Update: Turns out the Rockefeller Institute report had some major flaws. See an update here.
“We expect revenues to remain strong in the next budgeting period,” Governor Jack Dalrymple said in his recent budget address to a joint session of the Legislature. “We expect revenues to continue to exceed on-going expenditures.”
Declines in oil and gas severance taxes contributed to large drops in overall revenues for Alaska and North Dakota in the third quarter, a public policy research group reported on Thursday.
Alaska, which historically has relied on the oil sector for revenue, saw its total tax collections drop 74.3 percent in the third quarter of calendar year 2014 from the same period of 2013. In North Dakota, experiencing a natural gas and oil boom, tax revenues fell 46.7 percent in the quarter spanning July through September, said the Rockefeller Institute of Government.
In June oil prices began falling, and their new low levels have prompted concerns about the fiscal health of energy-dependent states.
“Seven states reported declines in overall tax collections, with Alaska and North Dakota reporting the largest declines at 74.3 and 46.7 percent, respectively,” the full RIG report states. “The large declines in both states are mostly due to declines in oil and gas severance taxes.”
That’s alarming, but that last sentence tells us that we need some context.
First, it’s worth noting that general fund revenues are up so far in the current biennium compared to last biennium. Up pretty strongly, in fact. According to the most recent report from the Office of Management and Budget the current biennium’s general fund revenue growth is up about 14.7 percent compared to the previous, and it’s been consistently up month-by-month as this chart comparing the current biennium to date to the previous three shows:
The general fund represents the bulk – or about 66 percent – of the state’s taxing and spending. The rest of the state’s total appropriations are federal dollars and spending out of special funds.
Which is brings us to where the decline is. By the end of the 2013-2015 biennium the state is expected to have collected over $5.2 billion in oil and gas tax revenues. Only $300 million of those revenues go into the general fund. The rest goes to the Legacy Fund (about $1.5 billion), the local governments ( about $593 million), the tribes (about $272 million) and other special funds (about $1.4 billion).
State Treasurer Kelly Schmidt has a flow chart for how oil and gas revenues flow into all the various special funds which is sure to give you a headache.
Those numbers are projections, or what the state expected in revenues. I don’t have actual revenue numbers on hand for any but the Legacy Fund which hit $2.2 billion earlier this year and is way ahead of revenue projections.
But suffice it to say that special fund revenues, which get the lionshare of oil tax revenues, are where the state is taking the hit.
That’s still a problem. The state is doing a little over $3.5 billion in spending directly out of special funds this biennium. If special fund revenues are taking a hit, that’s fewer dollars available for spending in the new biennium.
What’s more, if oil prices continue to take a rout, the state is going to feel it in more than oil and gas tax revenues. Eventually that will bleed over into sales and income tax revenues, which make up the bulk (almost 80 percent) of the state’s general fund revenues.
Governor Jack Dalrymple’s “ambitious” spending budget (his word, not mine) may be based on an overly-optimistic assessment of the state’s future tax revenues.
I’ve asked the Office of Management and Budget for more information on revenue flows into the state’s revenue funds. I’ll post more when I have more.