One state's dream is another's problem; North Dakota has unexpected surplus

North Dakota State Roundup

Published December 1, 1990  | December 1990 issue

The newspaper headline told the story: "N.D. has a problem: Cash stash." About 30 other states would love to have such a "problem."

The irony for North Dakota is that not only does the state Legislature have to decide what to do with a nearly $100 million budget surplus, but the surplus arose just months after the state's voters rejected a series of tax increases to address a supposed shortfall.

What happened? For the most part, it was sales tax surprises, according to Sheila Peterson, executive budget analyst for the state Office of Management and Budget. North Dakota's current budget depends on sales taxes for about 45 percent of its appropriations, so small changes in sales figures can have a major impact on the state's fiscal health.

Peterson lists many reasons for the state's unexpected budget windfall, most of which involve sales tax receipts. In addition to what she terms as a general pent-up demand for retail goods, Peterson says federal drought payments for North Dakota's farmers are finally reaching store's cash registers. Following a very productive year in the fields, many farmers who were reluctant to invest more money in their farms the last few years have begun to spend—to the surprise of many.

"The drought really threw us for a loop. We did not expect such a healthy economy," Peterson says.

Canadian shoppers are also throwing North Dakota for a loop. The state's northern neighbors are pouring into North Dakota communities to buy everything from big-ticket items to groceries and gas. Last year alone, it is estimated that about 700,000 Canadian day-trips were made to North Dakota—more than the state's population.

But the final piece in North Dakota's surplus puzzle may be the most important: oil prices. Like all other states, significantly higher oil prices resulting from the Kuwait crisis would have a devastating effect on most of its economy. But North Dakota would stand to make at least some gains because it is an oil-producing state. Indeed, for every dollar per barrel increase in oil, the state stands to collect an additional $6.5 million per biennium in oil taxes.

Third-quarter projections showed a likely increase of about $25 million in the state's coffers for the current biennium, ending in June 1991, due to rising oil prices. That figure is expected to increase. Peterson says the rising oil price has not meant that more wells are being drilled in the state's Williston Oil Basin; rather, the existing wells are producing more at the higher price. The price would have to stabilize at a high level before it would become feasible for oil companies to invest in new equipment and begin new explorations, she said.

North Dakota's vastly improved fiscal stature—just one year ago the Legislature cut almost one-tenth of the budget, $96 million, to meet an expected shortfall—has caused some critics to assert that their government is playing games with numbers. "People think we're rolling in the money, but they have forgotten the austere levels the state agencies have been operating under," Peterson said, referring to last year's cuts.

The up-and-down status of North Dakota's budget points to the precarious business of predicting what the economy will be doing two to three years hence. In the meantime, North Dakota has benefited from the upside of that equation, and this winter's legislature has the enviable task of deciding what to do with an unexpected surplus: save it, spend it on new programs, restore state agencies to last year's pre-cut levels or return the surplus to taxpayers.

David Fettig