North Dakota finances are a house of cards

We have the well-plugging fund, budget stabilization fund, abandoned mine fund, highway tax distribution fund, Legacy Fund, coal development fund, Center of Excellence Fund and a few dozen more funds listed on the home page of the state treasurer.

I would also recommend checking the five charts on her website explaining the oil tax distribution system we have patched together since oil was discovered in 1951. The only thing we lack is a “go-fund-me” fund.

This house of fiscal cards has been created and compounded by a part-time Legislature that doesn’t have time to organize a rational funding system based on sound tax principles. Every session seems to create more funds in response to the whims of interest groups and other beneficiaries.

Toward the end of the last legislative session, in an unusual burst of generosity, the Legislature appropriated over $10 million to give every one of our 1,100 townships $10,000 each.

It wasn’t even Christmas but every township was going to get money even though the population and need varied widely from county to county. The taxpayers were saved when Governor Doug Burgum vetoed the measure.

According to the media, we now have a group of eastern legislators planning to get some of that western oil money for infrastructure.

Now they have reason to be envious. To accommodate the development of the Bakken, the state was overly generous with local communities – new schools, new highways and new county and community staffing. The west needed help and got it.

After 10 years of this, some eastern legislators are wondering whether or not the rest of the state ought to share the spoils, raising the issue of equity in the entire state budget.

The state tax and spend system is a royal mess. The helter-skelter cramming of a burgeoning budget into an 80-day biennial legislative session is futile. When we keep managing fiscal affairs without the availability of thoughtful study, decisions are made on the basis of politics.

Take the Legacy Fund being fed millions of dedicated oil dollars every month. The fund boasts over $5 billion and is still growing. Was there any rational discussion preceding the dedication of this money? Were there alternatives proposed and evaluated?

No, the Legislature put it on the ballot as a constitutional amendment. Why a constitutional amendment? So that future legislatures couldn’t spend it – an assumption that future legislatures would not be responsible or frugal.

Sponsors and defenders of the Legacy Fund will justify it by arguing that the people voted for it. No, the people voted for “Legacy” because all legacies are good. Attach “legacy” to a steamboat on Lake Sakakawea and the people will vote for it. However, all legacies are not equal.

There was too little research at the legislative level. What were the principles of taxation considered? Who has a legitimate claim to the oil money? The folks in the western part of the state? All citizens of the state? The present generation or future generations?

On the whole, the North Dakota tax system is regressive, meaning that the lower income people pay for more than their fair share for governmental services because the progressivity of the income tax is more than offset by the regressivity of the sales tax.

Our response is that the lower-income people require more than their share of governmental services therefore they ought to pay more than their share of taxes. But this blanket generalization does not result in equity. All low-income people do not use governmental services equally so we end up with a system that benefits some and punishes others.

Cleaning up this 200-year-old pile of incoherent fiscal legislation will not be easy. But we could apply better equity tests to new proposals.


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