North Dakota

State Budget Practice Report Cards and Budget Resource Guide

North Dakota joined Alabama, Missouri, and New Hampshire in posting a D-minus average for budget forecasting, the lowest possible mark, for fiscal 2017 through 2019. It failed to use consensus revenue estimating and did not provide multiyear forecasts for revenues or expenditures beyond the two-year budget. North Dakota also lacked an explanation of the reasoning behind revenue growth projections. 

The state did little better in legacy costs, registering a D average for the category, which covers public worker pensions and other unemployment benefits (OPEB), principally health care. North Dakota’s annual contributions for its small OPEB liability met actuarial recommendations, but its contribution rate for pensions—7.12 percent of payroll—consistently fell short of what actuaries determined was needed to reach full funding over thirty years. In 2018, North Dakota’s pensions were 65 percent funded, 5 percentage points below the total for all states.

North Dakota’s performance improved in the remaining categories. The state is the second-biggest crude oil producer, after Texas, and its tax revenues are vulnerable to swings in prices for petroleum, natural gas, and coal. The state has protected itself with a sound policy for reserve funds and earned an A average in the category. North Dakota smooths out revenue fluctuations through its Legacy Fund, which collects 30 percent of total tax revenues on oil and gas production and transfers investment earnings to the general fund at the end of each biennium. At that time, any general fund surpluses over $65 million are transferred to the Budget Stabilization Fund to help replenish the reserve and deal with revenue volatility. North Dakota’s reserve policies are aligned with the best practices cited in the recent Volcker Alliance working paper, Rainy Day Fund Strategies: A Call to Action.

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To emphasize the need for clear and comprehensible budgets to inform citizens, promote responsible policymaking, and improve fiscal stability, the Volcker Alliance in 2016 began a study of budgetary and financial reporting practices of all fifty states. The Volcker Alliance’s mission is to improve the effectiveness of the administration of government at all levels. Making state budgeting more transparent and accountable is an important part of that goal.

The report cards presented here are taken from the 2020 Volcker Alliance report, Truth and Integrity in State Budgeting: The Balancing Act, which proposes a set of best practices for policymakers. For those wishing to gain greater insight into state fiscal issues, the accompanying budget resource guide is derived from the Alliance publication State Budget Sources: An Annotated Guide to State Budgets, Financial Reports, and Fiscal Analyses (2016). 

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