On Television: North Dakota Can't Afford To Slow Down The Oil Boom


Normally I do my weekly “Say Anything Segment” on Chris Berg’s Valley News Live show on Mondays, but due to Berg taking some time off for the holiday we did it last night instead.

“Those in the state, particularly the politicians, who make glib comments about slowing down oil and gas development should be prepared to tell us what they’ll do when state revenues drop.”

We talked about affirmative action, including my post yesterday about how that sort of policy is applied here in North Dakota, as well as the University of North Dakota adding their 19th vice president while claiming they don’t have a problem with administrative bloat.

Yeah, right.

But the most interesting topic, I thought, was the suggestion from Berg that we ought to slow down the oil boom in order to address flaring and other issues.

It frustrates me that people talk about oil production as though there were a dimmer switch somewhere we could turn it up and down. It simply doesn’t work that way. What’s more, trying to slow down oil production could have some major consequences for the state.

For one thing, as Berg himself acknowledges, there is no certainty that the oil under North Dakota’s soil is going to stay at current values indefinitely. A lot of people react to this issue by saying something along the lines of “the oil isn’t going anywhere, what’s the rush?” The rush is that there are new shale oil plays opening up all over America, and all over the world. That means there is more competition for Bakken oil, and often in places where it’s much easier to drill, pump, and transport. If we delay a mineral owner’s ability to develop their oil/gas property, we may hurt them financially in a not insignificant way, and they may well have recourse for legal action against the government if that were to happen.

Which isn’t to say that mineral rights trump all other concerns, but it’s something we have to keep in mind.

Another issue has to do with state tax revenues. Few people seem to grasp this about North Dakota’s budgeting process, but when the Legislature spends money they’re appropriating revenues they don’t have yet. They budget based on projections which tell them what the state is expected to collect.

In recent sessions legislators have been aggressive with spending, because projections have forecasted aggressive revenue growth (if anything the projections have been way low, missing last biennium by nearly $2 billion). By the end of the current biennium we’ll have spent roughly 62 percent more than last biennium.

Almost all of the spending increases are paid for by oil tax revenues.

In 2013 more than half of all tax revenues collected by the state’s Tax Commissioner were from oil and gas development, and that’s not counting energy development’s impacts on other revenue streams such as sales and income taxes. North Dakota has lead the nation in personal income growth in six out of the last seven years. According to the latest data from the state’s Office of Management and Budget, personal income tax collections are up more than 30 percent.

We can debate about how much of that spending increase was needed, but a lot of it absolutely was needed for basic infrastructure issues like roads, sewer, water projects, etc. But if you slow down the oil boom, you slow down the revenues.

And not just oil and gas tax revenues, but sales tax revenues. Income tax revenues. Property tax revenues, etc.

Those in the state, particularly the politicians, who make glib comments about slowing down oil and gas development should be prepared to tell us what they’ll do when state revenues drop. And how they’ll justify wounding mineral rights owners who could lose millions, and maybe more, from delays.

There is no easy button on this issue.