North Dakota, one of the few states that saw a budget surplus during the Great Recession and an oil boom that earned attention both nationally and internationally, is now feeling a $1 billion budget deficit, according to an article by Bloomberg. All of this due to the rise and dramatic fall of crude oil prices.
As of Feb. 1 Gov. Jack Dalrymple must order budget cuts from every agency. Additionally, he is the third governor in 127 to dip into the Budget Stabilization Fund, better known as the “rainy day fund.” His plan for 4 percent budget cuts from state agencies requires $500 million out of the fund leaving less than $75 million, or about 13 percent of the fund.
How did fiscally conservative ND manage to create a mess like this? The simple answer is oil prices fell. During the budget draft it was conservatively assumed oil would stay about $50 per barrel. Today WTI crude oil is trading at about $31 per barrel and hit a 10-year low of $28 in Jan. 2016.
In 2004 oil and natural gas made up just 2 percent of the ND state economy, but 10 years later the significance of oil dramatically increased, making up about 16 percent of the economy. Revenues from oil into the state budget only make up about 5 percent, but as workers from ND leave after being laid off and disposable income decreases, and less money is spent by fracking companies, sales tax revenues take a plunge. Pam Sharp, ND state budget director, says that sales tax revenue was forecasted to be $700 million greater than actual revenues.
After years of comfortable living, with excess budgets for roads, schools, and other state projects, North Dakota residents and lawmakers will need to rebudget and reprioritize projects to continue their conservative practices and keep the state in the black.