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Published September 20, 2010, 04:36 PM

ND AG Says Oil Amendment Would Affect Spending

Attorney General Wayne Stenehjem says a proposed new savings account for oil tax collections won't affect oil money that is already earmarked for schools.

BISMARCK, N.D. (AP) — A proposed new savings account for North Dakota's oil tax collections won't affect oil money that is already set aside for schools, Attorney General Wayne Stenehjem said Monday.

Stenehjem, in a legal opinion, said a proposed constitutional amendment to establish an oil tax "legacy fund" may affect the amounts of money that other oil tax recipients are receiving. However, the amendment would not bar the Legislature from changing those formulas, the attorney general said.

North Dakota voters will decide the amendment's fate in the Nov. 2 election. It will be listed as Measure 1 on the statewide general election ballot.

The amendment sets aside 30 percent of North Dakota's oil tax collections in the "legacy fund" savings account, beginning July 1, 2011.

The fund's principal and any investment earnings may not be spent for six years. Starting July 1, 2017, lawmakers may spend up to 15 percent of the fund's principal during any two-year state budget period, if they can muster two-thirds approval in the House and Senate to do so.

North Dakota has two principal oil taxes, a 5 percent production tax and an "extraction tax," which has a top rate of 6.5 percent. Both are assessed against the oil's value when it is pumped.

North Dakota's Constitution already requires that 20 percent of oil extraction tax revenue — production tax money is not included — to be split between a state trust fund that benefits schools and a "foundation aid stabilization fund," which is intended to make up any shortfalls in state school aid if tax collections fall below the Legislature's expectations.

Stenehjem's opinion says the legacy fund, if approved, will take 30 percent of the total collections for both the extraction tax and the production tax. It will not affect the extraction tax share that goes to education, because both amounts will be taken off the top, before any deductions are made for other state programs, the attorney general said.

State law provides a share of North Dakota's oil taxes to cities, counties and schools in oil-producing areas; a resources trust fund, which finances water projects; a permanent oil and gas trust fund, which lawmakers have used to finance pet projects and one-time expenses; and an impact fund that helps oil-producing counties deal with the effects of oil development on public works and services.

The largest share of oil revenue goes to North Dakota's general fund, which pays for an assortment of state services, from aid to schools to Medicaid assistance for the poor and people in nursing homes.

The distribution of oil taxes "does quickly become very complicated, but there's nothing in the measure ... that makes anything inconsistent, or that makes it so it wouldn't be workable if the voters decide they want to enact it," Stenehjem said in an interview.

Stenehjem's opinion, which was requested by state Rep. Kari Conrad, D-Minot, said the Legislature would have time to adjust interest groups' shares of oil revenues if the constitutional amendment is approved.

"It is premature to speculate on what changes may ultimately be made to the statutory programs and (oil tax) allocations, as well as to the general fund," Stenehjem said in the opinion.

The 2009 Legislature put the amendment on the ballot after a separate oil trust-fund proposal was defeated in November 2008. Its critics said the amendment socked away too much oil money, and made it too difficult for legislators to spend it.

Some of the key opponents to the first trust-fund proposal, including the North Dakota Education Association, are supporting the newer version of the measure.

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