The state Office of Management and Budget (OMB) today released a better-than-expected revised revenue forecast, putting the state in a strong position to achieve a fiscally conservative budget that holds the line on general fund spending, invests in priorities and maintains healthy reserves, all without raising taxes, Gov. Doug Burgum said.
Overall, February revenues were 8.3%, or $10 million, ahead of the original April 2019 legislative forecast, and biennium-to-date revenues are 1.4%, or $56 million, ahead of forecast, despite the challenges posed by the COVID-19 pandemic, last year’s oil price collapse and depressed agricultural commodity prices.
The revised forecast released today shows much stronger revenues than expected when the executive budget forecast was completed in November. The revised forecast is based on the latest economic data and tax collection figures and broad “boots on the ground” input from industry representatives who serve on the state’s Advisory Council on Revenue Forecasting.
“This improved outlook from our November forecast provides the headroom we need to invest in critical infrastructure and other priorities, so we can emerge from this pandemic stronger than ever and with no tax increases,” Burgum said.
The November forecast was used to prepare Burgum’s executive budget recommendation presented to the Legislature on Dec. 3. Sales tax collections are running above the November forecast but below the original April 2019 legislative forecast, but not by as much as expected.
Motor vehicle tax revenue has exceeded forecast for seven consecutive months, while individual income tax revenue is tracking very close to the original forecast as the state’s strong employment rate has helped offset negative impacts of job losses in the energy sector resulting from last year’s oil price collapse. Corporate income tax revenue also is exceeding expectations.
Compared with the November forecast, general fund revenues are projected to end the 2019-21 biennium $60 million above forecast and exceed projections in 2021-23 by an additional $189 million, for a total positive change of $249 million.
“Based on actual collections, the state’s pandemic response and successful vaccination efforts, business activity returning to normal, a 50% increase in oil prices and the large federal stimulus package, this forecast shows a much more robust outlook than in November,” OMB Director Joe Morrissette said. “Given the extremely complex forecasting environment due to the pandemic, the influx of federal dollars and volatility in the ag and energy sectors, this is welcome news.”
Due to the reduced number of drilling rigs operating in the state, oil production is expected to decline slightly to 1.1 million barrels per day but remain constant at that level throughout the next biennium. Oil prices have risen over 50% from the time the executive revenue forecast was being developed in October and November of 2020, from around $40 per barrel to the current price around $65 per barrel. Such a significant swing in prices has a corresponding impact on state revenues. Oil and gas taxes account for approximately half of all state revenue.
For the current 2019-21 biennium, oil revenues are expected to total $3.6 billion, still lower than the $4.9 billion estimate used in the original 2019 legislative budget but $258 million higher than expected in November. For the 2021-23 biennium, oil tax revenues are expected to continue to grow to nearly $4 billion, an increase of $1.1 billion from the November estimate.
“Despite the challenges of the pandemic-related price and demand collapse, North Dakota oil producers have maintained the state’s position as the number two producer of oil in the U.S.,” said Lynn Helms, Department of Mineral Resources director and a member of the state’s Advisory Council on Revenue Forecasting who provides input in the forecasting process. “This forecast acknowledges that with the current number of rigs operating in the state, we may see a small decline in our level of production. However, this forecast uses reasonable assumptions regarding the level of price and production we can expect in the future.”