The North Dakota Legislature was put on notice today. If state revenues don’t improve much — and lawmakers were to adopt the budget proposed by Governor Doug Burgum — our state could be facing a $920 million budget shortfall. Meaning, lawmakers would have to drain reserve funds — again — to balance the budget.
It’s not often that anyone other than legislators address the assembly during a legislative session. But today Legislative Budget Analyst and Auditor, Allen Knudson, gave a presentation that lasted more than 20 minutes. And the news wasn’t exactly encouraging.
“I don’t enjoy being the dark rain cloud in the room. But I wouldn’t be doing my job if I didn’t make you aware of some of the potential problems that you might be facing down the road…” —Allen Knudson
I’m not going to regurgitate everything Mr. Knudson shared today. However, I highly recommend you listen to his address. You can do so by clicking here and going to the 12:51:00 mark. Although some might see it as bleak, the presentation is both impressive and informative.
Some observations from it— aside from the potential $920 million shortfall:
- The “permanent” oil fund created in the 1980’s wasn’t really permanent at all. In the 2000’s, it was acknowledged that the fund was being treated as a “General Fund II” and the revenues were being spent.
- The Legacy Fund was created in 2011 as a “permanent” fund and — similar to the past — was used to make the 2017-2019 budget work. (This was done by using $200 million to balance the 2017-2019 budget.)
- The current economic climate for the state is uncertain.
- There was a budget gap last session of $740 million.
- General Fund spending from 2007-2009 to 2019-2021 increased from $2.3 Billion to $4.8 Billion. (An increase of $2.5 Billion or 109%.)
- Over 75% of the aforementioned increase came as a result of increased funding for State School Aid and Human Services. (This was $1.9 Billion of the $2.5 Billion increase.)
- Just over half the increase was a shift in spending. (For example, shifting some of the funding for education from the local to state level and some Medicaid funding from the federal level to the state.)
- Individual and Corporate Income Tax revenue is similar today to what it was in 2007-2009.
- About 28% of our ongoing spending comes from oil revenues.
- The Strategic Investments & Improvement Fund (SIIF) has about half of what it did last session to help fill the potential $920 million gap.
I know most people are bored by budgets and numbers. Admittedly, they make me want to hit the snooze button too. But this is serious and affects us as North Dakotans.
It’s evident that the legislature knows how to spend money. Mr. Knudson made that very clear with his presentation as he asked lawmakers three compelling questions:
- How dependent do you want the ongoing budget to be on oil tax revenue?
- SIIF and tax relief fund have changed from being used for one-time items to being used for ongoing programs— Is that what you want?
- To what extent do you want Legacy Fund earnings to be used to help balance general fund budget?
As he finished up his presentation, Mr. Knudson even gave a glimpse into potential problems for 2023-2025. If the economy remains as it is — and revenues don’t increase — we would face up to a $1.3 Billion shortfall. We’d likely have to drain all our reserve funds and dip into the Legacy Fund earnings and principal.
Are you seeing a pattern here? Too many legislators in Bismarck have no problem spending— even if it means draining reserve funds to do it. How can anyone consider this good governance?
Oh sure, some brag at the end of every session about “balancing the budget”. But I’ll remind you— they’re constitutionally required to do that. Yet, what happens if things pan out the way Mr. Knudson suggests they could? Do they drain from the Legacy Fund? Raise taxes? Both? What if the economy got worse?
Aside from the spending habits, one of the most problematic things about all of this is that the state budget is based off of revenue projections. That needs to change. I wrote about it nearly four years ago.
The North Dakota Legislature needs to dig deep and find the moral fortitude to do the right thing— reduce the size of government, cut spending, and implement a plan to shift from budgeting off of projections to a budget dependent on money in the bank. Our state would be better off as a result of it.
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- Burgum unveils $15B budget, bonding proposal as North Dakota heads toward uncertain times | Grand Forks Herald
- Legislative Council | North Dakota Legislative Branch (nd.gov)
- Should North Dakota Stop Budgeting on Projections & Move to Cash on Hand? – The Minuteman Blog