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Looking up at the North Dakota State Capitol building in Bismarck where lawmakers are facing a potential budget shortfall of up to $1.5 billion. (Image: Timothy Vogel via Flickr)
Looking up at the North Dakota State Capitol building in Bismarck where lawmakers are facing a potential budget shortfall of up to $1.5 billion. (Image: Timothy Vogel via Flickr)

North Dakota’s $1 billion budget shortfall may be much worse than reported

Last week I published an article about the pending real estate crisis that is starting to unfold in North Dakota. Today we received news that Moody’s Analytics is projecting a $1 billion budget revenue shortfall in the current biennium.

As a result Gov. Jack Dalrymple today has ordered most state agencies to cut 4 percent from their budgets in a move that is more than the 2.5 percent originally called for in the event of a budget miss. Given the significant deterioration in commodity and agriculture prices, some are asking how bad is this going to get?

It is pure fantasy for policy makers like Lynn Helms and ratings agencies like Moody’s to come out and project what commodity prices will be in the future. Moody’s is basing their current budget projections on oil prices increasing to $43 per barrel. Today oil is trading at $31.87 and who know if it will go to $20 or $40? It is pure speculation.

If Moody’s has that level of insight on commodities maybe they should change their business model from a rating agency to commodities traders. Not likely!

What is less clear from the perspective of somebody who witnessed the oil bust of the late 1980’s is what the ramifications are should the budget estimates be far worse than the revised $1 billion shortfall.

  • There is no way to know what the final personal and corporate income tax revenues will be until April.
  • What happens when current spending projects are completed and no new projects are in the pipeline?
  • What happens when layoffs start to significantly impact government services?

As North Dakota enters a significant recession there is no way to project revenues until the decline stabilizes, and we are a long way away from that. From all the recent data it would appear that the revenue declines are accelerating. Given these realities we could be looking at a $1.5 billion shortfall by the end of the biennium.

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