A return to fiscal responsibility?

Apparently, if Gov. Kelly Armstrong has anything to say about it, the state of North Dakota will be tightening its belt.

We previously wrote that this may be inevitable. The Governor has now clearly recognized the necessity, as well.

He unveiled his budget guidelines this week — a roadmap for executive branch government agencies which will become the framework for the Governor’s budget, to be presented to legislators before the 2027 Legislative Session. That will be a welcome recommendation as the Legislature crafts its own budget next year.

The Governor noted that current spending actually represents deficit spending in the General Fund.  Because of the state’s heavy dependency on oil tax revenue (which represents over half of the state’s revenues), it has been easy, in recent years, to actually budget and spend more than North Dakotan’s tax dollars are bringing into the state’s coffers.

That’s dangerous.

Oil revenues have been a godsend for North Dakota for two decades.  They’ve made the state flush with money and allowed it to make up for years of lean budgets when there arguably was not even enough money to meet real needs, much less to spend on wants. 

But there’s one problem with depending upon oil revenues to do that forever.

Oil is a finite resource.

That means that, eventually, oil production will slow and possibly stop. 

The question fiscally responsible legislators and others have asked for years is “What will happen when the Golden Goose quits laying the Golden Eggs?” — When abundant budget surpluses, fueled by oil, dry up, what then?

The Legislature and North Dakota voters wisely attempted to answer the question, as least partially, with the creation of the Legacy Fund. It has set aside a portion of oil revenues for years, ensuring that they could not all be spent every budget cycle. What’s more, its earnings have bolstered the general fund for many years.

Some criticized its formation and questioned why such a move was necessary.  The answer is simple and history has proven it:

When the money is there, it will get spent

For those who remember both the lean years and the boom times, the distinction is dramatic. When there is simply no money available, people understand that “no” means “no”. It’s also a reality of government spending, however, than when there is a surplus of funds, not only will it get spent, but there will be several hands out, vying for each extra dollar and making a case that their need or want for it is the most important.

A new outlook

Gov. Armstrong called the current General Fund “deficit spending”, “unsustainable” and a “slow-burning storm” because it is subsidized by oil taxes. These are refreshing, responsible warnings from the state’s Governor and his austere prognosis offers a hopeful, new outlook for many who have long worried about spending habits, especially over recent years.

Armstrong’s proposed solution called for smaller agencies (those with budgets of $10 million or less) to present “hold even” budgets and required them to also prepare contingent budgets reduced by 3%, for agencies with $10-20 million budgets to present budgets with a 3% reduction from current levels, and for larger agencies (over $20 million budgets) to present budgets which represent a 10% decrease.

Armstrong added that “No new full-time positions or new building construction projects will be granted without an exception, and any new proposals that rely on ongoing revenues should be offset by a corresponding reduction in ongoing expenditures”. He said that state employees salaries would be protected under his budget plan.

A welcome realization

To many, such fiscal realizations aren’t news. Their recognition at the highest levels of state government, however, is. 

It’s refreshing to see that the Governor recognizes what has been clear to some budget hawks for some time — that North Dakota has a spending problem.

We trust that his leadership will not only demand responsible belt tightening among agencies of North Dakota government (some of them burgeoning), but that it will also encourage fiscal responsibility among legislators.

At a time of political turmoil and in an election year, it may even bring some fighting parties together under the banner of fiscal responsibility. If it does, North Dakota and its taxpayers will be better for it.