Oil collapse causes $1 billion budget headache in North Dakota

North Dakota Oil Bust - State Deficit

North Dakota was rolling in money in late 2014 and early 2015. Then the state experienced an oil boom that has quickly gone bust — to the tune of a $1 billion hole in the state’s two-year budgets.

Plunging oil prices create huge headaches for a tiny state like North Dakota. The decline in oil prices has led to a loss of more than 20% of the states tax revenues for the cycle that started in July.

To make up for those losses officials are scrambling to cut prices while dipping into savings in order to keep its government up and running.

When the oil boom was being felt in the state there were more than 200 oil rigs in operation. Today there are 44 operating rigs.

“A lot of the materials the rigs use — the fracking sand, the piping, the cement — all that is subject to sales tax,” said state budget analyst Allen Knudson.

The state is still experiencing an extremely low unemployment rate below 3%. However, that low rate is partially because many oil workers who arrived during the boom have returned to their home states.

The state has dipped into rain-day funds and has wiped out its budget surplus that was racked up during the boom.

Gov. Jack Dalrymple on Monday ordered every department in the state government to trim at least 4% out of their budgets.

North Dakota isn’t alone in its struggles. Oklahoma faces a similar $1 billion budget shortfall.

Alaska Gov. Bill Walker announced a state hiring freeze in December and placed limits on government travel as part of an effort to control a growing $3.5 billion budget gap. Walker has also proposed the states first income tax in 35 years.

Written by Jeff Springer

Jeff Springer

Jeff Spring is the Finance & Markets Editor at BusinessPundit.com. He's currently spending his days backpacking across Europe. While he may be living outside of the United States, he stays connected to American financial markets and M&A's more than is probably healthy for any single person. His love of a good book and a Bloomberg terminal can't be understated.