BISMARCK, N.D. – A North Dakota rainy-day fund that held more than $572 million in January is on the verge of being emptied due to lower-than-expected tax collections from depressed oil and farm commodity prices.
“There are no ‘ifs,'” North Dakota Treasurer Kelly Schmidt said Friday. “We will drain it.”
The Budget Stabilization Fund, established in 1987, was intended to stash extra tax money from industry booms to be used in leaner times to protect state programs from big budget cuts. The fund had only meagre deposits initially but built up over the past decade largely from North Dakota’s unprecedented oil activity that is now in decline.
The Legislature’s record-high $14.4 billion two-year budget that began in July 2015 was built last year based on faulty economic assumptions for tax collections.
In February, faced with a $1.1 billion shortfall, Gov. Jack Dalrymple ordered a 4.05 per cent cut to government agencies and a $497 million raid on the rainy-day fund. But state budget officials said this week that collections continue to fall and almost all of the fund’s current $75 million balance will be needed to cover the additional shortfall.
Oil prices, a key contributor to the state’s wealth, have slid by more than half over the past year and the number of active drill rigs has dropped to 28, down from 187 two years ago. North Dakota’s economic consultancy, Moody’s Analytics, is slated to have an updated revenue forecast done in mid-July, said Sheila Peterson, fiscal management director of the state Office of Management and Budget.
If the new revenue forecast shows a continuation of even more dismal tax collections, she said, Dalrymple could call a special session of the Legislature to deal with the shortfall through “targeted” cuts of agencies or taking money from other funds.
“It absolutely depends on how that forecast looks,” she said.
Jeff Zent, a spokesman for Dalrymple, said the governor is awaiting the forecast to “help us determine the best step to take.”
North Dakota, the nation’s second-ranked oil producer, also has been stockpiling oil revenues in its Legacy Fund that was approved by voters in 2010 to set aside 30 per cent of oil and gas tax collections. The Legislature is barred from spending any of the fund’s assets until June 2017. After that, a two-thirds vote of the North Dakota House and Senate is needed to spend any of the fund’s principal, of which no more than 15 per cent can be withdrawn every two years.
Schmidt said the Legacy Fund will hold $3.8 billion with the June transfer of $28.3 million.
North Dakota’s Republican candidate for governor, former Microsoft Corp. executive Doug Burgum, has said he does do not favour using the fund’s principal. His Democratic opponent, State Rep. Marvin Nelson, has said he supports tapping the Legacy Fund’s principal to offset budget shortfalls.