031017 Budget Adjustments
Thursday morning we heard from Governor Burgum, Office of Management and Budget (OMB) director Pam Sharpe and Moody’s Analytics economist Dan White. As expected the dollars we have to work with are a little lower meaning we need to make further adjustments to make sure that the state’s spending for the 2017-2019 budget equal the amount of money available. The North Dakota Constitution requires that spending not exceed income.

The budget report showed that the income for the two year cycle ending on June 30 is down an additional 45 million dollars. There seems to be no interest in raising taxes at this time so additional adjustments will need to be made. Also, as the legislation stands now, the two-year budget starting on July 1 is 500 million short. We have a little over a month to fix that by transferring funds from reserve funds and probably trimming agency budgets even further. Hopefully, in each case we will look at impact and prioritize to cause the least amount of impact.

For example, in the Human Services budget, the majority party and governor have already cut 75 jobs. Other agencies are feeling the same pinch as well as no raises. Majority leadership wants to eliminate Breathe ND which has a major impact on cutting smoking among youth. Higher Ed institutions are seeing cuts of up to 20%. There’s even a proposal to have state employees and PERS members pay 5% of their health insurance premium, which has the effect of actually cutting their pay.

I was interested in a comment by economist Dan White about how we could level off some of the wide fluctuations in the ND economy. He said that if we create more high paying jobs we would have more businesses generating sales and use taxes which provide the majority of income for the general fund. Relying more on other than just Ag and energy would help to level off the curves in state income which funds services to our 750,000 citizens..

The contradiction with that is the failure of the legislative majority to recognize that the best way to create more high paying jobs is to have more people attending and graduating from college. Just the opposite is happening. The governor’s proposed budget and legislative action at this point is making huge cuts in higher ed; more than in other areas. UND and NDSU are having to cut programs and staff. Mayville State is also having to lay off necessary people but under the direction of Gary Hagen over the past eight years he has built up some reserves if this shortage of state funds is temporary. It’s short sighted to cut back on the very thing that creates the highest paying jobs and keeps people in our state.

Mr. White indicated that he expects 700 new wells in 2017 increasing to 1000 in 2018 and 1100 in 2019. Also fracking is starting up on many of the unfinished wells which will keep production at a million barrels per day. Both of those issues increase the amount of sales and use tax collections. If the North Dakota price stays at around $45 to $50 per barrel as it is now that too will help in the future. The state oil tax is 10%, with a third going in to the Legacy Fund and the rest available for a variety of state programs, including the general fund. This year for the first time, we will be using the interest on the 4 billion dollar Legacy Fund. I don’t see anyone proposing to tap into the principal at this time.

One interesting in the report from White, Sharpe and the Governor is the lack of data on the impact of the agriculture sector of the state’s economy. They were only tracking machinery sales, neglecting to look at all the jobs created, buildings erected, and businesses expanded during the five years of high Ag prices. As I look around the area where I live, the years of high Ag prices are evident not just in all the new farm equipment, but also in all the building by both farmers and farm business. I hope that they can find a better way of looking at the impact of agriculture when comparing it to the impact of energy production.

Finally, It’s important to note that we’ve had five or six good years and are now back to a position closer to what we’ve seen in the past and will likely see in the future. Once we get past this budget situation, we can make a better long-range plan, and get back to funding those priorities like mental health, senior citizens, veterans, health care, transportation and education with a little more predictability and stability.   Rick Holman.