BISMARCK, N.D. — North Dakota Gov. Jack Dalrymple ordered deep cuts to government agencies and a massive raid on the oil-rich state’s savings on Monday to make up for a more than $1 billion budget shortfall due to a drop in oil drilling and depressed crude prices.
The state had more than $2 billion in various reserve accounts just one year ago, but oil prices — a key contributor to the state’s wealth — have taken a nosedive in the past year.
New Mexico is facing similar budget problems because of oil prices.
North Dakota is the nation’s second top oil-producing state, behind only Texas, and has the lowest unemployment rate in the country at less than 3 percent. But the Legislature’s record-high $14.4 billion budget for the two years that began July 1 was built on oil prices and economic assumptions that have fallen “much greater than anyone would have predicted,” the governor said.
“After 15 years of receiving almost entirely good news about the growth in revenues for North Dakota, it seems strange to hear that things have gone in the other direction,” Dalrymple, a Republican, told state agency officials at the state Capitol in Bismarck.
Oklahoma’s budget hole also is expected to exceed $1 billion because of poor state revenue collections and dropping oil and natural gas prices. Oklahoma Republican Gov. Mary Fallin on Monday proposed increasing the cigarette tax and expanding the sales tax to a variety of services to help.
In North Dakota, Dalrymple ordered agencies to cut their budgets by 4.05 percent, which will save the state about $245 million through the two-year spending cycle. The governor also will take more than $497 million from the state’s Budget Stabilization Fund, a surplus stash of cash that has been built up over the past decade largely from past oil bounty.
That means about $75 million will be left in the fund, which has only been tapped by two other governors: then-Gov. John Hoeven in 2002, and former Gov. George Sinner in the 1980s, due to depressed prices for crops and oil.
Rep. Al Carlson, the North Dakota House majority leader, said he would have preferred across-the-board agency cuts of at least 5 percent instead of taking more money from the rainy day fund.
“Thank God we had the money,” the Fargo Republican said. “It served its purpose, but now it’s gone.”
The remainder of the shortfall will be made up by using the previously anticipated ending-fund balance of about $331 million.
Still, North Dakota has a sizable financial cushion. The state will have about $875 million in surplus cash in various reserve accounts, according to Pam Sharp, the state’s budget director. That doesn’t include the oil tax-funded “Legacy Fund,” which holds more than $3.5 billion. The fund was approved by voters in 2010, and receives 30 percent of the state’s oil tax collections, though none of the money can be spent until 2017.
Senate Minority Leader Mac Schneider said the GOP-led Legislature should have set aside time for lawmakers to return to address the shortfall, rather than leaving it to the governor. The Legislature doesn’t reconvene until January 2017.
“There will be cuts that people disagree with, and who do they hold responsible?” said Schneider, a Democrat from Grand Forks.
All but about half a dozen of the state’s 73 agencies are subject to the cuts. The unaffected agencies are those that are largely unsupported by state funds, such as the state-owned Bank of North Dakota, which is supported by profits, and the Game and Fish Department, which is supported by state licensing fees and federal tax money from the sale of firearms, ammunition and other sporting equipment.
Sharp, the state budget director, noted that almost $72 million in cuts to K-12 education will be covered by a special reserve fund that is a financial backstop for elementary and high schools.
State agencies must submit their planned cuts by Feb. 17. The Legislature and the state’s judiciary branch also will make the governor’s suggested budget cuts, officials said.
North Dakota’s general fund can take in no more than $300 million in oil tax revenues per two-year budget cycle, and the remainder is split among an assortment of reserve funds. But the general fund also is financed by taxes on income and sales, which also are affected by depressed oil prices.
A one-time spending bill signed by Dalrymple last February fast-tracked $1.1 billion for highways and communities affected by the state’s exploding growth, nearly depleting the Strategic Investment and Improvement Fund, which is funded in part with oil and gas taxes. Most of the money was spent in western North Dakota, which has been overwhelmed with spending needs on roads, utilities, housing and schools.