As the price of oil fell, so to did the projected revenue going towards the state and UND. Photo Courtesy of greglatza.com

North Dakota has run into a large budget deficit for 2016 as oil prices have dropped from over $110 a barrel to less than $30. We have seen this through gas prices that have tanked all the way down to $1.50 a gallon.

Other states, such as Texas, Oklahoma and Louisiana, who have fallen $2 billion short in their budget, are struggling with the decline in oil prices that have slowed their economies.

As a state, we rely heavily on shale oil production from the Bakken region in western North Dakota.

When we forecasted our state revenue for the fiscal year of 2016, we relied on optimistic forecasting from Moody’s Analytics, as well as forecast revisions that are normally adjusted when there are shocks that affect state revenue.

In this case, Moody’s forecast predicted a range of $45-65 per barrel in oil prices to sustain. When the North Dakota Office of Management and Budget observed the oil market dropping, their revised forecasts didn’t adjust and couldn’t keep up with the shock in oil prices.

Our failure to revise or adjust quickly enough shows how dependent we were both on Moody’s for their forecast, and also on high oil prices in the Bakken region. The boom might not be over, but the lavish increases in spending likely will be.

Our previous notion that prices couldn’t or wouldn’t come down has followed us with budget cuts to UND to the tune of $12 million.

In early 2015, North Dakota was projected to collect over $8.3 billion in tax revenue in a two-year biennium period, and the latest March projections estimate North Dakota will only collect $4.2 billion in the 2015-2017 period. Oil tax revenue is now forecasted to be $4.1 billion short of the original target of $8.3 billion back in December 2015.

Four months ago, North Dakota’s monthly state revenue fell $40 million short of our forecast of $216 million. For the biennium revenue projection, last November, the state collected $1.55 billion, which was over $150 million short of where the 2015-2017 forecast should be. These kinds of errors contribute to the education spending cuts that we are now dealing with in full force.

The music therapy department, as well as the religion and women and gender studies departments, face suspensions and significant cuts in staff because of the most recent education cuts. We must be prudent in setting effective lower bounds and being safer with our forecasts, knowing that oil prices have dropped 33 percent more than our estimations.

It’s safe to say that this substantial price drop in oil was hard to see coming, since prices have not been below $30 per barrel since 2006. However, no one foresaw a drop in housing prices and our nation suffered through one of the worst recessions in modern history.

We have to be safe and consider spending at a level that is compatible with lower oil prices so that we do not have to ever cut education spending in the future. The next generation of students in North Dakota will gladly thank us.

Zach Flaten is a staff writer for The Dakota Student. He can be reached at [email protected]