In North Dakota, the Good Times Are Still Rolling

JUNE 5, 2009

In North Dakota, the Good Times Are Still Rolling
State Has a Sizable Budget Surplus and the Lowest Unemployment in Nation as Strong Commodity Prices Keep Cash Flowing

By AMY MERRICK
WSJ

California has the Golden Gate Bridge, New York has the Empire State Building, Illinois has the Magnificent Mile. And North Dakota? It has a hefty budget surplus those states would envy. While many states scrounge for ways to repair budget deficits, North Dakota is cutting taxes and fretting over how much of its budget surplus to spend or save. "We all ought to move to North Dakota," joked Raymond C. Scheppach, executive director of the National Governors Association. The group said in a report Thursday that North Dakota and Wyoming remained the only two relative bright spots in a nation mired in recession.

Both resource-rich states expect revenue collections to come in above their budgeted forecasts, while 38 states anticipate revenue shortfalls, according to the report on state finances, which was co-written by the National Association of State Budget Officers. Meanwhile, North Dakota expects to have a surplus of about $700 million in June 2011, the end of its next budget cycle. In the legislative session ended last month, North Dakota lawmakers shifted more of the responsibility for funding education to the state and required local governments to reduce property taxes proportionately, saving taxpayers $295 million. Individuals and businesses also received about $100 million in income-tax cuts. At the same time, lawmakers increased spending on K-12 and college education, health care, infrastructure and other programs.


The remote Plains state, with a population of just over 640,000, has benefited from spikes in oil and crop prices. While the rest of the U.S. economy was tumbling last year, energy and agricultural commodities stayed frothy before beginning a long slide in the summer. Lately, they have begun climbing again. Oil prices dropped below $40 a barrel in February as the global recession strengthened, but they have since jumped to nearly $70. Crop prices are off last year's peaks, but are still well above long-term averages.

High prices help North Dakota in myriad ways. State revenues rise thanks to taxes on oil production and extraction. Energy-industry workers and farmers pay more in income taxes and spend more, boosting sales-tax receipts. Chiefly because of the commodities boom, North Dakota had the fastest-growing economy in the nation last year, as the state's gross domestic product increased 7.3%, the Commerce Department said Tuesday. The state also missed much of the bubble in housing prices and dubious lending practices that bedeviled much of the nation, so it isn't struggling as much with foreclosures.

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State and local officials have been traveling to Ohio and Michigan to recruit laid-off workers. North Dakota's seasonally adjusted unemployment rate -- 4.0% in April -- is the lowest in the U.S. Still, the state's economic strength posed difficult questions in the latest legislative session: Spend more now to help vulnerable groups like children and the elderly? Or save more as a hedge against future busts?

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Printed in The Wall Street Journal, page A4

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