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ND tax revenues fall short again; more budget cuts possible

BISMARCK – North Dakota tax revenues fell short of lowered expectations for the second straight month in February, raising the prospect of another round of budget cuts and prompting a warning from an industry official Tuesday that the worst is yet to come as slumping crude prices continue to stall activity.

“I think it’s going to be more dramatic than what we’ve seen, and the next round’s going to be rough,” North Dakota Petroleum Council President Ron Ness told the Legislature’s interim Government Finance Committee.

State tax revenues were down $5 million, or 3.5 percent, in February compared with the Feb. 1 revised forecast that spurred Gov. Jack Dalrymple to order 4.05 percent budget cuts for most state agencies to help offset a projected $1 billion revenue shortfall.

Combined with a $1.4 million shortfall in January, revenues are more than $6.4 million behind the revised forecast.

Office of Management and Budget Director Pam Sharp said it’s too early to say if another round of budget cuts will be necessary, noting the next revenue forecast in August will provide a clearer picture.

“Certainly it’s a possibility,” she said.

Most of the shortfall is blamed on reduced sales tax collections as a result of the slowdown in oil drilling activity and completion of wells. Sales tax revenues were $36.4 million below forecast in February. That was partly offset by individual income taxes arriving $17.9 million above forecast, but officials cautioned they won’t see the whole income tax picture until after the April 15 filing deadline.

The committee’s chairman, Rep. Jeff Delzer, R-Underwood, said if sales taxes continue to fall that far short, there will be “some pretty hard choices to make.”

Looking ahead to the 2017 legislative session, Rep. Chet Pollert, R-Carrington, said the $245 million in budget cuts and $498 million that will be taken from the Budget Stabilization Fund to help cover the shortfall will leave the state with about $750 million to come up with in revenue or cuts.

“So I guess we’ll have to hang onto the saddle,” he said.

Ness estimated the oil and gas industry has shed 20,000 to 22,000 jobs in North Dakota during the current downturn, cutting into tax revenues from income taxes and royalty payments, and secondary businesses are seeing the impacts, as well. Oil companies that are major players in the Bakken are “in a struggle for their survival, and every employee knows it,” he said.

The effects on the state so far have reflected $40-a-barrel oil prices, but the next few months will reflect sub-$30 oil, Ness said, predicting oil production will continue to drop after back-to-back months with decreases of roughly 30,000 barrels per day, down to 1.12 million barrels per day in January.

When oil prices recover, Ness said the state will have to convince developers, investors and employees to return, suggesting a new approach to economic recruitment “because we are no longer the crown jewel.”

“This is not just going to bounce back the other direction immediately,” he said.

Mike Nowatzki

Mike Nowatzki reports for Forum News Service. He can be reached at (701) 255-5607.