Despite the volatility of oil prices in recent months, North Dakota is not wavering in its commitment to finance needs across the state. In his State of the State address on Jan. 6, Gov. Jack Dalrymple focused on the strength of the state’s economy and fiscal management, reiterating the importance of never spending beyond available, ongoing revenues.
“There are risks associated with any economy that relies on the value of commodities, and those risks must always be carefully considered,” Dalrymple said. “We guard against these risks in several ways, including directing the vast majority of our oil and gas revenues - about 96 percent - to special reserve funds that are not used for ongoing operations.”
By keeping most of the oil and gas taxes devoted to one-time funding projects, any significant downturn within the industry does not leave government leaders hitting the panic button. Democratic Senator Connie Triplett told Petroleum News Bakken that she appreciated the governor’s calming remarks about the oil uncertainty, noting that the Legislature has been very careful over the past several sessions to ensure that the state does not become dependent on oil revenue.
“We can certainly weather a reduction (in oil prices) and know that in the long term the resource is still there for us,” she said. “The oil is not going away just because it’s not being drilled right now, so North Dakota’s future is very bright and I’m not concerned about it.”
Chairman of the Energy and Natural Resources Committee Rep. Todd Porter has a history of supporting one-time expenditures when the state has cash in hand and he said that won’t change. However, he will cautiously consider development of new programs requiring new employees since those require a steady revenue stream. But he’s also confident in the state’s well-diversified economy to endure a few bumps in the road.
“Agriculture is still a very strong component of our economy, and we’ve also grown in all other sectors,” Porter told Petroleum News Bakken. “As you see a bit of a downslide in world oil prices, I think we’re positioned and well-balanced that we won’t see as much (effect to our economy).”
Dalrymple said he believes worldwide production will encounter a “re-balancing,” and though North Dakota oil production may shift to core areas due to profitability factors, in the end the industry has created a game changer in the United States.
“No longer can OPEC and other foreign oil producers hold our country hostage to their control of oil supplies,” Dalrymple said.
An updated revenue forecast will be available in March reflecting lower oil prices and Dalrymple said he’s confident that the legislators will make prudent spending adjustments at that time.
“In the end, our growth may be slowed, but it will not stop,” he said.
The state’s role
Dalrymple detailed some of the infrastructure improvements that have been made in oil and gas impacted areas such as highway bypasses, airport upgrades and roads as well as water and housing projects. He offered his gratitude to the mayors, city and county commissioners and other local leaders for carrying the weight of managing the growth, and said the state will invest about $2.7 billion in oil and gas producing counties in the current biennium and he recommends increasing the state’s support for the upcoming biennium by another $1 billion. Over the past four years the state has leveraged about $90 million in tax credits and incentive funds to support the development of affordable housing as well.
“Never before in our state’s history have we undertaken such an ambitious, ongoing campaign to improve our roads and highways, expand water supply systems, advance flood control projects and develop affordable housing,” Dalrymple said. “These projects enhance the quality of our lives and support our growing economy.”
Soft or hard lessons
Senate Minority Leader Mac Schneider said the address is an appropriate time to celebrate North Dakota’s success, but now the Legislature’s priority must be on funding critical needs. He called for urgent action to address oil impacts and long-term investments to diversify North Dakota’s economy.
“We believe our colleagues can learn a soft lesson from the falling price of oil now or a hard lesson later,” Schneider said in a statement following the governor’s address. “This session must be about making permanent investments that will pay off long after the boom has subsided.”
Schneider intends to introduce a resolution, which if approved by the Legislature and North Dakota voters, would turn the bulk of the Foundation Aid Stabilization Fund into an endowment to provide access to higher education as well as career and technical education to qualified North Dakota students. Ten percent of the oil and gas extraction tax is deposited into the fund and can only be spent if there is an across-the-board spending cut in the state due to revenue shortfall but it is earmarked solely for K-12 education. It has only been utilized once since its creation in 1994 and is projected to soon top $1 billion.
Envy of the nation
Dalrymple began his speech acknowledging that many governors across the nation would like to offer an address like the one he was about to give, but reminded his audience that the state hasn’t always been this fortunate. He cited the young and well-educated that were leaving the state “in droves” only a decade ago when North Dakota was the only state to lose population from 2000 to 2003. He quoted from a New York Times article from those days that the best economic option for the Great Plains “would be to turn the entire region into a vast nature park, or buffalo commons.”
“We always knew better,” Dalrymple said. “And now the entire nation knows better as well.”
From tax relief and education to public safety and quality of life investments, Dalrymple spoke of challenges and his vision for the legislative session, urging cooperation in order to advance the state even further in the next two years.
“Two years ago I stood before you and reported that the state of our state was strong,” Dalrymple said. “Today, I am pleased to tell you that we’ve made great progress since then, and that North Dakota is stronger than ever.”
