Governor Jack Dalrymple needs to do two things to begin addressing falling post-oil boom tax revenues which just can’t seem to find rock bottom.
First, we need to start the process of finding a better forecaster for state revenues than Moody’s Analytics. That company, which produces the revenue forecasts which are used for budgeting, couldn’t get state tax revenues right when revenues were booming at the peak of the oil boom. Now, post-oil boom, they can’t get the falling revenues right either. In a state where part-time lawmakers must budget for two-year budget cycles using revenue projections to know how much they have to spend, wildly inaccurate revenue projections are simply not acceptable.
We’ve all heard the excuses from Dalrymple and his budget officials. They talk about the difficulty in projecting revenues that are so tied to activities in the famously volatile oil and gas industry, but c’mon. North Dakota’s is a commodity-based economy, and while we’ll ever be able to get forecasts that are 100 percent accurate, surely we can aspire to forecasts that are more accurate than those we’ve been getting.
This chart shows actual general fund revenues in the 2015-2017 biennium to date, compared to forecasts produced by Moody’s in May of 2015 and January of 2016. As you can see, Moody’s just can’t seem to hit the target. Through last month even the January 2016 forecast is already off by more than $90 million, and the May 2015 forecast lawmakers used to write our current budget has been off by a whopping $521 million so far:
This is unacceptable. Fire Moody’s Analytics and let’s see if another organization can do a better job. It’s hard to believe another organization could do worse.
Second, Dalrymple should call for a special session. He should have acquiesced to demands for a special session made by Democrats back in March. In fact, Republicans probably should have proactively began the process of a special session before Democrats got around to making their demands.
Yes, I realize that the Democrats have made demanding a special session an election year tradition. Yes, this humble blogger was dismissive of that demand earlier this year when Democrats made it. At the time I felt Dalrymple was right to make due with across-the-board budget allotments. I was wrong.
In hindsight, I think the Democrats had the right of the situation, though it’s hard to discern if they actually knew what they were talking about or if they just happened to accidentally be right about something for once.
Regardless, right is right, and it’s clear that budget allotments are not cutting it any more. They are a blunt instrument, requiring indiscriminate spending reductions across nearly all areas of state spending, when what we need right now is a far more nuanced approach. If Dalrymple called the lawmakers back to Bismarck they could scrutinize our current budget situation and make reductions where there is fat in the budget (and there is plenty of fat) while leaving more necessary spending in place.
Put another way, lawmakers can pick and choose where to cut spending. All Dalrymple can do is order across-the-board cuts.
I would argue that Dalrymple’s allotments have exacerbated the public’s perception of the budget situation. One thing to keep in mind is that while revenues have fallen, they’re down only in comparison to the record-setting revenue levels of the peak of the oil boom years. Compared even to the 2011-2013 biennium, which was also a very strong year for revenues, our current biennium general fund collections are still up over $120 million:
Filtered through the lens of political point-scoring and medial sensationalism it can feel, at times, as though North Dakota’s budget is a disaster right now. But that’s not true. Revenues still up significantly from pre-oil boom levels.
Revenues were never going to stay at peak oil boom levels, thus spending was never going to stay at peak oil boom levels either. I think Republicans – primary Governor Dalrymple – perceive a special session as a mark of failure, and chose instead to try and white knuckle the budget until the Legislature comes into session again next year. But all that has done is give the public the impression that the Republican leadership is out of touch.
I’d argue that perception contributed greatly to Fargo businessman Doug Burgum’s upset win over Attorney General Wayne Stenehjem in the gubernatorial primary last week. Stenehjem campaigned on the status quo. Burgum campaigned on fiscal reality.
But that’s politics. More important is the governance of our state, and what our state needs right now is a special session to address this budget situation.