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Dropping oil prices might mean better governance

For the first time in a long time North Dakota’s political leaders are going to be faced with difficult decisions when it comes to governing the state.

“We don’t run the state on oil revenue,” Governor Jack Dalrymple told the editorial board of the Williston Herald in December. At the time he was trying to address skepticism of his executive budget which built aggressive spending on top of an optimistic revenue outlook.

Turns out he was wrong. At least in terms of the last couple of bienniums, the state has been run on oil revenues, and with oil prices in a rout those revenues are disappearing.

Less than seven weeks after Dalrymple delivered his executive budget to lawmakers we have a new revenue outlook. It came in about $5.5 billion below the forecast Dalrymple used.

Projections for sales and income taxes, which go into the state’s General Fund, are now $680 million lower through the end of the coming biennium in June of 2017. The state is expected to lose another $4.8 billion in oil and gas tax revenues during that same period.

The General Fund is capped at no more than $300 million in oil and gas tax revenues a biennium, with the rest of those funds (aside from the share going to local governments) flows into the state’s special funds.

That’s a big swing, in just a few weeks, for a state with just 720,000 citizens.

It portends a few things for our state. It means the oil boom is over. It means the state’s policymakers must figure out what the “new normal” is post-oil boom.

It means the era of easy governance in North Dakota is over.

I do not intend to belittle the problems the state has faced over the last several years. Issues like strained infrastructure and rising crime have presented real problems for the state’s leaders.

But let’s face it. Those problems are a lot easier to address when the booming oil industry is driving before it an economy kicking off tax revenues which grew at almost exponential levels.

In short, it’s easy to govern when you can throw money at your problems. It’s easy for the state’s leaders to pat themselves on the back when they didn’t have to say “no” very often.

And “no” was most certainly not a word anyone at the capitol in Bismarck has used often for some time now.  In the current 2013-2015 biennium the state’s total appropriations (not counting federal dollars) amounted to nearly $10.4 billion, an almost 47 percent increase over the 2011-2013 biennium and an almost 98 percent increase over the 2009-2011 biennium.

That’s a whole lot of saying “yes.”

But the era of “yes” is over in North Dakota for the foreseeable future. That’s going to test the mettle of our current crop of leaders.

I was having a discussion recently with a friend who was an elected leader in the state during the 1990’s. My friend, who didn’t wished to be named in this column, told me that governing in that era was a much more difficult task, because the state’s resources were few.

State agencies had to prioritize needs from wants. Lawmakers had to keep pet projects in check while making painful decisions about appropriations. But there was a silver lining, my friend (who is a Republican) told me.

The NDGOP has enjoyed a near monopoly in state government since the 1990’s, and my friend believes the roots of that remarkable success lay in the sound policy and budget decisions made in that era of scarcity.

Perhaps that’s a lesson for today’s leaders. While there’s no question that our state and local governments needed to grow spending in some areas – more people and more traffic demanded it, if nothing else – plateauing revenue growth may be an opportunity to get back to basics.

A boom isn’t an environment conducive to sound policymaking. A more austere revenue outlook may be what the state needs to sober up.