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AS I SEE IT

Posted 4/25/18 (Wed)

By Neal A. Shipman
Farmer Editor

While the North Dakota Legislature is still several months away from coming together to hammer out the state’s 2019-2021 biennium budget, Gov. Doug Burgum is already setting the stage for a “hold the line” approach to state spending as he is asking agencies to plan for five to 10 percent reductions.
The governor is to be commended for coming out this early in the process and outlining his thoughts on the state’s finances, as well as how he envisions state government meeting the needs of its citizens.
Clearly Burgum has been watching the state’s finances and is seeing that with the exception of increased oil activity in the core area of the Bakken, the state’s economy is still very flat. As the governor noted last week, even though the state’s general fund revenues are tracking slightly ahead of forecast, there are still budget concerns going forward.
First, even after reducing the 2017-19 general fund budget by an unprecedented $1.7 billion, ongoing general fund expenditures still exceed ongoing revenues by $800 million.
And second, over the past two legislative sessions, the state has seriously depleted its reserve funds, which means that there are very few options left to make up the revenue gap. Since 2015, the state has seen its Tax Relief Fund balance decrease from $657 million to a projected balance of $182 million in 2019. Similarly, the Foundation Aid Stabilization Fund and the Budget Stabilization Fund decreased from $657 million and $572 million to $109 million and $161 million, respectively.
North Dakota, thankfully, was able to pocket a lot of money several sessions ago when North Dakota’s big oil boom hit. It was on the back of those oil and gas taxes that the state was able to expand government services and programs, hire new state employees, and build new buildings on college campuses. But when oil prices plummeted and state revenues fell, it set the stage for North Dakota’s budget struggles.
Burgum is right to approach the 2019-21 budget planning cycle cautiously. While oil prices are now vastly improved from where they were two years ago, no one knows what they will be in six months, a year or two years from now. Depending on who you listen to nationally, oil prices could stay in the $60 range, where they are today. Or they could rise to the $70 to $80 or higher per barrel range. Or they could plummet back down into the $30s.
That revenue uncertainty, along with being required to budget for two years at time, is a big part of North Dakota’s financial budgeting dilemma. The state could budget extremely cautiously and then have revenues go through the roof. Or it could see the exact opposite where they budget for more income than will come in.
Burgum came into the governor’s position without any experience in government. But he more than makes up for that with a very sound business background and realizes that business has to be adaptive in meeting the needs and wants of its customers. And he is attempting to bring those similar strategies to managing government.