Oil tax revenue forecast drops another $1 billion
BISMARCK – North Dakota’s oil tax revenues took another nearly $1 billion hit in the latest revenue forecast released Wednesday, but the picture for general fund revenues was nearly $131 million rosier than in January, leaving some lawmakers scratching their heads as they pointed to slumping oil prices and a drop in drilling activity.
The forecast, prepared by the Office of Management and Budget with consultant Moody’s Analytics, is the first since a Jan. 29 forecast from Legislative Council predicted the state would collect $4.3 billion in oil and gas revenues next biennium – $4 billion less than the December forecast used in Gov. Jack Dalrymple’s budget proposal.
Wednesday’s forecast drops oil tax collections by another $870 million in 2015-17, to $3.4 billion, and by $108 million in the current biennium. That assumes the state’s “small trigger” oil extraction tax exemption will last through June and the “big trigger” exemption will be in effect for 11 months of the next biennium.
House Majority Leader Al Carlson said that seems “as accurate as a guess can be.”
But he and other lawmakers balked at the assumption that general fund revenues will drop by about $419 million from the December forecast, which is more optimistic than the $550 million decrease in the January forecast, largely because sales tax revenues are projected to climb by 15 percent next biennium.
“I think they’re missing the sales tax boat by a mile,” said Carlson, R-Fargo.
Rep. Roscoe Streyle was especially critical, telling Moody’s senior economist Dan White that many felt the December forecast was “pie in the sky” and that the new forecast doesn’t adequately account for the negative impacts of slumping farm commodity prices, rising U.S. crude inventories and the loss of workers as drilling rigs are idled.
The state had 107 active drilling rigs as of Wednesday, down from 191 a year ago.
“The people I’ve talked to, it’s not even close to as rosy as you’re saying right now,” Streyle said.
White said the forecast assumes a weak agricultural sector and the number of drilling rigs dropping to as low as 90 to 95. He said the state didn’t see a spike in unemployment insurance applications in January, suggesting laid-off oil workers may be finding other jobs in the state, noting its robust construction sector.
Carlson also questioned the sales tax projection, saying the January forecast involved a “more boots-on-the-ground analysis” than Moody’s mathematical analysis.
“This is our best guess, and we’ve taken our best guess and we’ve gone even more conservative than that,” White said.
The House and Senate appropriations committees received the new forecast in a joint meeting Wednesday. Both committees still must vote to adopt the forecast, which they’ll then use to finish budgets that were idled as they waited for the new figures.
Carlson said that as lawmakers look to balance the budget, “I’d rather start lower and work up than to start too high, and I think right today, we’re too high.”
Dalrymple told lawmakers before the meeting that the new forecast is “what we expected,” with revenues down substantially because of lower prices. But he added the Legislature has made sure not to rely too much on the oil industry to support the general fund – which is limited to $300 million per biennium from oil and gas tax revenues – and that most of what was proposed in his $7.2 billion general fund budget in December “is still very possible.”
Carlson said lawmakers will still be able to fund major initiatives such as K-12 funding and property tax relief, and proposed building projects will take the biggest hit. Legislators had slashed one-time spending in half, to $1.1 billion, as of crossover at the end of February.
Senate Minority Leader Mac Schneider, D-Grand Forks, said lawmakers should be focused on a plan “for whatever revenues we collect,” building contingencies into the budget to guard against both overspending and leaving critical needs unmet if the projections prove too conservative.
White said the forecast takes a more conservative approach toward oil production than the Department of Mineral Resources, holding it steady at 1.1 million barrels a day for the entire biennium. January’s production was 1.19 million barrels a day.
The forecast predicts the price paid for North Dakota crude will rebound from about $43 per barrel to $53 per barrel during the 2015-17 biennium, assuming a 15 percent discount from the U.S. benchmark West Texas Intermediate price. By comparison, the January forecast called for prices to rebound from $45 to $65, with production holding steady at 1.2 million barrels per day, while Dalrymple’s budget assumed a rebound from $74 to $82 per barrel with production growing to 1.4 million barrels per day.
“The days of $100 oil are certainly gone,” White said, calling it a “very, very conservative” assumption.
North Dakota oil and gas revenue projections for the 2015-17 biennium have gone down dramatically since the forecast issued in December.
December: $8.32 billion
January: $4.27 billion
March: $3.40 billion