This week the North Dakota Legislature will discuss how to distribute revenue generated by the state oil tax among its 53 counties. Also on the legislative docket is whether or not to waive sales taxes on materials used to build natural gas pipelines and chemical plants, according to a report from Reuters.
During the 80-day session, the disbursement of oil tax revenue is likely to be the most contentious topic. Politicians from the western part of the state are likely to push for more money to build schools, roads and other critical infrastructure. Another topic of discussion will be the dramatic decline, more than 50 percent, of crude oil prices since June. Although only three percent of North Dakota’s operating budget is funded from oil taxes, a variety of one-time infrastructure projects, as well as the state’s rainy day fund, are tied to the tax levies.
Currently, North Dakota is the second-largest producer of oil in the U.S. and boasts the fastest growing economy in the nation. However, many communities have struggled to provide essential public services for their increasing populations. Last month, Gov. Jack Dalrymple suggested a $1 billion increase to the portion of oil tax revenue western counties would receive. If the request is approved by the legislature, the total amount of tax revenue being distributed would reach $1.7 billion.
According to Reuters, state representative and head of the North Dakota Association of Oil and Gas Producing Counties Vicky Steiner said, “We all clapped when it was announced … I think Dalrymple did a thorough job for the west.” However, representatives from the eastern region of the state, such as Fargo and Grand Forks which are home to the majority of the state’s population, are pushing to leave the current funding model unchanged. The current model allows officials in Bismarck the power to allocate most oil tax revenue. This argument, though, may not be an issue if prices continue to drop. If the price of crude per barrel drops below $52.59 for five months straight, the 6.5 percent oil extraction tax will be waived.
The budget proposed by Dalrymple, pending approval by a majority of the state’s 141 legislators, is based on prices of $74 to $78 per barrel for the first year of the session. For the second session, the budget is based on prices of $79 to $82 per barrel. The current price of oil per barrel is hovering around $51 per barrel. Dalrymple expects to update the budget forecast in February during the legislative session.
To read the original report from Reuters, click here. In related news, North Dakota regulator says falling oil prices not all gloom.