BISMARCK – North Dakota Gov. Jack Dalrymple on Monday ordered most state agencies to slash their budgets by just over 4 percent to cover an unprecedented $1 billion revenue shortfall caused largely by slumping oil and farm commodity prices.
Dalrymple met with agency heads at the Capitol to unveil the Moody’s Analytics forecast, which predicts general fund revenues will fall $1.074 billion short of the March forecast that state lawmakers relied upon when crafting a $6 billion budget for the current two-year cycle that began July 1. Revenues were already $215 million short from July through December.
To make up the difference, Dalrymple announced across-the-board cuts of nearly $245 million, or 4.05 percent, for state agencies that receive general fund dollars, which is most of the 73 agencies. That’s deeper than the 2.5 percent cut required by state law when an updated forecast predicts that revenues will be 97.5 percent or less of what was projected in the legislative forecast.
The governor also will draw $497.6 million from the state’s Budget Stabilization Fund, leaving roughly $75 million in the rainy day fund.
Some Republican lawmakers had called recently for deeper cuts to state agencies before tapping the stabilization fund, which was created in 1987 but didn’t grow significantly until the last decade when oil revenues generated large budget surpluses. The fund is capped at 9.5 percent of the general fund budget, and it grows when the ending fund balance exceeds $65 million.
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But Dalrymple said they did a lot of careful analysis and concluded that 4.05 percent was the biggest cut they could make without negatively impacting sensitive areas such as medical services and prison security.
The rest of the shortfall will be covered by the $211 million ending fund balance that lawmakers built into the 2015-17 budget and $131 million mostly from higher-than-expected revenues and more money turned back from agencies at the end of the last biennium.
Agencies will have until Feb. 17 to decide where to make the cuts, which Office of Management and Budget Director Pam Sharp said are the largest by dollar amount in state history.
Salaries, operating expenses and one-time projects all are on the table, and it’s unclear if layoffs will happen, Sharp said.
“They have to look at every line,” she told reporters.
She said K-12 education will be held harmless because its $71.8 million in cuts are covered by the $670 million Foundation Aid Stabilization Fund.
Among the other agencies not affected are the state Game and Fish Department, which is funded with license and fee revenues; the state-owned Bank of North Dakota and State Mill and Elevator; which are supported with profits; the Insurance Department; and the state’s workers’ compensation agency, Workers Safety and Insurance.
Some lawmakers complained in March that Moody’s forecast was too rosy on oil prices, but the Legislature ultimately adopted it. Sharp noted that Moody’s warned at the time that the pending Iran nuclear deal was a potential downside risk, and crude prices dropped sharply after the deal was reached last summer, even before Iran’s oil hit the market. Revenues from oil production and extraction taxes are now forecast at more than $960 million less than projected in March.
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“Could we have foreseen a billion dollars? No, we could not have,” she said of the shortfall.
Last week, the state’s Advisory Council on Revenue Forecasting lowered the oil price and production assumptions proposed by Moody’s, settling on the benchmark price of West Texas Intermediate crude oil increasing from $30 a barrel to $43 a barrel by the end of the biennium.
The new forecast also assumes oil production will drop from November’s level of 1.18 million barrels a day to 1 million barrels days by the end of this year and 900,000 barrels a day by June 30, 2017.
The last time an updated revenue forecast resulted in mid-biennium budget cuts was in 2002, when Gov. John Hoeven ordered a 1 percent cut following the dot-com bust and Sept. 11, 2001, terrorist attacks.
The $6 billion general fund budget is part of the overall state budget of $14.4 billion, which includes federal funds.
