ND revenue projections off by more than $1 billion

By Rob Port | Watchdog.org North Dakota Bureau

FAULTY FORECAST: In the 2011-2013 biennium North Dakota’s actual general fund revenues beat the forecast used for budgeting by more than $1.7 billion. Chart created by Watchdog from North Dakota Office of Management and Budget reports.

BISMARCK, N.D. — North Dakota’s leaders are discovering it’s pretty tough to make sound budget decisions when estimates of the money available to spend are off by a billion dollars.

State legislators meet for a constitutionally constrained 80-day session every two years. One of their responsibilities is crafting the state’s budget for the next biennium, and they do so based on revenue projections by the state’s Office of Management and Budget.

In the age of rapid population and economic growth driven by years of high crop prices and a roaring energy industry, projections have often understated actual revenues by hundreds of millions of dollars.

According to monthly revenue reports issued by the OMB, in the last biennium covering July 1, 2011, through June 30, 2013, actual general fund revenues were 49 percent, or more than $1.7 billion, above the forecast legislators used for budgeting.

That sort of disparity between the forecasts and actual revenues have some in the state asking questions.

“When you continue to be off that much, and that often, something is wrong,” Thomas Fiebiger wrote in a recent letter to the Fargo Forum. “And to simply be grateful for having more money coming in than expected without critically examining why there’s such a disparity in projections is not the right tune to be singing.”

Fiebiger, a Democrat who represented District 45 in the state Senate from 1995 through 2010, has expressed interest in running for the U.S. House of Representatives.

Asked why revenue projections have been inaccurate, OMB Director Pamela Sharp cited the state’s booming economy and the complicated nature of projections.

THIS BIENNIUM: Despite adjustments, revenues in the current biennium are beating projections by more than $124 million. Chart created by Watchdog based on OMB revenue reports.

“Collections in the 2011-13 biennium exceeded projections by that amount due to unprecedented growth in North Dakota’s economy,” she said in response to emailed questions. “…. We contract with Moody’s Analytics for our tax base forecast. Moody’s model for the tax base forecast includes many assumptions such as wage growth, job growth, interest rates, population growth, inflation, corporate profits, the national outlook, GDP growth, agriculture commodity prices, price of oil, federal fiscal policy, just to name some forecast assumptions.

But Fiebiger, responding to Sharp’s comments via email, said the time for blaming the state’s rapid economic growth has come and gone. “When [Sharp] talks of unprecedented growth after experiencing years of such continued growth, when does it ever become precedented?” he said.

Sharp said she expects the revenue forecast for the current biennium “to be closer than that of the previous biennium” after improvements were made to the forecasting process, but already the forecast is coming in low. According to monthly OMB revenue reports, from July 1 through December 31 of 2013 the state has already collected over $124 million more than projected by the OMB forecast and $278.7 million more than last biennium’s revenues to date.

Sharp said Moody’s Analytics recently reworked its model for North Dakota to better reflect the impact of oil activity on the state’s revenues.

She said an advisory group of industry leaders and lawmakers also gives input into the numbers.

“It is the philosophy of the advisory group that it is better to be off on the conservative side rather than the aggressive side of a revenue forecast,” she said.

Sharp also said that Moody’s Analytics will “continue to refine the model for North Dakota,” but Fiebiger isn’t convinced any substantive changes are being made to the process.

“It appears as if the plan appears to be to continue to do the same thing as before and expect a different, more accurate result,” he said in response to Sharp’s description of changes.

You can reach Rob Port at rport@watchdog.org.

The post ND revenue projections off by more than $1 billion appeared first on Watchdog.org.

Rob Port is the editor of SayAnythingBlog.com, a columnist for the Forum News Service, and host of the Plain Talk Podcast which you can subscribe to by clicking here.

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