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Published September 21, 2010, 08:14 AM

ND budget outlook: Huge surpluses and $70 oil

BISMARCK, N.D. (AP) — A new forecast of North Dakota's tax collections predicts a $1 billion budget surplus in July, continuing a robust financial trend that has defied a national recession and budget deficits in most states.

By: DALE WETZEL, Associated Press

Oil prices, a key contributor to the state's wealth, are expected to average $70 a barrel for the next two years, the forecast finds.

Revenues are expected to rise almost 10 percent during the same period. An even higher spike is expected in sales tax collections, which provide the biggest share of the budget for North Dakota government.

"I think it's good news, but it's not unexpected," Lt. Gov. Jack Dalrymple said Tuesday. "It shows the economy in North Dakota is still in good shape."

North Dakota's current two-year budget is $8.84 billion, a figure that includes federal aid to the state.

The forecast was compiled by the state Office of Management and Budget and Moody's Economy.com, a West Chester, Pa.-based consultancy, to prepare Gov. John Hoeven's budget recommendations. Its numbers will be updated in November, a month before the governor's spending plan is presented to the Legislature, said Pam Sharp, the state budget director.

The forecast includes estimates of state tax collections for the rest of the current 2009-2011 budget period, which ends June 30, and a forecast of revenues for the next two years.

Analysts expect state tax collections on sales, individual income and corporate income to grow during the 2011-13 budget period after income tax collections fell short of forecasts this year.

Sales taxes alone are expected to rise from $1.17 billion to $1.33 billion over two years, an increase of almost 14 percent. Individual income tax collections are estimated to grow $51.9 million, to $132.4 million during the same period, an 8.4 percent rise.

Most of North Dakota's oil tax collections go into a surplus kitty called the permanent oil tax trust fund, which lawmakers typically use for selected projects. The fund should have about $630 million by the end of the current two-year budget and will collect another $698 million in the following two years, the new estimates say.

The forecast anticipates North Dakota voters' approval of a constitutional amendment that would establish a new Legacy Fund savings account for oil taxes that would be difficult for state lawmakers to spend.

The proposed fund will appear as Measure 1 on the Nov. 2 general election ballot. Should North Dakotans endorse it, the fund should have a $613 million balance by June 30, 2013, the forecast says.

Analysts' assumption that the Legacy Fund will be approved was not intended to encourage support of it, Dalrymple said. "We're not trying to use our forecast as an endorsement," he said.

The expected $1 billion surplus in July has three key elements: The $630 million expected balance in the permanent oil tax trust fund on July 1; a $325 million "budget stabilization" reserve fund, which has built up over several years; and a $66 million estimated ending balance when the books close June 30 on North Dakota's 2009-2011 budget.

The new forecast also estimates that the oil tax trust fund — which is different from the proposed Legacy Fund in that lawmakers may dip into it at will — should collect $698 million in the next two-year budget period.

Sen. Raymon Holmberg, R-Grand Forks, the chairman of the Senate Appropriations Committee, said there would be plenty of demands for increased state spending to go along with the growth in tax collections.

For starters, residents in western North Dakota want money for road repairs, while eastern North Dakota has extensive flooding problems, Holmberg said.

"Certainly one should not be running around saying, 'We've got a billion dollars, therefore we can spend it,' because there are a lot of things we need to do," Holmberg said.