As many of you might have heard, we have appeared to finally have some good news in regards to the budget crisis that has been facing North Dakota. Oil commodity prices have finally stabilized above $50 per barrel for a period of at least one quarter. Furthermore, with President Trump’s approval of the Dakota Access Pipeline, and the protests finally abating, market trust appears to have returned to our state, with an influx of wells returning to operation.
According to Reuters, on March 30, the number of operation drilling rigs in the state has risen by 40 percent since February, and is expected to continue a growth rate of 10 percent over the rest of the year. This would mean by year’s end, if we assume a linear relationship between the number of rigs, and the total oil production, our output would increase by roughly 400,000 barrels per day.
Assuming this to be true, oil rigs will be bringing in an additional $20 million per day in income, which could translate to upwards of $294 million in revenue for the state, assuming stable commodity prices assuming less than 25 percent of all oil produced is tax exempt. Seeing as North Dakota is currently set with a budget shortfall of $1 billion, this would mitigate the damage done substantially, and would likely compensate for the deficit, depending on the performance of our state’s other commodities like agriculture.
For the average farmer, there is mixed news depending on what their focus is. Corn appears to once again be underperforming expectations in terms of price per bushel, and this could lead to a slightly disappointing price in the following months. At current projections, corn is worth 5 percent less than what it was at this time in 2016, and it’s likely that we will see a third consecutive year of decreasing corn prices. On the other hand, soybeans, cattle and sugar beets are all performing better than they were last year, which means depending on the particular farm, we could either see a net positive year or a net negative year for the farmers. This is important, not just for the farmer, but for the rest of the economy as a whole.
The price of commodities drives the North Dakotan economy, and thus when commodities underperform, this of course means two things. First, the state receives less income, as if the farmer makes less money, he intuitively pays less taxes. Second, and perhaps more importantly, however, is the potential trickle down effects of faltering commodities. When the farmer takes in less income, he has less money to spend on retail goods. This means fewer items are sold, decreasing the sales tax on the goods sold, subsequently decreasing the income tax the store itself pays. In years of weak harvests or poor commodity prices, the state runs deficits, but it also means in years of production surpluses or increased crop value that the reverse becomes true.
I am cautiously optimistic that we will end up seeing a better year than anticipated, and the $1 billion shortfall will likely by summer become a $700 million shortfall, which is good for everyone in the state. If we can in fact operate on $1 billion less, perhaps we will have learned our lesson from this round of budget cuts and learn to live beneath our means, not at or above them. It’s my hope that if this $300 million returns to the economy, that we perhaps consider living with $900 million of budget cuts, versus the $1 billion projected, so that we may save for the future.
If we were to invest the $200 million per year for the next five years, which would be possible under such a plan, we would have $1.7 billion stowed away after adjusting for inflation. This would receive roughly $150 million per year in interest alone. Such a system would allow us to have the resources to survive deficits without having to worry about draconian budget cuts when commodity prices invariably fail again, whether they be oil or agricultural.
Dave Owen is a staff writer for The Dakota Student. He can be reached at [email protected]