Today’s Ask Your Government

Dear Teri,

Most of us are aware that North Dakota is running a huge surplus, due largely to oil revenue.  Yet in the past, there have been times when oil prices have dropped drastically, drying up oil money. What kind of surplus or deficit would the state be running today without oil revenue?

George Hahn

West Fargo

Thanks for writing! As I recently reported, the state is expected to have more than $2 billion in surplus and reserves by June 30, the end of the biennium. I sent your question to the Tax Department and to the Office of Management and Budget. Tax Commissioner Cory Fong sent their collaborated response, which addresses the surplus portion:

“The short answer to this question is that oil and gas taxes do not directly affect the general fund budget surplus, which is currently projected at $850 million. The general fund is a melting pot of state revenues from a variety of taxes, fees and transfers.

“The Legislature has attempted to reduce the volatility of oil and gas taxes on the general fund by limiting the amount deposited in the general fund to no more than $300 million per biennium.  Two-thirds of that amount has already been deposited in the general fund; the remaining $100 million will be in the next few months. 

“Because the general fund share of oil and gas taxes is limited by the statutory cap, additional oil and gas tax collections have no impact on the surplus. 

“There is no question oil activity affects other general fund taxes. Due to the complexities of the tax types, though, we are unable to make any definitive determination as to how much is directly attributable to the oil industry.

“A portion of sales, motor vehicle, individual income and corporate income taxes are related to oil activity, but the exact amount varies by tax type and, in most cases, is impossible to determine. For example, a farmer who receives oil and gas income will continue to file a tax return listing agriculture as the source of income, making it impossible to correctly attribute a portion of their personal income taxes to oil activity. For other tax types, such as gaming, tobacco, insurance premiums and liquor, there may likely be some relationship to oil and gas activity, but it would be even more difficult to quantify.

“We also know there has been substantial economic growth across the entire state, not just in the west. Eastern North Dakota has seen substantial expansion in their economic base contributing to the state’s positive financial status.

“Further complicating the issue, a significant portion of the current budget surplus, over $330 million, can be attributed to additional revenues and transfers that occurred in the previous fiscal year and resulted in a higher than anticipated beginning balance for the current budget period.”

So, that addresses the surplus. It’s a little easier to see the impact of oil revenue when you’re talking about the state’s reserves, which added up to $1.2 billion at the end of May. These are funds that have special rules related to how and when they can be spent.

For example, the money in the state’s Legacy Fund comes entirely from oil tax revenue. The State Treasurer’s Office said there was $446.3 million in the account as of July.

The Legacy Fund receives 30 percent of oil and gas tax revenue and will continue to grow. Money from this fund can’t be spent until 2017.

Money in the property tax relief fund also comes from oil tax revenue. The fund is allowed to grow to $341.8 million and reached that mark in June.

The foundation aid stabilization fund—which had a balance of $204 million at the end of May—receives 10 percent of the state’s extraction tax revenue, so this is another fund benefitting from oil.

Interest from this fund is transferred to the general fund, where it can be used for any state appropriation. The principal can only be spent under the governor’s order to offset foundation aid reductions to schools as a result of a revenue shortfall.

So, like many questions I get related to oil taxes, there isn’t a simple answer.

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