In a few short days, the North Dakota legislature heads back into session. Expected to take center stage are several key funding issues recently made more crucial by the continued decline in oil prices
First is an initiative by GOP members that would effectively wipe out the state income tax. A new bill that is expected to be introduced early in the session will reduce the income tax rate to zero. This is a counter to Gov Dalrymple’s proposal for a 10% decrease in personal and corporate income tax that was made in an effort to draw more people to the region. This issue is highly contested since there is great concern over the potential lost revenue due to plummeting oil prices.
North Dakota's state funding is tightly tied to taxes on oil and gas production and was responsible for more than half the state’s revenues for 2013. So as oil prices decline, legislators have reason to be nervous. In addition to expected lower production, there is a quirky law from 2001 that allows tax exemptions when oil hits a certain low price point. Though the formula is a bit complicated, basically if oil stays below $52.58 (2015) for five consecutive months, the percentage of tax decreases, potentially resulting in untold millions in lost revenue.
Reduced tax revenue brought on by low oil prices has already put many services at risk, so reducing state income tax is making many lawmakers nervous.
Another funding issue that ND legislators will be deciding is the way the state divides tax revenues. When Gov. Dalrymple rolled out his proposed budget, it included a change in the state’s oil production tax distribution formula that would shift the way funds are split and allow more money to be funneled back to the county level. Currently local governments receive 25 percent of these funds but this would increase that 60 percent, which would be vitally important to improve local infrastructure (including roads, water plants and housing) that has not caught up with the demand.
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