Is state bankruptcy waiting in wings?

The Founding Fathers, mostly Alexander Hamilton and James Madison, didn’t expect that a by-product of federalism would be state bankruptcies. But that is what could happen if we adopted U. S. Senate Majority Leader Mitch McConnell’s suggestion that states buried in debt because of the virus should declare bankruptcy.

According to the National Conference of State Legislatures, 15 states have identified new holes in their budgets which by state constitutional provisions must be balanced.

Moody’s Analytics predicts that our shrinking economy could result in state revenue drops of 18 to 23 percent. North Dakotans may think they’re immune from these losses but we will take it in the coffers with the rest of the country.

Virus Hits ND

North Dakota payrolls have been cut; Main Street has been closed; tax collections have nose-dived and manufacturing curtailed. While the North Dakota Legacy Fund, now bulging with over $6 billion, may look like a solution, raiding the fund would require an impossible two-thirds vote in both houses of the legislature.

Even in the face of tremendous needs in states rising out of the coronavirus, McConnell alleges that they should solve the problem themselves without getting bailout money from the federal government. That is easy for him to say because his highest office before election was as a county official. He never had state experience.

Fund Restrictions

In the first place, states have been bastions of frugality, saddled with scores of restrictions on taxing and spending accumulated through the years. Most states have constitutional or statutory restrictions that reduce their ability to respond to a sudden crisis.

Almost half of the states have provisions for proposing and amending statutes by citizen petition. Under these provisions, citizens can impose restrictions, thereby reducing options at the state level. North Dakota citizens have the initiative and referendum as well as the power to amend the state constitution.

Poverty Budgets

Because of all of these fiscal controls, governors and legislatures have kept their budgets on the edge of poverty. Even North Dakota policymakers will look at the $6 billion Legacy Fund while claiming poverty. In my 60 years of policy observations, there never has been a legislative session in which we weren’t close to bankruptcy.

In addition to the virus pandemic, North Dakota is experiencing a collapse of the oil industry, which is no small matter in a state that ranks second to only Texas in oil production.

Associated Press Writer James McPherson reports that the legislature estimated oil at $48 per barrel for the present biennium. The market has been as low as $10 and $25.

Big oil Losses

According to McPherson’s report, Tax Commissioner Ryan Rauschenberger estimates that price and production cuts could cost the state $288,000 in daily tax revenue.

There is little doubt that the legislature will be making draconian cuts in the state budget when it meets in Bismarck this winter. Basic government services will be funded but social service, health programs and education will be on the chopping block.

For years North Dakota has had some citizens who favor reducing the number of universities and colleges in the state higher education system. In the anticipated budget crunch, the smaller colleges will not escape changes.

Close Colleges?

Some will propose closing Mayville, Bottineau, Williston and Devils Lake for starters. If not closing, a strict realignment of programming will alter the missions of various institutions.

With every state program in jeopardy, it would be wise to invest your government stimulus check in Bismarck hotels for the session. They should be very profitable.

North Dakota won’t go bankrupt but it will go frugal. More than usual, that is.


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