North Dakota Not Likely To Hit Dreaded Oil Tax Trigger

The 2015 legislative session was a strange one for North Dakota because it started out with strong revenue forecasts only to see lawmakers scramble to adjust budgets in the face of falling oil prices which had the potential to blow a multi-billion dollar hole in revenue projections. The biggest factor in those concerns was the so-called “big trigger” which would eliminate the state’s oil extraction tax entirely if oil prices stay below about $52 per barrel for five consecutive months.

And, indeed, for four months encompassing most of the session average prices were below the trigger point. That prompted action from lawmakers who, in the last days of the session, pushed through reform to eliminate the “big trigger” among other exemptions in exchange for slightly lower overall tax rates.

That legislation doesn’t become law until January 1st, meaning the “big trigger” is still in place. But it appears as though this month – coming after four months of below-trigger oil prices – a rebound may have WTI crude trading above the trigger price for the month.

Bismarck Tribune report Nick Smith posts to Twitter that Tax Commissioner Ryan Rauschenberger now isn’t expecting the trigger to hit at all:

WTI crude, which is what the trigger price is based on, closed above $60 per barrel today. The average WTI price in the month needs to be below the trigger level. At this point, prices would have to nosedive for the rest of the month for the “big trigger” to hit.

So, the state is likely in the clear, and will have hundreds of millions of dollars more revenues than lawmakers expected. The revenue forecast the lawmakers used expected the “big trigger” to be in place for about a year.

Expect this to turn into a political talking point for North Dakota’s increasingly shrill and intransigent Democrats who made it clear that they hated the oil tax reforms. The Democrats will likely point to the fact that the trigger failed to trigger, and claim that the reform for the oil tax was unnecessary.

But they’re wrong. The fact that we’ve had such wild swings in our revenue projections over the course of just a few months proves why the trigger had to go.

Tying tax rates to something as volatile as oil prices is just bad policy. And just because oil prices are going back up now doesn’t mean they won’t go back down in the future. Commodities trader Eugene Graner is projecting oil prices as low as $30 per barrel again by the end of the year.

While Democrats have made hatred of the fossil fuel industry a cornerstone of their party identity, sometimes common sense has to trump partisanship.