Budget writers set North Dakota tax revenue forecast for next 2 years

BISMARCK — North Dakota lawmakers have set a state tax revenue forecast for the next two years, a financial outlook that will guide major decisions in weeks ahead.

The House and Senate appropriations committees on Friday separately adopted the forecast , revising an earlier one from January. The panels this week heard presentations from the state Office of Management and Budget and financial consultants Moody's and S&P Global.

The new forecast is essentially "splitting the difference between the two" presentations budget writers heard, according to House Appropriations Committee Chair Don Vigesaa, R-Cooperstown.

"That has worked out pretty well for us in the past," he told the Tribune.

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The updated numbers will help lawmakers in writing and reconciling state agency budgets and deciding such major proposals as income tax and property tax cuts.

Other major decisions include larger agency budgets with more expenditures and individual bills for new programs, such as child care proposals, said Senate Appropriations Committee Chairman Brad Bekkedahl, R-Williston.

Budget writers also will soon determine raises for state employees, and might increase a tentative 4% raise in each year of the next two-year budget cycle to 6% and 4%, the level Gov. Doug Burgum proposed to the Legislature in December, costing $211 million.

"I'm optimistic that we can look at it better now that we have an increase in the revenue forecast," Bekkedahl said.

The revised forecast estimates slightly over $5.15 billion of general fund revenues for the 2023-25 budget cycle, which begins July 1. The general fund is the state government's primary operating fund.

The revised forecast assumes an additional $90 million in general fund revenues between the current and next two-year budget cycles, meaning more money would be available in the 2023-25 cycle.

Vigesaa said he'd prefer that $90 million end up in the ending fund balance of the next budget cycle, rather than spend it. Bekkedahl said a strong ending fund balance would help to carry forward ongoing costs in 2025-27.

The revenue forecast also includes an estimated $2.21 billion of sales taxes, the largest contributor to the general fund.

State Office of Management and Budget Director Joe Morrissette said his office's forecast and the one adopted by lawmakers vary by about 0.3% and 0.4%, respectively, in the 2021-23 and 2023-25 bienniums.

"There are some pluses and minuses, some increases and decreases in the major tax types compared to what we presented, but in total it's a really immaterial difference ... so we're certainly supportive," Morrissette told the Tribune.

North Dakota oil production is estimated to remain at 1.1 million barrels per day through the current and next budget cycles.

The forecast is based on oil prices remaining at an estimated $75 per barrel in the remaining months of the 2021-23 biennium, which ends June 30.

For the 2023-25 biennium, the forecast assumes that oil prices will decrease from $70 to $62 per barrel, respectively, in each of the two years.

"Typically when we make these projections, we're conservative, and when we come back the next session, the actual revenues have exceeded whatever our projections were," Bekkedahl said. "We hope that continues."

North Dakota's state government is in a healthy financial situation, largely due to oil taxes.

The governor's office this week touted general fund revenues through February running nearly 25%, or about $832 million, ahead of 2021 projections.

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Morrissette called that gap "phenomenal," but "it's important to keep in mind the fact that we are comparing to kind of a low bar."

"The variance that we're seeing right now, the excess revenues that are coming in over forecast put us in a great position, especially to invest in one-time things," he said.

A February oil tax update to lawmakers showed oil tax revenue running 61%, or over $1.83 billion, ahead of the 2021 forecast.

Vigesaa said North Dakota's economy "appears to be pretty strong," given January and February sales taxes "well above projections in those winter months."

Burgum in December proposed an $18.4 billion two-year budget blueprint, including a $5.86 billion general fund. That would be an overall record budget but includes federal funding and comes amid recent inflation.

Vigesaa and Bekkedahl said their goal is for a budget at or under the governor's proposal.

The 2021-23 budget is $17.8 billion with a $5 billion general fund, including federal coronavirus aid.