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Inside the North Dakota State Capitol, the House Of Representatives. (Image: Timothy Vogel via Flickr)
Inside the North Dakota State Capitol, the House Of Representatives. (Image: Timothy Vogel via Flickr)

North Dakota official says budget ‘very likely’ faces cuts

BISMARCK, N.D. — North Dakota’s budget director ordered an updated revenue forecast on Friday and said agencies “very likely” will have to trim spending due to lower-than-expected tax collections from a decrease in oil drilling in the state.

“It’s the responsible thing to do,” Office of Management and Budget Director Pam Sharp said.

Sharp said agencies may be asked to cut budgets, depending on what the fresh revenue forecast shows. Public schools would be exempt from the order, which would be the first such cut in more than a decade.

Overall tax revenues through November are $152.2 million less than projected for the two-year budget cycle that began on July 1, Sharp said. Most of the drop comes from weakened sales tax revenue, which provides the biggest share of the budget for North Dakota government. And the decline in sales tax revenue is directly related to the decrease in oil rigs, which have dropped by two-thirds over the past year, she said.

Oil prices, a key contributor to the state’s wealth, have slid by half over the past year and dropped more than expected since the Legislature adjourned in April. Lawmakers, who meet every two years, aren’t due back in Bismarck until January 2017.

Related: North Dakota sees further declines in oil production ahead as prices hit seven-year low

The Legislature’s spending plan for the 2015-17 budget cycle that began July 1 is a record $14.4 billion, up from $13.7 billion in the previous two-year budget cycle. Lawmakers based their budget on a forecast done in March from the economic consultancy Moody’s Analytics.

The Legislature planned its budget on analysts’ projections that assumed North Dakota oil would sell for $45 to $65 per barrel in the 2015-17 biennium. Oil has lingered at or below the low end of the threshold since the budget cycle began.

Sharp asked Moody’s to begin preparing a new forecast on Friday. The forecast is expected to cost $12,000 and should be completed late next month, she said.

State law gives the governor power to order spending reductions if the budget plunges into the red. Then-Gov. John Hoven used that authority in 2002 and former Gov. George Sinner did so during the 1980s, due to depressed prices for crops and oil.

Gov. Jack Dalrymple said in a statement that North Dakota remains “fiscally very sound” but it may “have to do a little belt tightening going into 2016.” Dalrymple said any shortfall is expected “to have very little impact on the objectives we have set out to accomplish.”

Dalyrmple points to a rainy day fund that was established by the Legislature to deal with unexpected revenue decreases. The state’s Budget Stabilization Fund, which currently holds about $572 million, can be tapped by the governor when tax collections fall short of expectations, though only after agencies endure across-the-board cuts of up to 2.5 percent.

This article was written by JAMES MacPHERSON from The Associated Press and was legally licensed through the NewsCred publisher network.