UPDATE: Read the full forecast document released today right here. Of particular note is the forecast for the “big trigger” on page 4.
The new forecast for North Dakota tax revenues amid falling oil prices is out, and while it’s ugly it is slightly more optimistic than a Legislative forecast released a few weeks ago, at least for general fund dollars.
A subdued Governor Jack Dalrymple started off his address to lawmakers at the capitol today with this: “Our revenues will be down substantially.”
This forecast, which comes from the Dalrymple administration, assumes 1.1 million barrels per day of production and 11 months of no oil extraction tax thanks to oil prices kicking in the “big trigger” you’ve all heard so much about.
Here are the numbers, sent from a legislative source (click for a larger view). This forecast for general fund dollars comes in at $45 million above the legislative forecast (which you can read below) for the rest of the current biennium (ends June 30), and $130 million above the legislative forecast for the 2015-2017 biennium.
Overall, the executive branch forecast is adjusting general fund revenues downward by more than $419 million from the previous executive branch forecast for the 2015-2017 biennium, and down more than $85 million for the rest of the current biennium.
Here’s what all the numbers look like in graphical form, including the forecast Dalrymple used for his budget address in December, the Legislative forecast in January, and the forecast released today:
In terms of “oil bucket” dollars (oil tax revenues which don’t flow into the general fund), Dalrymlpe is more pessimistic than the Legislature. His forecast comes in more than $869 million less than what they were projecting.
Keep in mind that the Legislative forecast saw a $4.4 billion revenue decline for non-general fund revenues, so Dalrymple is seeing even further declines beyond that. Here’s another chart, again with the December, January, and March forecasts shown:
If I had to criticize one area of this new forecast, I’d say that the Dalrymple administration is underestimating impacts to general fund revenues. The Governor has been quick to minimize concerns over oil prices by noting that just $300 million in direct oil tax revenues flow into the general fund. But there’s no question that oil activity has had a huge impact on revenue streams which make up the bulk of the general fund – the sales and income taxes – and if low oil prices continue we’re going to see a slow up in commerce and hiring.
That’s going to impact general fund dollars more than Dalrymple is expecting, I think. As of right now the state is still forecast to see growth in general fund revenues, but I don’t think that’s going to happen without a big turnaround in oil prices which doesn’t seem to be on the horizon.
Keep in mind, the agriculture industry is in a bit of a rough patch right now too. Oil price concerns are overshadowing that right now, but we need to keep North Dakota’s other major industry in mind as well.
The problem in all of this is that oil prices are unpredictable and have an outsized impact on state revenues. All the more so because the Legislature dropped the ball and failed to replace tax triggers in the current code with a flatter tax last session.
Here’s the full Legislative forecast document from 2017 for comparison.