comscore As oil prices slip, North Dakota struggles to get a grip on its budget | Honolulu Star-Advertiser

As oil prices slip, North Dakota struggles to get a grip on its budget

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BISMARCK, N.D. » Lawmakers in North Dakota have been suffering from dizzy spells lately, and there is only one thing to blame: the price of oil.

For months, it has been in free fall, dropping from $100 a barrel in June to below $50 a barrel by January, casting worry over this state, the No. 2 producer of oil in the country.

Even a small rally in the price was enough to cheer up legislators on a recent afternoon well into their 80-day session that began in January. "Everybody’s smiling today," Kenton Onstad, a Democrat who is the House minority leader, said in his office in the Capitol. "Because oil’s at $53.05."

That volatility has set the stage for an unusually contentious legislative session, a change from previous years when North Dakota was enjoying the boom from richly productive oil fields in the western part of the state.

The North Dakota Legislative Assembly meets only once every two years, so lawmakers here are now faced with a challenge: planning a two-year state budget while trying to anticipate how far the price of oil will drop, while also deciding how to split rapidly shrinking revenues among competing regions of the state. Even once popular proposals to cut taxes may be headed for defeat.

"This is, to some extent, hanging over everything we do," said state Sen. Mac Schneider, D-Grand Forks.

Last week, the House began to debate a measure known as the "surge bill," which would provide more than $1 billion to counties primarily in the western part of the state. The money would go to infrastructure needs, construction projects and schools in the towns that have grown exponentially during the oil boom of the last decade.

The legislature will also consider a bill that would give oil-producing counties in the west a greater share of future oil revenues.

But some lawmakers here worry that the surge bill goes beyond what the state can afford during a time when oil revenues are drastically falling. A joint legislative committee released a revised revenue forecast in January, predicting that oil and gas tax revenues would drop to roughly $4 billion over the next two years. Last December, budget forecasters had predicted the number would be closer to $8 billion.

"This bill is too rich for me," Sen. Dwight Cook, a Republican from Mandan, a suburb of Bismarck in central North Dakota, said on the Senate floor before voting against it. (The bill passed the Senate and is now under consideration in the House.)

Supporters of the bill say that the money has already been put aside in a special fund and deserves to go to oil-producing counties, whose leaders say their jails are crammed, their road projects underfunded, their judges overwhelmed and their schools in need of expansion.

"We need the money," said Sen. Kelly Armstrong, a Republican and one of the bill’s sponsors, adding that he had yet to scale back the bill despite worries about the economy.

"I know there are people who, with the falling price of oil, are more concerned about it," he said. "This low price could last. I think we need to budget out conservatively, but we’re prepared to weather it."

Other measures that had gained popularity last year, while the price of oil was still high and lawmakers were not in session, seem to be faltering.

Last year, there was considerable support for proposals that would cut the income tax and corporate tax. Several lawmakers said they now believed those bills would be voted down.

In interviews, lawmakers said they viewed the drop in oil prices as a correction rather than an impending bust. The state has played it safe for years, stashing surplus money in funds that could be used when revenues slowed down, said Al Carlson, the House majority leader.

"Structurally, we’re in pretty good shape," he said. "We’re still going to collect over $4 billion in oil revenue from 2015 to 2017," he said. "That’s a lot of money. It’s less than we collected last time, but it’s a lot of money."

The great worry is that the slowdown might continue with no end in sight, Carlson said. "The concern that always comes is not these next two years," he said. "It’s the two years after that."

Sen. Karen K. Krebsbach, R-Minot, said she was resisting the general feeling of "doom and gloom." "We’re not going to close the doors and close up because oil’s down," she said.

North Dakota was one of the few states to survive the recession with hardly a bruise. It has been lifted by oil revenues for years, but it also prides itself on its fiscal responsibility: less than 5 percent of the state’s general fund, which is used to pay for the state’s day-to-day operations, comes directly from oil revenues. Its unemployment rate is currently 2.8 percent, the lowest in the nation.

Lawmakers said it was too early for many North Dakotans to be feeling the effects of low oil prices – indeed, many of them were relieved that gasoline prices had fallen so sharply. In Bismarck last week, a gallon of gas cost $2.15.

"For consumers, they love it when the price of gas goes below $2," said Sen. Carolyn Nelson, a Democrat. "But they don’t like it when the price of oil is way down and we don’t have the revenues they’re used to."

But there are signs that some of the workers who have flocked to North Dakota, lured by steady jobs and the promise of overtime, are already fleeing the state. From 2010 to 2014, North Dakota’s population rose 10 percent to about 740,000, much of it because of the oil boom.

"What we hear is people saying, ‘I came to North Dakota to work because I could get 60 or 70 hours a week doing this great job,’ " Gov. Jack Dalrymple, a Republican, said in an interview. "And now they’re disappointed because their employer has cut them back to 40 hours a week. We do hear some of them talking about moving back where they came from."

Dalrymple said oil companies have said they are not pulling out of North Dakota, but they have scaled back production. In late 2014, there were 193 oil rigs in production, now there are 140.

He is still waiting for another revenue forecast in mid-March, a report from Moody’s Analytics.

"There’s still plenty of denial out there too," Dalrymple said. "Some people are still saying, ‘Oh, it’s just a little spike down, and it’s going to snap right back any day now, and we shouldn’t pay much attention to it.’ Then you have the opposite end of the spectrum, where people are saying, ‘It’s going to get bad and be bad.’ We’re just trying to find the truth in it."

Julie Bosman, New York Times

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