Here's The Ugly Truth For North Dakota About Oil Prices: Nobody Really Knows


“It’s a big, black cloud hanging over the session,” Senator Dwight Cook, a Republican from Mandan and chairman of the Senate Finance and Taxation Committee, said of oil prices recently as North Dakota’s 2015 legislative session begins.

He’s not kidding. State policymakers are staring down the barrel of not one but two oil tax triggers which could impact the state budget by millions and even billions of dollars. One trigger which kicks in with sub-$55 per barrel oil is potentially just days away from hitting the state budget, as I noted yesterday. That would reduce the state’s oil extraction tax to 2 percent for many wells, with a likely fiscal impact measured in the hundreds of millions.

Another harder-to-hit trigger would only kick in if oil prices remain below $52.58 per barrel for five months, but could cost the state as much as $5 billion over the next biennium as Lt. Governor Drew Wrigley stated recently.

Will the state hit these triggers? My not-at-all-expert opinion is that we’ll probably hit the first trigger and narrowly miss hitting the second. But that’s just one opinion. There are a lot of others out there from people claiming various levels of expertise, and what it all adds up to is that we don’t really know.

In fact, recent $2.00 per gallon gas prices illustrate just how much we don’t know.

In 2011 conservative firebrand Michele Bachmann was roundly criticized by the media for claiming that we could return to $2 per gallon gasoline. “Why Michele Bachmann’s $2-a-Gallon Gas Promise Is a Fantasy,” read a headline from Time magazine over an article by Brian Walsh.

“On Wednesday Michele Bachmann said something that’s just very, very wrong,” Walsh wrote mocking Bachmann’s claim of $2 gasoline. “Which isn’t unusual in and of itself but is something that needs to be debunked.”

He goes on to explain oh-so-scientifically how America ever again seeing $2 per gallon gasoline is impossible. Except, perhaps, amid an economic collapse.

“If you see sub-$2-a-gallon gas again, I strongly suggest that you stock up on bottled water and canned tuna, because the economic end times may be at hand,” Walsh wrote.

Bachmann got her revenge on Walsh recently with this tweet picturing a gas station selling gas at $1.98 per gallon:

What does all this mean for North Dakota? That despite all the assurances about oil prices, all the cocksure attitudes about whether or not we’ll see a bust for the state’s oil booms or if the state’s budget will be thrown into chaos by one of these oil tax landmines triggering, nobody really knows.

Bachmann didn’t know. Walsh didn’t know. We can make informed guesses, but that’s all they are. Guesses.

Which is exactly why these tax triggers should have been fixed in the first place. Which is why building enormous growth in state spending on the back of revenues from a notoriously volatile commodity is foolish.

Lawmakers are going to try and make their best guess on oil prices, legislating based on what they think might happen. That’s the best they can do.