BISMARCK — Gov. Doug Burgum cast the sharp revenue drop facing the state of North Dakota as an opportunity to reshape government through technology and innovation while instructing agencies to submit budget requests for the next biennium 5% to 15% below current levels.
Burgum outlined his budget guidance for the 2021-23 budget as the state is reeling from the combination of the collapse in oil prices and demand paired with the steep reduction in economic activity forced by the coronavirus crisis.
The governor gave his briefing on Friday, May 1, via web conference, an example of the substantial shift to technological alternatives as the state’s 110,000 K-12 students attend classes online and more than 7,000 state employees have been working remotely.
“This is an opportunity to completely rethink how we approach government,” Burgum said, adding that legislative leaders he briefed were “hungry” for new approaches to navigate the budget challenges.
The revenue crisis facing the state will likely be sharper than the slashing required in 2015-17, in an earlier collapse of oil prices. Oil revenues directly provide 24% of the general fund, but the impact is greater because oil activity also contributes to other revenue sources, including sales and income taxes.
Depending upon their size, state agencies are asked to present budget requests for 2021-23 ranging from 85% to 95% of current levels:
The smallest agencies, those with a current base budget of less than $5 million, are asked to submit a budget request that is 95% of their current base.
Agencies with a current adjusted base budget of $5 million to $20 million are asked to submit a request that’s 90% of their current base budget.
Agencies with a current adjusted base budget larger than $20 million are asked to submit a request that’s 85% of their current base budget.
That departure from an across-the-board cut reflects the greater difficulty that small agencies have to trim their spending, Burgum said.
To accomplish those goals, agencies should consider steps including less travel, scrutinizing vacant positions, outsourcing functions to private firms, embracing telework and other forms of technology and investing in what Burgum called process improvement.
“We have to leave behind the budget games of the past,” in which agencies would slash popular programs, which legislators would restore, to avoid cuts, Burgum said.
“It is a crisis, but within a crisis there is an opportunity,” he said, to increase productivity enabling the state to do more with less.
North Dakota’s 11 higher education campuses are asked to plan budgets that rely on a 10% reduction in funding formula payments — a reduction the governor emphasized does not have to equate to a 10% budget reduction if universities succeed in finding other revenues, including increased online enrollment tuition.
“That’s up to the university,” said Burgum, who long has been an advocate of using technology to reinvent higher education. “That’s happening with universities across the nation.”
The need to abruptly find new ways of doing things illustrates the potential to gain efficiencies and discard government functions that no longer serve a compelling purpose, Burgum said.
Just a few weeks ago, he said, no one would have imagined that the state’s entire public school and higher education systems could move to online instruction, a necessity to prevent the spread of the coronavirus.
“Let’s cut the bottom 5%, the bottom 10%, even the bottom 15%,” Burgum said. “It’s about who can spend the smartest,” and get the greatest return from state investments.
Joe Morrissette, Burgum’s director of the Office of Management and Budget, also encouraged agency heads to think boldly and creatively.
“I think it’s important not to think of this as an incremental process,” he said. “We all have to put everything on the table.”
But Morrissette and Burgum advised administrators to find ways to continue salary increases in the current biennium. “Retaining and attracting high-performing team members is a top priority,” Burgum said
The officials refrained from including a revenue outlook along with their budget guidance for 2021-23.
“There is so much uncertainty,” Burgum said. “I don’t think it’s possible even to do an educated guess.”
The next revenue forecast typically will come in July or August, Morrissette said, although his office will “continuously monitor revenues.”
Revenues for the first eight months of the current 24-month biennium exceeded budget expectations by $121 million and the state’s budget stabilization fund reached its $726 million cap.
“That’s one piece of good news,” Burgum said.
The current $4.84 billion general fund budget is based on oil selling for $48 per barrel. Prices recently have fallen to $10 to $25 per barrel — and briefly plunged to negative $38, the first time that’s happened.
North Dakota remains too dependent on energy and agricultural commodities, which are susceptible to volatile price swings, leaving the state vulnerable, Burgum said.
“We have to continue to diversify the economy of North Dakota,” by adding value to energy and farm commodities and developing new business.
Shelly Lenz, Burgum's Democratic challenger, said she would take a different approach to the budget crunch facing the state.
"Like most North Dakotans, when I am faced with economic challenges I look at how to increase revenue and diversify my income sources and how to reduce expenses," she said in a statement. "Several of the suggestions related to increasing efficiency in education have only been implemented in a crisis and are not proven to work for the long-term."
Burgum's budget guidelines aren't practical and would hurt rural areas, said Lenz, a veterinarian in Dickinson.
"“Of course we need to be looking for efficiencies and be good stewards of tax dollars, but at the same time we need to recognize that investments in education and health care are investments in the people of North Dakota," she said. "The way that state employees - from teachers to agency staff -- have stepped up in the current crisis should certainly be rewarded - not punished. The success of my businesses has been based on my investment in people.”