Oil prices have been cut in half, and so has North Dakota’s budget.
A drastic drop in the oil market has carved a $4 billion crater in the state’s revenue forecast, according to the revised forecast issued Thursday.
Instead of the $8.3 billion in oil and tax revenue the state had expected to collect in the 2015-2017 budget cycle, the revised projection — reflecting much lower oil prices, corporate belt tightening, job cuts and shuttered oil rigs — is $4.2 billion.
The state still has billions more that it has already collected, but not spent — money earmarked for infrastructure, education and legacy projects over the next two years.
The boomtowns in western North Dakota’s oil patch are still booming — for now. But after years of economic prosperity, North Dakotans are bracing for a change.
“I ask every day. I ask the people in our office if they’re sensing anything, but we’re as busy as ever,” said David Kingman, one of many Minnesotans drawn to North Dakota for work. “I think it’s kind of like a big ship; it takes a long time once the brakes are applied to actually come to a stop.”
North Dakota's revised forecast:
Around Watford City, where the population has jumped to 20,000 residents from 1,500 five years ago, there’s a new hospital going up, and a new high school, and a $101 million community center. There are big road projects in the works and business is brisk at new businesses in town, like the new gas station that just opened up.
At Kingman’s company, North Dakota Housing LLC, which manages properties for all those new workers who came to Watford City, all 500 of their properties are occupied and demand, and rents, remain high.
“I do anticipate seeing it slow down. It’s going to trickle down,” he said.
The budget Gov. Jack Dalrymple unveiled in December hinged on oil selling for between $72 and $82 a barrel through 2015-2017 budget cycle. But as oil prices plummeted, so did the state’s expectations.
A revised state revenue forecast, presented to the North Dakota Legislature on Thursday, is based on the expectation of $42-per-barrel oil through the end of the current budget cycle and on oil prices selling in the range of $45 to $65 a barrel throughout the 2015-2017 biennium.
The revised revenue forecast is built on the assumption that there will be 53 fewer oil wells in production each month — 135 wells instead the anticipated 188 — at a loss of $250,000 in state sales tax per well.
Fewer wells mean fewer workers, and the forecast knocked $35 million out of the budget to reflect the loss of high-paying jobs in the oil patch. Oil royalties drop by $4.9 billion in this forecast, corporate income tax collection drops by a third and individual income tax collections drop as workers lose jobs or find lower paying work.
North Dakota’s oil production is projected to hold steady, pumping 1.2 million barrels a day out of the rich Bakken shale formation.
But less of that oil will be coming from counties on the outskirts of the Bakken, where the crude is harder to extract and the lower oil prices have eaten away the profit margin and prompted dozens of rigs to close.
“The sky is not falling,” said North Dakota House Majority Leader Al Carlson, R-Fargo.
“Even with the $4 billion reduction, we’re still raising over $4 billion in revenue from oil. Quite obviously, that has some adverse effect on sales tax and income tax and corporate income tax, but overall our budget is structurally sound.”
Money North Dakota set aside for projects in the 2015-2017 biennium is still there, although slightly diminished by months of sagging oil prices. There will be $284 million less in the legacy fund, $31.5 million less for the Three Affiliated Tribes of the Fort Berthold Reservation in the heart of the Bakken, $195 million less for infrastructure projects.
“We have set aside money in silos over the years for infrastructure improvements, for disaster relief, for flood protection and water projects. Those silos still have money in them,” Carlson said. “It’ll be less than we anticipated [but] $4 billion is still an awful lot to collect on oil revenue . … The lights are still shining brightly over here.”