North Dakota Fights over How to Spend Huge Oil Revenues

Conservation groups want to use oil taxes to protect the state's environment, but schools, businesses and the oil industry have different priorities. Voters will decide in November.
by | October 23, 2014

ELECTION 2014: This article is part of our coverage of ballot measures to watch.

North Dakota’s oil taxes have let the fiscally conservative state do things that seemed unthinkable just a few years ago: It has cut income and property taxes, built new roads and set aside more money for schools -- all while building up a sizable savings account.

Now, one of the hottest debates in the state is whether to dedicate a portion of the state’s oil and natural gas taxes to promote conservation efforts, too. North Dakota voters will decide the question, called Measure 5, this November.

The idea comes from outdoors groups, hunters and environmental activists. Ducks Unlimited is the biggest financial backer, pitching in $1.9 million of the $2.9 million raised by proponents so far. The oil industry is leading the opposition, contributing nearly half of the $2.2 million raised by foes of the measure. Business groups, farmers and education advocates are also against the plan.

The main point of contention is whether it is wise to lock up as much as $150 million a year in state tax money for the foreseeable future when the growing state has so many other needs.

“North Dakota is in a great position to fund education, roads, emergency services and conservation,” said Steve Adair, who heads North Dakotans for Clean Water, Wildlife and Parks. He said state lawmakers, though, are “behind on funding conservation. Frankly, they’re behind in funding roads and education too. I think this whole boom has overwhelmed them, and they’re playing catch-up.”

But Tessa Sandstrom of the North Dakota Petroleum Council said restricting revenues for 25 years, as Measure 5 would do, is short-sighted.

“Ten years ago, I personally never would have dreamed North Dakota would be in this position,” she said. “To lock this amount of money away for 25 years … We have no idea what type of needs we’re going to have.”

The proposal would require North Dakota to use 5 percent of the state’s oil and gas extraction taxes for conservation measures, such as buying land, creating parks, improving fish and wildlife habitats, preventing flooding, improving water quality and educating school children about the environment.

Adair said land conservation is a growing concern in North Dakota, because fewer farmers in the state are participating in a federal program that pays them to replace crops with more environmentally appropriate plants in sensitive areas.

Farmers are dropping out of the Conservation Reserve Program because, with grain prices so high, they can make far more money selling crops, he said. The amount of protected acres in North Dakota between 1998 and 2013 dropped by half. Money from the ballot measure could set aside more land, because the state could offer more competitive rates, Adair said.

The drafters of the amendment chose oil revenue as the source for conservation efforts because they determined that it was the most popular option for voters. Plus, Adair said, it would only take a small percentage of those taxes to fund the proposal.

But the vast majority of the state’s oil and gas tax revenues are already targeted. Some of the money comes right off the top, as the conservation money would. Oil and gas taxes are already divvied up for purposes such as education funding, school construction, aid to counties and cities, property tax relief, disaster recovery, support for Native American tribes and a rainy day fund.

That means, when legislators reconvene next spring, they will only get to direct about a quarter of the $9.8 billion in oil and gas taxes North Dakota projects it will collect in its next two-year budget cycle, which begins next July. Even then, the vast majority of that would sit in a fund designated for one-time infrastructure projects and efforts to make state government more effective.

Critics of Measure 5 say that leaves little money for legislators to use to attract teachers, respond to housing shortages or upgrade over-burdened oil roads.

“Because of the economy, especially in the western part of the state, everything is more expensive. Milk is more expensive. Housing is out of sight,” said Jon Martinson, the executive director of the North Dakota School Boards Association. “Teacher salaries have not kept pace.”

That’s a major concern, because the number of students in North Dakota is expected to increase by 10,000 -- or roughly 10 percent -- between the current two-year budget cycle and the next one.

Legislators studying education funding unveiled a proposal last week that would boost funding for schools by $400 million in the next two years. But it depends on money that would be dedicated to conservation if Measure 5 passes. If that happens, the school bill could fall apart, lawmakers warned.

Republican Gov. Jack Dalrymple also added a wrinkle to the campaign when he announced a plan to spend $30 million more on state parks and add an extra $50 million more for conservation efforts. The governor said the plan had been in the works for years, and he declined to take sides on Measure 5.

But Dalrymple said his plan was a better option than the ballot measure, because it did not require ongoing spending, said spokesman Jeff Zent.

“Can the state do everything? Can it fund (Measure 5) and everything else? That’s a question for the number crunchers,” Zent said. “If there’s less money available, (Measure 5) would certainly make it more difficult.”