North Dakota Faces Massive Budget Shortfall From Lower Crude Prices

Energy

Published: February 1, 2015 8:45 am

Last Updated: February 2, 2015 6:56 am

The state of North Dakota got a reality check after the state’s legislative council released an updated revenue forecast that cut the forecast for the state’s oil and gas tax revenues nearly in half for the two-year budget cycle beginning on July 1 of this year. The new forecast cuts about $762 million from the state’s budget for the rest of the fiscal year ending in June 2015 and slices $4.05 billion from the two-year biennium from July 2015 to June 2017. Even with the cuts, the state is still expected to collect $4.3 billion in oil and gas taxes in the new biennium.

The new forecast assumes a crude oil price of $42 a barrel through May, which triggers a lower tax rate and will cost the state about $46 million in extraction taxes. The so-called big trigger goes into effect when the price of crude remains below $52.59 a barrel for five consecutive months. The big trigger is assumed by the new forecast to go into effect in June and remain effective through March of 2016. That will cost the state $883 million in extraction tax collections.

The impact of the lower crude price does not stop with the extraction tax, however. It ripples through the state’s budget in a variety of ways.

Royalty payments to landowners will cut individual income tax collections by $30 million in the current fiscal year and by $139 million of the 2015-2017 biennium. Corporate income tax collections will drop by $13 million this year and by $58 million in the next biennium.

Sales tax revenue is expected to drop by $87 million in the rest of the current fiscal year and by a total of $350 million in the next two years as a result of the decline in the number of drilling rigs. The rig count is expected to average 135 in each of the next two years, down from 195 in September. Each rig is estimated to support 170 jobs, according to the Grand Forks (ND) Herald, and the lost jobs will cost the state $16 million in income tax collections.

The state legislature adopted the new forecast last Thursday and it will be used for budgeting purposes until the next revenue forecast is released in March.

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