The Budget Shortfall Was Created By The Legislature Ignoring ND Voters

As Legislators head back for the second half of the 65th Session, people across the state are left looking at an abysmal budget situation. In media across the state, we often see lines reading, “The North Dakota budget slump due to low commodity prices…” doesn’t tell the whole story. Now we see politicians and their pundits shooting off talking points, “North Dakota doesn’t have a revenue problem, it is a spending problem!” they too are leaving out the full picture. Yes, commodities are down and spending has increased but it was coupled with dramatic reductions in revenues. How much of an impact that’s had is what has been left out of these stories and opinions until yesterday.

Mike McFeely of Forum Communications had a fantastic article published last night. I encourage you to take a moment to read his column. In fact, I’m reworking this post from its original form to compliment his and simply add a little more meat to the bone. Let’s fill in more of a timeline and detail fiscal impacts resulting from the legislature’s actions.

On November 4th, 2008 70% of North Dakota voters rejected a reduction in the corporate and individual income tax. In fact, voters in every single legislative district rejected Measure 2 that election. What happened in the years 2009 through 2015 in the North Dakota legislature is a direct cause of the budget shortfall before the 2017 legislature. Legislators and their fiscal irresponsibility are also to blame. Their decisions to ignore the will of the voters in 2008 and dramatically reduce income taxes over the next four legislative sessions while simultaneously increasing spending, and coupled with a 23% oil extraction tax cut have left the state short. Do you remember how the original 6.5% extraction tax was created? On November 4th, 1980 North Dakota voters passed Measure 6 (page 3 of this memo), 28 years to the day before rejecting the income tax cut.

These poor legislative decisions did not pass without warning. Rep. Jasper Schneider warned of an “economic train wreck” if the majority continued to pursue its spending growth while simultaneously reducing revenue. It apparently fell on deaf ears to members like Rep. Craig Headland who is seen below in the video wearing a white coat directly behind Rep. Schneider.

We can’t have it all ways. – Representative Jasper Schneider (2009)

What followed was repeated reductions in the individual and corporate income tax rates. Rep. Craig Headland and Rep. Wes Belter (both chaired the House Finance and Tax Committees from 2009-2017) along with the full support of their leader Rep. Al Carlson led the charge. Senate leadership is just as guilty. I’ll get into why our focus is on the House after we look at some numbers.

This memo from the non-partisan Legislative Council shows the dramatic reductions in the income taxes over the last few sessions. Those numbers do not reflect the additional $108 million reductions passed in 2015 or what was collected from the Tax Department in 2015 and 2016.

Back to the timeline and why I want to focus on the ND House. In 2015 the budget had already begun to slip. Did it stop the Legislature from cutting the income tax rates even further? Hell no. February of 2015 the Senate passed out SB 2349 which reduced the state’s income taxes by $108 million. At the same time, the House passed over $33 million in income tax reductions to the Senate. March of 2015, the Legislature received a revised budget forecast. The collective jaw of legislative members hit the floor. Dear lord those numbers looked bad how can we afford priorities? It was after then the Senate realized further income tax reductions would not be wise. Only after the revised budget forecast did Senator Ray Holmberg speak out against the reductions and the $33 million price tag before the Senate as McFeely correctly pointed out.

Rep. Craig Headland

It was too late for the ideologues who were grinning ear-to-ear. The House already had the $108 million reductions in their possession which was three times larger than what they had already approved. Math and numbers meant nothing. Frantic pleas from Senators of both parties to House members to not pass the $108 million reductions were scoffed at. April 17th, 2015 the House, led by Headland and Carlson, passed the reduction.

As you know, they weren’t finished there. On the same day the House passed the income tax cuts, April 17th, Carlson, Headland, and Belter introduced the oil extraction tax cut. On April 27th, former Governor Jack Dalrymple signed it into law. That oil tax cut the Republicans like to pretend wasn’t a cut, has cost North Dakota $164 million since March of 2016. That is approximately $15 million per month gone according to the same non-partisan Legislative Council.

As Jasper Schneider prophetically said in 2009, “We can’t have it all ways” or we will have an “economic train wreck.” In 2017, the Legislature is looking at the rubble of their self-created wreck. What should frustrate you as North Dakota voters is: you were right on both of these occasions when it came to policy decisions. Perhaps this is part of the reason why the legislature continues to try and diminish your power in initiated measures and referrals?