2015 Oil Tax Change has left Approximately $570 Million on the Table

Since the 2015 North Dakota Legislature cut the oil extraction tax rate from 6.5% to 5%, it has reduced potential revenue by approximately $570 million dollars. The figure was obtained from Legislative Council, the non-partisan council that works for the Legislature shows the impact dating from March of 2016 through July of 2018. This fact is conveniently left out of campaign material by politicians seeking your vote. The latest example of omission is a campaign ad from Tax Commissioner Ryan Rauschenberger claiming he was instrumental in reforming the oil tax formula.

According to Legislative Council, “If the “large trigger” had been repealed, but the tax rate had not changed (remained at 6.5 percent), oil extraction tax collections for the 2015-17 biennium would have been approximately $274 million more, or an average of $15.2 million per month. Oil extraction tax collections for the 2017-19 biennium to date through July 2018 would have been approximately $295 million more, or an average of $24.5 million per month. Based on the 2017 legislative revenue forecast, oil extraction tax collections for the remainder of the 2017-19 biennium would be approximately $235 million more, or an average of $19.6 million per month.” It is important to note this does not include the revised revenue forecast in September of 2018. Undoubtedly, the amount left on the table would be much larger then originally reported.

A quick refresher on how the oil extraction tax worked. There were two separate components at play First, the tax rate itself, which was established by North Dakota voters via initiated measure in November of 1980. Second, the so-called “trigger,” which was a provision to automatically lower the voter-approved rate when the price of oil stayed below a specific dollar amount for an extended period of time. The trigger was created by the North Dakota Legislature in 1991. The 1991 bill to create the trigger was SB 2279 and was sponsored entirely by Republican legislators. One of those sponsors was then Representative Rich Wardner, the current Senate Majority Leader from Dickinson.

The two parts to the oil extraction tax – the tax rate and the trigger – are entirely separate policy decisions. One was created by the people in 1980; the other was created by the Legislature eleven years later. Thus, illustrating that we could have changed one without changing the other. But, that wasn’t what happened in the final days of the 2015 legislative session. They chose to lower the rate and they need to explain why.

Yes, eliminating the trigger prevented a huge revenue loss. But every legislator – Republican and Democrat – along with every policy expert I know of agreed the trigger should be eliminated. On the other hand, following the elimination of the trigger with a controversial decision to permanently cut the oil extraction tax rate from 6.5% to 5% without question caused loss of revenue. Of course, the averted revenue loss from eliminating the trigger is bigger than the loss from the cut to the tax rate, at least in the short term. But, lumping these two separate policy decisions together is spin at best and dishonest at worst.

Voters will see continued political spin about the oil tax cut impacts. Ryan Rauschenberger is just the latest in his campaign ad. Mailers from the NDGOP and their advertising firm, Odney Advertising, are likely already created and waiting to hit mailboxes in legislative districts. They’ll have the audacity to claim others aren’t telling the truth. Like in years past, they aren’t telling you the full story. What could have been accomplished had the state collected approximately $570 million more over the last couple of bienniums? Permanent property tax relief? Education funding to the rate necessary? Keeping rural DOT shops open? Ask your legislative candidates.