Can North Dakota's Tax Base Support 171% Growth In Per-Capita State Spending?


North Dakota went into the just-ended legislative session with a lot of money. And they spent a lot of money. Governor Jack Dalrymple kicked the session off proposing a $4.7 billion general fund budget. The legislature tacked another $2.076 billion onto the executive budget to take the state to a whopping $6.862 billion in general fund appropriations.

A 62% increase:

graph (1)

Supporters of this spending growth would no doubt argue that it’s ok to “invest” money we have in the state. And to be sure, there were plenty of areas where spending growth was appropriate. More people, and more economic activity, means more need for roads, cops, courts, schools, etc., etc.

There were some strange priorities as well, such as the more than $350 million dropped on higher ed building projects (at a time when the national trend is toward digital learning and away from expansive, expensive campuses). But perhaps the most important question for North Dakotans is whether or not the state’s tax base can support the spending our political leaders have obligated us to.

To show just how scary things have gotten, consider this graph showing spending (in constant 2012 dollars) in the context of population. Despite steady population growth – up 12% since 2003 assuming last year’s rate of population growth continues into 2013 – the amount of general fund spending per citizen has grown dramatically, up 171% since 2003:

graph (3)

To be clear, that’s biennium spending for each year (adjusted for inflation) divided by the population in the state of that year. For the 2013 population figure I applied last year’s rate of population growth, which was pretty aggressive. Also, that’s only state spending, no federal pass-through dollars.

What we’re left with is a picture of increasingly burdensome spending. That North Dakotans aren’t feeling this burden is a testament to just how much tax revenue the oil boom is pumping into state coffers.

But the oil boom won’t last forever. There will come a day when state revenues aren’t growing by billions of dollars, biennium over biennium, and when Williston (metro population under 50,00) isn’t rivaling Fargo (metro population over 200,000) in sales tax revenues.

When that day comes, the cost-per-citizen of state government won’t be hidden in oil boom revenues any more. Then what happens?

Either we slash and burn government, or North Dakotans look loosing a lot of the tax relief they’ve enjoyed in recent years, and then some.