BISMARCK -- Lawmakers have been presented with a new revenue forecast for North Dakota that paints a less rosy picture than the one adopted in January.
During a joint meeting of the House and Senate Appropriations committees, lawmakers heard presentations on forecasts from financial consultant company S&P Global and the Office of Management and Budget (OMB), which uses financial consultant Moody's to develop its forecast.
The committees will vote Monday on a forecast to adopt. Historically, they have adopted an average of the two presented forecasts.
Whatever forecast is adopted will dictate how much money the Legislature can appropriate in bills and agency budgets for the 2025-27 biennium.
Both forecasts still foresaw a slight increase in state General Fund revenues for the next biennium -- coming in at roughly $72 million more than the 2023-25 biennium -- but revised the expected increase down from the January executive forecast by roughly $105 million.
The state is currently 12.7% above forecast General Fund revenues for the 2023-25 biennium to date.
The new forecast predicts that the state will bring in $30 million less in 2026 and $60 million less in 2027 in sales and use tax revenue than was forecast in January. Sales and use tax revenue is the largest source of funding for the state's General Fund.
Senate Appropriations Chair Sen. Brad Bekkedahl, R-Williston, said uncertainty in the economy gives the Legislature "a little bit of concern going into the next biennium" and that the Legislature may "need to be a little more conservative than we were before."
"It is pretty evident that the tariff situation is causing a lot of the uncertainty," Bekkedahl said. "And if the tariffs go through to the point where it could be a worsening for the U.S. economy, I think it's going to be worsening for North Dakota, too, because we're so dependent on commodities that are going to be affected by tariff actions."
The revised OMB forecast also predicts $26.4 million less than the January forecast in oil tax revenue for the end of the 2023-25 biennium and $591.6 million less for the 2025-27 biennium.
This means less money flowing into the Strategic Investment and Improvements Fund (SIIF) -- to the extent that the "buckets" of funding for the Prairie Dog fund, which provides supplemental funding for municipal, county and township infrastructure, would not fill all the way for the 2025-27 biennium. They were projected to fill completely in the January forecast.
Forecasters also revised down expected oil prices by $3 a barrel from the January forecast but did not change anticipated oil production, projecting that the state will produce 1.15 million barrels of oil in 2026 and 1.1 million barrels in 2027. They now estimate that oil will fall between $59 and $62 a barrel for the first year of the 2025-27 biennium and between $57 and $60 in the second.
"I think that oil price is pretty -- I'm pretty comfortable with that," House Appropriations Chair Don Vigesaa, R-Cooperstown, said. "I felt all along that we probably were going to have to reduce our oil revenues a little bit, just based on what's going on in our globe."
The new forecast revised the expected effective oil extraction tax rate from 4.8% to 4%. This change was largely driven by 48% of existing oil wells being exempt from the oil extraction tax because they are qualified as "stripper wells," wells that produce below a certain level for over one year. They expect more wells to qualify as stripper wells in the coming biennium.
For Bakken or Three Forks wells, the threshold to qualify as a "stripper well" is a depth of more than 10,000 feet and less than 35 barrels per day, according to a press release from the governor's office.
A "stripper well" keeps its oil extraction tax exemption even if it uses enhanced oil recovery or secondary extraction methods to boost its production. Once it has been qualified as a "stripper well" it keeps that designation regardless of future production.
Sen. Ronald Sorvaag, R-Fargo, said finding out 48% of wells are qualified as "stripper wells" was "eye-opening" and said policy change to address the potential impacts of enhanced oil recovery on stripper wells would likely be discussed.
"It's never really been looked at," Sorvaag said. "Because the production goes way, way down, and the money we've lived on is the extraction and production of the new wells. But secondary recovery, the whole purpose of it is to bring the well back up to its original level. So I'm guessing there will be some discussions this session."
He said he doubted any legislation would be brought forward to address the revelation so late in the session.
Bekkedahl said that at crossover, the Legislature was $300 million over what is forecast to be available in the General Fund in proposed appropriations and $50 million over what is forecast for the SIIF. He added both chambers are still looking to add money to budgets.
"So we'll have to cut," Bekkedahl said. "I just tell our people in the Senate that we have to ultimately fund the priorities as we see them. The House will do the same thing, and we'll reconcile in the end, and we'll balance the budget."
Still, Bekkedahl said the Legislature was at a better point than they were last session when they were roughly $1 billion over budget at crossover.
Vigesaa said the need to cut would not stop a property tax initiative from moving forward, but that other legislation with large price tags would need to be looked at.
"You have a handful of those bills that have really big price tags, and we can balance our budget pretty quickly if we don't do those," Vigesaa said.
Despite the dip in anticipated revenue, Gov. Kelly Armstrong said the forecast shows the state will be able to fund its priorities.
"North Dakota homeowners being squeezed by high property taxes are demanding property tax relief and reform, and this revenue forecast confirms that we can afford to deliver the meaningful relief they deserve," Armstrong said. "Thanks to our conservative approach to budgeting, even with a projected dip in oil tax revenues, we can still fund tax relief and other priorities such as workforce, housing, education, health care and infrastructure to continue making our state the best place to live, work and raise a family."