When the price of oil dropped by half, North Dakota cut its budget in half. But even that grim forecast might be off by $1 billion.
On Wednesday, the state Office of Management and Budget issued a revised revenue forecast that concluded that North Dakota will likely lose an additional $1 billion in oil tax revenue over the next two years.
Oil prices have dropped 60 percent over the past seven months, shuttering dozens of oil rigs and cooling North Dakota’s white-hot oil boom and cutting off billions in oil tax revenue that the state had expected to collect.
In January, state lawmakers downsized the budget plans they made when oil was selling for $100 a barrel to reflect the reality that the same barrel of oil was then selling for $42. Instead of $8.3 billion in oil tax revenue, lawmakers revised the 2015-17 budget to expect $4.2 billion in revenue, reflecting oil prices that had also been cut in half. At the time, the state budget office dropped that estimate to $3.3 billion, with an additional loss of $419 million from the general fund revenue as cuts in the oil industry rippled across the state economy.
That means less money for workers and companies that relied on the oil industry. And it means less tax revenue down the road for infrastructure projects, county governments and schools.
But a slowdown is far from a crash, and North Dakota is still humming with new construction, infrastructure projects the state funded well in advance. As of Tuesday, the U.S. Labor Department still ranked North Dakota as the state with the lowest unemployment rate in the nation.
“While $419 million is a significant amount of money, and the drop in anticipated oil revenue is significant, it certainly is not doom and gloom in North Dakota,” said Pam Sharp, director of the Office of Management and Budget, whose staff worked with Moody’s Analytics on the revised revenue numbers.
North Dakota oil companies responded to the drop in prices at the pump by closing dozens of oil rigs in counties on the outskirts of the oil-rich Bakken shale formation on the west side of the state. Right now, there are 110 rigs in production, according to the North Dakota Petroleum Council, down from 188 that were operating last year before the downturn.
“Prices continue to drop and we’ve made the decision to be conservative about our production numbers,” Sharp said. The revenue forecast expects oil prices – which was selling for $100 a barrel last year – will hover around $42 to $53 per barrel through 2017.
Despite the downturn, North Dakota continues to produce 1.2 million barrels of oil a day. The forecast expects that number to dip to about 1.1 million barrels, then hold steady for the next two years.
North Dakota still stands to collect $3.3 billion in oil tax revenue over the next two years -- down from the $4.2 billion the legislature had expected. Only $300 million of that would have gone into the state's general fund, making it easier for lawmakers to budget around any shortfall. The rest goes to separate funds the state uses for things like infrastructure, schools, county governments and legacy projects.
“They’re going to have to deal with less money as well,” Sharp said.