, or during a special session that Dalrymple decided against calling.

“So, better late than never,” he said.

House Minority Leader Kenton Onstad of Parshall also welcomed the funding but said Republicans’ short-sightedness in previous sessions will cost the state more now because of increases in road construction and development costs.

Dalrymple also asked lawmakers to discuss an appropriate time to start phasing down the formula’s local revenue percentage once extraordinary oil-related needs start to taper off, saying that “by 2018 the demands for new infrastructure will begin to gradually level off.” Wardner wasn’t ready to make that prediction, saying the 60 percent share will probably need to be in place for more than one biennium.

“We’re ready to engage in that debate,” he said.

House Majority Leader Al Carlson, R-Fargo, was pleased that the jump-start funding proposal recognized the needs in non-oil counties, noting Cass County is the fastest-growing county in the state. He acknowledged the need for more money for western North Dakota but still predicted “a lot of discussion” on the oil tax formula, including how long any change should last.

“At some point in time, you start to catch up with these things,” he said.

Keeping eye on oil

Overall, Wardner called the governor’s proposal a common-sense budget and “a very good start.”

“We do know that we’re going to have to keep an eye on the price of oil,” he said.

Falling oil prices are reflected in the budget’s updated revenue forecast. It projects the state will collect $8.32 billion from oil taxes during the biennium, down from nearly $9.8 billion in August’s preliminary forecast.

The state Office of Management and Budget had assumed a crude oil price of $90 per barrel for the August forecast, but pulled it back to $74 per barrel at the start of the biennium and $82 by the end. Oil production – currently at about 1.2 million barrels per day, making North Dakota the nation’s second largest oil-producing state – is projected to rise to 1.4 million barrels per day by June 30, 2017.

Dalrymple noted that the general fund, which covers the general operations of state government, is limited to $300 million in oil tax revenues, with the rest dedicated to various special funds.  

“It is not largely impacted by oil volatility,” he said.

Tax relief proposed

Dalrymple is recommending $408 million in total tax relief over the next two years, including one-time funding of $250 million to continue a program approved last session to buy down 12 percent of local property taxes.

To create permanent property tax relief in the long term, Dalrymple proposes using state funds to cover most if not all of the cost of county social services. He’s recommending the state start covering some programs in 2016 at a cost of $23 million.

Dalrymple’s proposed $100 million cut in individual income taxes would reduce rates by about 10 percent, while $25 million in corporate income tax relief would drop rates by about 4.8 percent.

Carlson, who called the budget “very ambitious” but structurally sound, said Dalrymple’s tax relief proposal is “a little short.” He predicted the House would propose greater relief for income tax filers.

Despite the proposed spending increases, the governor’s budget still projects reserves of nearly $3.5 billion by the end of the biennium. That doesn’t include the state’s Legacy Fund, which receives 30 percent of oil taxes and is projected to grow from $3.6 billion to $6.4 billion during the biennium but can’t be tapped by lawmakers until 2017.

New employees sought

Lawmakers are being asked to approve 287 new full-time equivalent staff positions, a 2.5 percent increase that includes 40 positions for higher education. State agencies requested well over 400 new positions, OMB Director Pam Sharp said.

Many positions that made the cut are tied to the oil boom and rapid population growth in the west, including law enforcement officers, field inspectors and regulators to monitor rail safety and oil pipelines.

A $52 million salary package for state employees would provide 3 percent to 5 percent raises for employees who meet or exceed performance standards. Those whose pay is below market rate could receive an additional 1 percent to 2 percent.

The Legislature begins its regular session Jan. 6 and will receive a third revenue forecast in February. Last session was the longest in history, with lawmakers passing a $13.7 billion budget just hours before the deadline on the 80th and final day.