Today the North Dakota House and Senate appropriations committees are holding a joint session to discuss the state’s new budget forecasts, so it’s timely that we discuss what’s happening with the state’s economy.
After a couple of years of growth so rapid it overran housing supplies and infrastructure needs, the state’s growth seems to be plateauing. It’s not a bust, but there’s a definite slow down as this chart from Derek Thompson at The Atlantic shows:
After a major spike, housing development has gone back to a more moderate sort of growth:
The evidence for a plateau, and perhaps even a slow down, is all around us. Here in Minot, on the edge of the Bakken oil fields, it was all but impossible to get a hotel room a year or so ago. Now occupancy rates are around 80%, according to city officials I’ve spoken with, and the common view is that the new hotels still being built are probably going to turn out to be bad investments.
So why is the state peaking? There are probably a lot of reasons. It could be the markets. It could be fear over what new regulations might come down from the federal government in President Obama’s second term. Or it could just be that the oil industry is transitioning from the drilling phase of the Bakken oil boom to the production phase.
But whatever the reason, the state’s economy is peaking, and there are some take-aways from that reality for our state’s leaders.
First, the exponential growth we’ve enjoyed in state tax revenues probably isn’t going to last much beyond this coming biennium. We should be budgeting accordingly.
Second, we should be cautious about any further incentives for development from the state and from local governments, up to and including incentives for housing, in the oil fields. Those policies always put us at a risk of a development bubble in the oil patch, and now that we’re at the point of a slow down, the risk is even more real.
Third, it’s a good thing we didn’t listen to voices such as former Democrat gubernatorial candidate Ryan Taylor who were clamoring to slow down the oil boom. Can you imagine what the impact would be of their tax and regulatory policies now that the boom is slowing on its own?
Update: According to Bismarck Tribune reporter Nick Smith, OMB Director Pam Sharp told legislators today that state revenue will see a small decline in the next biennium:
Pam Sharp, director of #NorthDakota OMB said state expects $41 million more in current biennium; forecast of $45 million decrease in 2013-15
— Nick Smith (@NSmithReports) February 12, 2013