We’ve previously discussed some of the well understood fallout from crashing oil prices and that pattern is continuing. On the plus side, consumers are saving some serious cash on gasoline and heating, but we’re taking a hit on the jobs front and state governments which rely heavily on such profits are feeling the pinch. North Dakota is no exception, having the second biggest energy production sector in the nation and the lowest unemployment rate as well. Now, as wells go idle, workers are let go and revenues decline, the state has had to look at tightening its belt. Their governor began those measures this month, staving off a serious budget shortfall. (Yahoo News)
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.
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.
So it’s time to panic, right? Not really. While nobody is calling this good news, North Dakota has been under the management of Dalrymple and a conservative majority for a while now. Rather than simply finding ways to blow all the revenue they realized during the oil boom, North Dakota took the shocking and revolutionary step of putting some money away in a rainy day fund against just such a downturn.
While other states have scrambled to increase taxes when they hit a budget shortfall, North Dakota is going a different route. First, the Governor ordered all state agencies to cut their budgets by a little more than 4% and make do with less. They also began stuffing money in their state Budget Stabilization Fund when the oil boom started and have squirreled away cash in that every year. The Governor was able to free up nearly $500M from that fund, still leaving a fair portion available if it’s needed later. If the downtrend continues, they have $875 million in other surplus funds and another $3.5B in a “Legacy Fund” which will be available starting next year.
Isn’t it amazing what a state can do when they don’t spend every dime they can lay their hands on as soon as it comes in the door? Through conservative policies and making full use of their natural resources, they were able to anticipate a period when the market might tank and prepare for it. Rather than dumping the problem in the laps of their taxpayers, they prepared for the lean times and were ready to handle them when they arrived.