BISMARCK — A top North Dakota budget analyst has warned legislators that the state could face major financial difficulties over the next few years if conditions for the oil industry don't improve.
Legislative Council budget analyst Allen Knudson told the North Dakota House of Representatives on Friday, Jan. 8, that lawmakers could be tasked with filling a massive hole in the state's books during the next two-year budget cycle.
The COVID-19 pandemic has brought hard economic times upon North Dakota's Oil Patch, a central driver of state revenue. The downturn presents "serious budget challenges" for lawmakers going forward, Knudson said, but the state leaned on supplemental money to balance its main operational fund even when the oil industry was thriving.
Over the last six years, spending has outpaced incoming tax revenue in the state's General Fund, which primarily goes toward education and social services. During the last legislative session, lawmakers backfilled the General Fund with more than $800 million from two oil-revenue reserves: the voter-approved Legacy Fund and the Strategic Investment and Improvements Fund, which was originally intended for one-off projects.
In all, about 28% of General Fund revenue in 2019 came from oil taxes.
Assuming economic conditions in the Oil Patch don't improve much, the budget Gov. Doug Burgum recently proposed for the next cycle would leave a $920 million gap in the General Fund, and there's only about half as much cash in the Strategic Investment and Improvements Fund as there was last time around, Knudson said.
He posed the question to lawmakers of how much they want to rely on oil tax revenue for the budget, noting commodity prices are volatile. If lawmakers use reserve funds to balance the budget this cycle, it could be even harder to square away the books two years down the road, especially if lawmakers pass a hefty bonding bill, he said.
"This is a potential problem we face," Knudson said. "Hopefully, we don't if revenues rebound and things look better, but we do need to be prepared just in case."
House Appropriations Chairman Jeff Delzer, R-Underwood, said it takes the whole four-month legislative session to come up with funding solutions, noting budget writers don't even have a revenue forecast yet.
Delzer added he doesn't look at the state's financial situation in dire terms because the Legislature found ways to bridge budget gaps before, but he said "the biggest problem is this is the first time we're looking at not having the opportunity to fill any of these (supporting) funds so that you could fill the gap with cash."
If the economy doesn't improve, Delzer said, the state could cut spending to address the issue.
House Majority Leader Chet Pollert, R-Carrington, said he's confident the Legislature's appropriations committees will come through with a budget that avoids making significant cuts to top spending priorities. Pollert noted the state took on a significant amount of K-12 education funding from cities and counties in the last decade, and it should remain that way to prevent rising property taxes.