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Posted 10/17/12 (Wed)

By Neal A. Shipman
Farmer Editor

There is no one in North Dakota that is going to deny the fact that the 17 oil-producing counties in North Dakota are undergoing the biggest transformation in their history. While the boom in the oil industry without question has revitalized the economies of these counties, the  impacts associated with the boom have also been staggering. County roads and bridges are being worn out as fast as they can be rebuilt. County and city budgets are ballooning to meet the demands for new roads, water and sewer service to meet a growing population. Law enforcement, fire departments and ambulance services across the region are crumbling under the increased work loads. School districts are being forced to hire additional teachers and build new schools to meet the increasing number of students. And every hospital in the region is looking at how they can grow their systems to meet a record number of patients in their clinics and emergency rooms.
With all of these needs, the question that begs to be answered is where are all of these local entities supposed to get the money that it is going to take to meet these immediate infrastructure improvements.
The obvious answer is that the oil-producing counties that are generating the billions of dollars of new state money need to be receiving a larger percentage of the funds to meet these needs.
While no one can say for sure just how much new money the North Dakota State Treasury is receiving because of increased income taxes as well as other assorted state taxes, there are a couple of tax indicators that truly reflect just how much money these western counties are pouring into the state’s coffers because of the oil activity.
The first is the state’s taxable sales report which just came out in the last couple of weeks comparing the second quarter of 2011 to the same three-month period in 2012. Statewide, North Dakota had an in-state total of $4,272,802,304 in taxable sales and purchases. But what is interesting to note is that the 17 oil-producing counties in western North Dakota made up just over 50 percent of that total.
For perhaps the first time in North Dakota’s history, the state’s economic engine has dramatically shifted to the western corner of the state. Williams County has replaced Cass County for generating the most sales in the state, Ward County is nipping at Burleigh County’s heels and even Mountrail and McKenzie counties are now in the top 10 in the state.
While it is highly doubtful that the state will ever look at revamping how it shares sales tax revenues with local governmental entities, the one area that the state definitely needs to address is returning a bigger share of the oil revenue that is being generated by the oil extraction tax and the gross production tax back to the county in which it is being generated in order to meet the needs of the impacted cities, counties, schools and other facilities.
Currently, the state uses a fairly complex formula to determine how much gross production tax revenue goes back to the counties. But the bottom line is that the state gets the lion’s share of the revenue and the counties get mere peanuts. And to make matters worse, the more money that is generated by the gross production tax, the state gets a higher and higher percentage of the taxes.
To illustrate the current formula, from September of 2011 to July of 2012, the 17 oil-producing counties generated $634,590,473 in gross production taxes. Of that amount, $108,414,786 was returned to the counties, while the state kept $527,881,420 to fund the Legacy Fund, the Oil and Gas Impact Fund, provide for property tax relief, infrastructure and state disaster relief as well as general fund expenditures.
For those North Dakotans who may not remember, the Legacy Fund, which was created by an Initiated Measure as a “rainy day” fund two years ago, now has a balance of over $535 million and will continue to grow as 30 percent of the oil tax revenues are automatically deposited into the fund.
At the time when it was being proposed to the state’s voters, many other people objected to tying up such a large percentage of the oil revenues when the needs of the oil-producing counties were becoming readily apparent.
There is no way now that the Legislature can make any changes to the funding of the Legacy Fund. But this upcoming legislative session, hopefully, Gov. Dalrymple as well as the state Legislature will recognize that the needs of the counties, cities, townships and schools are not being adequately met and change the formula and return a larger share of the oil tax revenues to the areas that are being most impacted.