North Dakota Advances Oil Tax Cut

By John Celock

The North Dakota House of Representatives voted Monday evening to advance legislation to cut the state’s oil extraction tax by 30 percent, just three days after the bill was first announced.

The bill, which passed the House 57-32, would eliminate the trigger on the state’s oil extraction tax which lowers the tax from 6.5 percent to one percent when the per barrel price of oil drops below $55 for six months, an event expected to occur in June. In its place the extraction tax would be permanently cut to 4.5 percent. Supporters say the change would provide a steady stream of revenue for the state in times of an oil price drop, while opponents say it will have a long term impact on state finances and that the bill should not have been rushed through.

“This is a 30 percent reduction in the oil extraction tax, a tax put in place by the people of North Dakota,” Rep. Jessica Haak (D-Jamestown) said during the debate, noting that the tax was installed by voter referendum. “Due to lack of time we could not put a good look at the effects.”

With an international drop in oil prices, oil rich North Dakota is expected to see the trigger take effect in June for a period lasting upwards of 11 months. The trigger was put in place as an incentive for the oil industry, which has been part of a statewide economic boom, to stay in North Dakota during drops in per barrel prices.

House Majority Leader Al Carlson (R-Fargo) and other supporters have said that the bill is needed in order to address the trigger. They said that a drop in the tax to one percent for that 11 month period would lead to long term fiscal problems for the state, resulting in lawmakers needing to make steep budget cuts when the 2017 legislative kicks off.

“If the trigger stays on to the next biennium there is no money,” House Finance and Taxation Committee Chairman Craig Headland (R-Montpelier) said.

Headland painted a picture of state finances dropping to the point that the state’s water resource fund would not have money for projects and lawmakers would need to redesign the state’s school funding formula in order to deal with falling revenue.

“I don’t think it is responsible of us to turn a blind eye to this and stick our heads in the sand,” Headland said. “We need to make sure that when we come back we are not looking at an environment where we have to make major reductions, real cuts.”

House Minority Leader Kenton Onstad (D-Parshall) told the House that he has similar concerns about the bill being enacted. He said the long term cut in oil funding when the per barrel price rebounds will also lead to future budget cuts. Among the cuts outlined by Onstad were those for water projects, education and a proposed pipeline from the oil patch in western North Dakota to Fargo.

Onstad praised lawmakers for establishing the state Legacy Fund for oil revenue in order to provide for the state long term. He said that spirit should continue.

“That is the future of North Dakota based on a one time resource,” Onstad said. “We are taking that out of the ground and when it’s gone it’s gone. The Legacy Fund is a good move and we’re taking out of the Legacy Fund.”

The process used to pass the legislation in the House became a focal point; with Democrats arguing against the speed from the time Carlson introduced the bill on Friday to the passage Monday. Democrats also noted that the bill was saved for the 70th day of the 80-day legislative session and that the Finance and Taxation Committee did not have adequate time or information to consider the bill during a hearing Monday morning.

Carlson argued that this was not a new piece of legislation and said that the idea has been debated in the past and has been under consideration since lawmakers returned to Bismarck in January.

Democrats were not convinced and said that they were not given the time needed to make a decision.

“This might be the most important decision we make regarding the future of North Dakota and we should have had more time,” Haak said.