Kyle Potter, Published November 09 2013
Interactive graphics: North Dakota’s budget triples since 2001-03For an interactive look at North Dakota's government spending click here.
BISMARCK - The growth in North Dakota’s economy, fueled by oil in the west and agriculture in the east, has enabled an explosion in state government spending.
A little more than a decade ago, North Dakota spent $4,300 per capita of state money on schools, roads, regulators and government officials. Over the next two years, the state will spend on government nearly $15,000 for every North Dakotan, according to an analysis of state budget documents.
In all, the state’s budget has tripled in size: from $4.7 billion in the 2001-03 two-year budget cycle to the $13.7 billion enterprise it is in 2013-15, including money from the federal government.
North Dakota’s expenditures from its own general fund – made up of state taxes on income, sales, oil and more – have increased four times over during that dozen years.
Gov. Jack Dalrymple said in a recent interview the state’s growth has allowed lawmakers to “catch up on some things that may have been postponed” – primarily road and infrastructure improvements and schools, the two biggest winners from the state’s bigger pocketbook.
“A lot of those things really got put off for quite a long time,” the Republican governor said. “We do not have to pinch budgets, necessarily, anymore.”
Dalrymple defends the increased spending, which he says has struck a healthy balance by pumping more money into needed areas while also cutting nearly every tax in the book and socking away hundreds of millions of dollars in reserve and rainy day funds.
Despite the spending surge, new research from an expert who studies state budgets across the U.S. shows North Dakota’s economic growth has outpaced the state’s government spending.
But in a deep red state, the growth in North Dakota – and its government – has put most of its lawmakers in a difficult place, politically and personally.
“North Dakotans are pretty good at handling adversity. When times are bad, we handle that pretty well,” said Senate budget chairman Ray Holmberg, a Grand Forks Republican. “Abundance isn’t something we’ve had to struggle with in the past. We’re not used to having plenty.”
Fear of the bust
Rep. Jeff Delzer rode into office in the early 1990s on a tide of discontent from an oil boom that quickly went bust a decade earlier. So did many of his colleagues in the Legislature, he said.
“Government had overspent,” said Delzer, an Underwood Republican and the top budget lawmaker in the House.
Combined with the lean years that followed, the bust inspired a fiscal caution that Delzer, Dalrymple and others say persists at the state Capitol.
Caution isn’t an obvious way to describe the deluge of state spending underway. North Dakota lawmakers approved a 62 percent increase in general fund spending this spring – double the second-largest hike in the past decade.
Rep. David Drovdal saw it coming. He kicked off this year’s legislative session by telling his colleagues that they’d “have to learn to say no” to state agencies asking for more money.
“I don’t think we did very good. We pretty much gave everyone whatever they wanted,” Drovdal, a Republican whose district covers much of southwestern North Dakota, said in an interview recently.
If there’s a silver lining, Drovdal said it’s that much of the spending increase since the last biennium came in the form of one-time spending, such as $60 million for a new School of Medical and Health Sciences building at the University of North Dakota or the nearly $1.5 billion the Legislature gave to the Department of Transportation, mostly for infrastructure improvements.
One-time spending is a budgetary tool that state lawmakers have used more and more in the past several years – a way to protect against another bust. Unlike ongoing obligations for normal budgetary needs, one-time spending does not tie the state into funding “something that we’re not able to back away from,” Delzer said.
And then there’s the Legacy Fund, the voter-approved piggybank now stocked with more than $1 billion from oil extraction taxes. Lawmakers can’t touch those rainy day funds until 2017, at which point they can only spend the interest.
“That is the antidote to fears of a sudden drop-off,” Dalrymple said.
State’s share rising
As North Dakota’s spending has increased, the way its government has funded has changed drastically.
Back in 2001, the federal government paid for more than a third of North Dakota’s spending. The state’s general fund covered about a third, and special state funds with dedicated purposes – like the state gas tax, which goes to the Department of Transportation – kicked in about a quarter.
General fund spending now accounts for half of every dollar spent on government, and the federal government pays for just 24 percent – among the lowest reliance on federal funds in the nation, according to Pew research.
North Dakota will spend more of its general fund on K-12 education this biennium than it spent on the entirety of state government from 2001 to 2003.
Lawmakers say part of that has been out of their hands and is tied to funding decision in Washington.
For years, the North Dakota Department of Transportation didn’t receive a cent from the state’s general fund. But lawmakers like Holmberg say federal appropriations weren’t enough to cover the needs in North Dakota.
After changes to Medicaid rates, the feds now kick in about $300 million less for Medicaid coverage than they did in 2001 through 2003.
“We were forced to make up that gap,” Dalrymple said.
That isn’t to say that federal funding is falling. The federal government’s contributions in North Dakota have grown by 76 percent since 2001, but general fund spending has grown nearly four times faster, according to an analysis of Office of Management and Budget documents.
And yet according to Pew research based on 2011 data – the most recent available – North Dakota’s economy has grown even faster than its spending. Expenditures fell from 11.7 percent of the state’s personal income in the early 1990s to 10.8 percent in 2011.
“It really is a case where personal income growth has outpaced growth in spending. That’s what it looks like to us,” said Barbara Rosewicz, a state fiscal health researcher with Pew Charitable Trusts.
Rosewicz said it’s difficult to target an appropriate dollar amount each state should spend on government – it varies state-by-state, and year-by-year.
Dalrymple pointed out that the increased spending has been coupled with several tax cuts. Income and corporate tax rates have been lowered several times, and the Legislature routed more than $850 million to cut property taxes in the last legislative session.
Still, North Dakota’s tax revenues continue to soar. According to Pew research, North Dakota’s tax revenue collections are up more than 100 percent above their pre-recession peak – the highest increase in the nation. In second is Illinois, where tax revenues are up just 17 percent thanks largely to an income tax increase.
Dalrymple, Holmberg and Delzer are sure they found a good balance in charting North Dakota’s government spending. But each of them acknowledged it has been a political tug-of-war between those asking for more money and others begging the state to curtail its increases.
“This session, you couldn’t satisfy anybody on either side,” Delzer said. “There are 141 different ideas about where is the best place for the money.”