Changes to oil tax distribution formula: More money for local government

By Melanie Franner

Williston, North Dakota

Photo credit: Mary Martin/Flickr

The 30/70 percent split of the oil tax revenue to the local government versus state may not have turned out to be exactly what oil-patch communities were looking for, but it’s a step – at least – in the right direction. The North Dakota State Legislature endorsed the formula change (from the 25/75 percent that it was during the last two years) in April 2015.

Big expectations

“The drastic drop in oil prices between the summer of 2014 and January 2015 when the legislature convened meant a complete re-examination and prioritizing of all state spending,” says Kathryn Strombeck, director of research and communications, North Dakota Office of State Tax Commissioner. “In the end, the 30/70 proposal that was enacted was a great compromise piece of legislation.”

According to Strombeck, the new funding formula will affect all of the state’s major oil-producing counties, along with the cities, schools and townships located within them. Additionally, for the first time, the legislature also identified hub cities outside the oil patch – those with populations greater than 12,500 and with more than one percent of their employment base working in the oil and gas industry – and provided them with direct funding from gross production tax as well.

One of the larger communities in the oil patch, with a population of around 36,000, is the city of Williston. And Williston’s Mayor Howard Klug isn’t too pleased with the final formula.

“The 30/70 split was not what Williston was looking for,” he states. “I think it could have come a lot closer to the 60/40 split in our favor that was being proposed by Governor Jack Dalrymple. We need that kind of money for at least the next 10 years or so in order to catch up.”

Williston Mayor Howard Klug.

Williston Mayor Howard Klug.

That being said, Mayor Klug was very pleased with the $1.1 billion, one-time emergency funding known as the “Surge Bill” that was also passed in the same session and was signed into law.

“The amount of money in the Surge Bill was huge,” states Mayor Klug. “It was unprecedented. I don’t think we will ever see that kind of upfront money again.”

According to the mayor, the Surge money will bring about $64 million into Williston’s coffers. But as significant as this is, it isn’t enough.

“The projects that we currently have ‘shovel-ready’ amount to $120 million,” he says. “There’s a big shortfall in between. To clear the books, we’re going to need about $1 billion by the year 2020 – for road, sewer, water, personnel, new facilities and equipment, etc.”

Mayor Klug suggests that the population of Williston will grow to between 60,000 to 70,000 during the next five years. The $220 million anticipated to be the combined result of the surge money and the new oil tax distribution formula falls well short of the mayor’s needs.

“Give me 10 years of fully funded money so I can plan for the future and then we can be ready for anything they throw at us,” he says.

Imminent changes

The North Dakota Office of State Tax Commissioner’s Strombeck acknowledges that the new distribution formula may fall short of the expectations of some community leaders, but refers to lower oil prices as being the main reason behind the new formula.

“I think impacted communities and their leaders are grateful for the funding increase,” she says. “Many would have liked to receive more – to have funded the additional needs through the formula, thereby keeping the burden off of local property taxpayers – but they certainly understand the impact low oil prices have on state revenues.”

In the meantime, Williston Mayor Klug is trying to juggle the costs inherent in major infrastructure projects. There’s the city’s $60 million share of the new $240 million airport – the old one was built to handle 10,000 people per year and is busting at the seams trying to handle 12,000 people each month. There’s the $105 million needed for the new wastewater treatment plant. And there’s the significant shortage of housing units. The city had 5,000 units when the population was 12,000. It currently has 10,000 – soon to be 12,000. Then there’s the sewer, water and infrastructure needed to service these new housing units.

“Things have slowed down recently here, but it’s not like they’ve turned off the spigot,” he says. “It’s still plenty busy here.”

Next steps

Despite the fact that the new funding formula has been passed into law – counties, cities and schools will start seeing the impact of the increase with their September distribution – Williston Mayor Klug isn’t content to let the issue rest.

“We’re going to come up with a plan,” he says. “We have two years with this formula. Somewhere during that period, we’re going to see oil prices rise. And that’s when we’re going to go back to the legislature and tell them that they were too cautious with their numbers and that they need to take another look at the formula.”

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