Bismarck, N.D.— North Dakota Democrats are predicting a “nightmare scenario” for future state revenues if the Republican-led Legislature radically restructures oil taxes as a hedge against falling crude prices.
Democrats released an analysis on Tuesday that predicts North Dakota could lose more than $6 billion over the next decade if an incentive to oil companies is cut in exchange for a lower and permanent flat tax rate. But Republicans called that figure highly speculative due to the volatility in oil prices, and argued that the change would give the state a stable and predictable tax policy to aid in crafting budgets.
The measure was introduced by Republicans on Friday, just 10 days before the state constitution’s 80-day limit is imposed. It would permanently lower an extraction tax on oil by more than 30 percent instead of allowing a tax exemption to take effect that would be only temporary if oil prices rebound.
Senate Minority Leader Mac Schneider, D-Grand Forks, and other Democratic leaders told reporters that the party scrambled to compile the data from state and federal sources to get an idea of the fiscal impact of the GOP measure, which does not contain data on long-term fiscal impacts.
“This is a nightmare scenario that’s predicted to happen based on these projections,” Schneider said.
State budget analysts estimate that eliminating exemption would add $120 million in the next two-year budget cycle that begins July 1. Budget analysts have not done a longer-term calculation.
The House voted 57-32 on Monday to approve the measure. The Senate Finance and Tax Committee took testimony on the bill Tuesday but did not take any action.
Fargo Rep. Al Carlson, North Dakota’s Republican House majority leader and the primary sponsor of the bill, reiterated Tuesday that he believes the measure is good public policy and “creates a stable environment.”
Carlson discounted the Democrats’ data as too speculative.
“I can speculate as much on our side as they can on the other side,” he said.
North Dakota has two principal oil taxes, a 5 percent production tax and a 6.5 percent extraction tax, which was imposed by a 1980 voter initiative during a previous oil boom. A state law forgives the extraction tax if the five-month average price of a barrel of oil slips below a “trigger” price of $55.09. That is expected to happen in June.
Instead of giving oil companies that tax break, the GOP plan would permanently lower the extraction tax to 4.5 percent
North Dakota sweet crude was fetching about $55 on Tuesday.
One-third of North Dakota’s 1.1 million barrel monthly oil production comes from the Fort Berthold Indian Reservation. Three Affiliated Tribes Chairman Mark Fox said the tribes are opposed to the bill and will consider pulling out of a shared tax compact with the state if the bill becomes law.
Fox offered an amendment Tuesday that includes making any reduction to the extraction tax temporary. Democrats also have promised amendments to the measure but would not disclose details on Tuesday.
The Senate committee is slated to debate the measure Wednesday.
This article was written by James Macpherson from The Associated Press and was legally licensed through the NewsCred publisher network.