North Dakota officials are preparing for a significant budget reduction, with projections indicating that the upcoming 2027-29 budget will be between $700 million and $800 million less than the 2025-27 biennium budget. This forecast comes from Allen Knudson, a budget analyst and auditor for the North Dakota Legislative Council, which assists lawmakers in drafting legislation.
According to Knudson’s estimates, the beginning balance for the general fund in the 2027 biennium is expected to be $300 million, a staggering $1 billion decrease from the previous biennium’s starting balance. “The unknown, however, is whether revenues for the remainder of this biennium will meet the revenue forecast or be more or less than the forecast,” Knudson stated in an interview with The Forum.
Economic factors, including a slowing economy and lower-than-expected oil prices, are impacting the state’s revenue projections. Knudson also noted that changes to tax legislation under former President Donald Trump could lead to a loss of $130 million in tax revenue this biennium. This includes the exclusion of taxes on tips and overtime, as explained by Joe Morrissette, Director of the North Dakota Office of Management and Budget. “Good for the taxpayers, bad for the state budget,” Morrissette remarked.
State Officials Explore Budget Strategies
Despite the looming challenges, Morrissette does not anticipate “across-the-board” cuts within the state government. Instead, his office is proactively seeking ways to save money. Discussions on spending reduction strategies are underway with various agencies to prepare for what is expected to be a difficult budget cycle. “If we just meet our forecast and we’re looking at just what expenditures our ongoing revenue stream can support, it’s going to be something less than what we’re currently spending,” Morrissette said.
Governor Kelly Armstrong has already begun working on the budget, advising agencies not to create new full-time positions or programs. He highlighted that North Dakota’s government has expanded significantly over the past two decades, primarily due to population growth driven by an oil boom. “Our current growth of government is also unsustainable,” Armstrong stated, emphasizing the need for a “reset” in the upcoming budget process.
This upcoming budget will require a careful evaluation of existing programs to determine their effectiveness, as Armstrong noted, “That’s how you do this.”
Revenue Projections and Potential Impact
Last year, the Legislature approved a record budget of nearly $20.3 billion for the 2025-27 biennium, reflecting an increase of about 3% from the previous biennium and nearly 50% from the 2013-15 budget. Approximately 9% of North Dakota’s general fund revenue comes from oil taxes, with projected oil prices expected to remain between $57 and $59 per barrel. However, recent trends show a decline in oil prices, which could affect revenue streams.
Morrissette reassured that revenues are not necessarily declining from the forecast, indicating that some growth is still expected. The last budget commenced with a substantial surplus due to exceeding revenue forecasts, but the upcoming budget is unlikely to replicate that scenario.
In light of the anticipated budget constraints, the Office of Management and Budget has introduced a voluntary early retirement incentive program for state employees, offering three months’ worth of pay to those who choose to participate. As of the recent deadline, 17 employees have opted in, while 21 opted out, and many did not respond, according to OMB spokeswoman Jen Raab.
Morrissette advised agencies to exercise caution in spending and consider whether vacant positions need to be filled. “We always want them to make good, thoughtful decisions and only spend what they need to,” he stated.
A new revenue forecast is expected in March, which will likely reflect a decrease in anticipated revenues. North Dakota’s Budget Stabilization Fund, commonly referred to as a “rainy day” fund, currently holds $938 million, which may be accessed if budget shortfalls arise. Morrissette emphasized the rarity of tapping into this fund, stating, “We made it through COVID without ever tapping into the Budget Stabilization Fund. It has to be pretty drastic, but it’s part of the process.”
As North Dakota navigates these financial challenges, the state government will need to make strategic decisions to ensure fiscal responsibility while addressing the needs of its citizens.
