John Dorso: A Difficult Budget Situation

If you are regular visitor to the Say Anything Blog you are aware that we are approaching the day on the legislative calendar named crossover. It is at this point that all of the bills in each house are supposed to have been acted on. They have either been defeated or should be sent to the other chamber by Feb 27th. A number of things will begin to happen as these next days unfold.

The appropriations committees will have to start sending bills to the floor. You have probably noticed that the senate has all ready acted on some bills and the house will soon do the same. With the uncertainty surrounding the price of oil legislators in both Appropriation Committees will begin the excruciating job of cutting money out of the original bills as introduced. Whether or not the cuts will be deep enough won’t be ascertained until after the legislature receives the new economic analysis prepared by the North Dakota Office of Management and Budget about March 15th.

[mks_pullquote align=”right” width=”300″ size=”24″ bg_color=”#000000″ txt_color=”#ffffff”]The effect oil exploration has on general fund revenues such as sales, use and income taxes (both corporate and individual) is not a simple algebraic function. I don’t believe anyone has a good enough crystal ball to tell what income tax collections will look like in April of 2016 and 2017.[/mks_pullquote]

As I see it both the house and senate committees are being responsible in their approach to spending in these uncertain times. I do question the ongoing conversation that we shouldn’t get to worried because so much of the oil money is so to speak” off budget”. While that is true the remainder that does accrue to the general fund is a substantial amount. It is as hard to say what that number is, as to predict the price of crude for the next 30 months.

Besides the oil revenue that will be collected in the last six months of this bi-ennium the appropriations committees must project out what happens in the next 24 months. Although the governor and legislative leaders are cautioning against thinking we have a disaster on our hands I think they also know that it isn’t only oil revenue they need to worry about.

The effect oil exploration has on general fund revenues such as sales, use and income taxes (both corporate and individual) is not a simple algebraic function. I don’t believe anyone has a good enough crystal ball to tell what income tax collections will look like in April of 2016 and 2017. Oil has become such a big contributor to the wealth of North Dakota in recent years that it is hard to quantify those numbers.

That is one reason I suggested two years ago that the state should get rid of the individual income tax. If you take that off the table when you have excess money in the economy and the state’s coffers there is one less variable to contend with when the economic downturn comes. Some might think that is crazy when you are looking at less state revenue in the present scenario but it is still a valid point.

From a fiscal standpoint this is probably the most difficult session legislators have had to face since the beginning of this century. What they set in place over the last few bi-annual budgets will weigh on them heavily as they try to figure out what an appropriate level of spending should be as they look to the future. My caution would be to err on the side of caution as any increase in spending in the 2015-2017 budgets should not cause a special session to be called if projections don’t become reality.

I expect you will see some of the, what I called “rent seekers” cry about the cuts to the governors budgets. Those who are usually the loudest are the first to cry about the size of the cuts. We have all ready heard from the political subs in oil country. Next you will be hearing about the drastic effects cuts to Higher Education, K-12; Human Services etc will have if legislators remove any of their funding. The old hands in the legislature are used to this crescendo of doom and gloom while the newer members have had the luxury of having enough money to assuage the pain. The only question will be do the legislators want to listen to this chorus of “not us” now or do they want to listen to it all over again as they get to the end of the session.

My theory was always to make the deep cuts prior to crossover. Then if we had a little extra after new budget projections we could add some back at the end of the session when it is hardest to find the compromises between the houses needed to end the legislative session. These next few weeks will tell us how the Senate and House want to approach this most difficult time. As they say “it ain’t over until the fat lady sings”.