CHICAGO - As most states struggle with falling revenues, North Dakota is enjoying a large budget surplus that would allow for double-digit spending increases over the next two years even as the state considers slashing its income tax rate in half.

Thanks largely to recent record-high oil prices, North Dakota expects a $1.2 billion budget surplus by the end of its 2007-2009 biennium in July 2009. The state's 2007-2009 all-funds budget was $6.4 billion, and its general fund budget totaled $2.5 billion.

The surplus for the period includes $600 million in the state's oil surplus fund, which could reach $1.3 billion by the end of the 2009-2011 biennium, according to spending and revenue estimates released this week during a meeting of the Legislature's interim Budget and Finance Committee.

North Dakota's fiscal situation appears so bright that some lawmakers even proposed paying off all the state's debt during the next biennium, a proposal that received a cool reception from state debt officials, according to one legislative budget analyst.

The surplus stems largely from increased oil production across the state and increased oil prices, as well as higher sales and income tax revenue, according to Allen Knudson, legislative budget analyst and auditor.

Oil tax revenue collections increased a full 268% during the current biennium compared to the 2005-2007 period. Fiscal analysts are currently expecting oil revenue to increase another roughly 6.6% by the end of 2011 from the current period, though the recent decline in oil prices may bring that number down, Knudson said.

While state budget officials had predicted that oil prices would decline to $75 barrel by mid-2011, the price is currently already down to $70 a barrel, Knudson noted. "That [6.6% increase] is pretty questionable at this point - but who knows what will happen over the next few months," he said.

Budget officials will present the proposed 2009-2011 spending plan to lawmakers in early December. The size of the final budget will depend on the fate of two measures that will go before voters next month.

One measure would cut the state's individual income tax rate in half and its corporate rate by 15%, a move that would drop individual income rates to between 1.05% and 2.77% - the lowest top income tax rate among all states with income taxes, according to an analysis by the nonprofit Tax Foundation. The tax cuts would reduce general fund revenues by around $414.2 million throughout the 2009-2011 period.

Another measure on the ballot would create a new permanent trust fund for surplus oil tax revenues that would limit the amount of oil tax revenue that may be deposited in the general fund to $100 million each biennium. Under the measure, lawmakers would need a three-fourths supermajority to authorize dipping into the fund.

North Dakota had a population of 639,715 in 2007, according to a U.S. Census Bureau estimate, down from 642,200 in 2000.

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