North Dakota

State Fiscal Briefs

October 2020

North Dakota’s budget basics

According to the National Association of State Budget Officers (NASBO), North Dakota’s total expenditures in fiscal year (FY) 2019 were $6.6 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, North Dakota’s combined state and local direct general expenditures were $9.7 billion in FY 2017 (the most recent year census data were available), or $12,842 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,446.

North Dakota’s largest spending areas per capita were elementary and secondary education ($2,393) and highways and roads ($2,297). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

North Dakota’s combined state and local general revenues were $9.1 billion in FY 2017, or $12,041 per capita. National per capita general revenues were $9,592. North Dakota uses all major state and local taxes. After federal transfers, North Dakota’s largest sources of per capita revenue from typical sources were property taxes ($1,654) and charges ($1,604), such as state university tuition and highway tolls. However, North Dakota’s largest source of per capita revenue in 2017 was severance taxes, which tax the extraction of natural resources such as oil and natural gas. North Dakota’s per capita severance tax revenue was $2,039 in 2017. Severance tax revenue is extremely volatile and can quickly rise and fall with the price and production of natural resources.

North Dakota’s politics

Governor Doug Burgum, a Republican, was elected in 2016 with 77 percent of the vote. The next gubernatorial election is in 2020.

Republicans control both the House of Representatives (79 Republicans to 15 Democrats) and Senate (37 Republicans to 10 Democrats), with veto-proof majorities in both houses. Control of the governor’s mansion and each house of the legislature gives Republicans a trifecta in North Dakota. Members of both the House and Senate serve four-year terms. Roughly half the legislative seats are up for election in 2020, and the other half are up for election in 2022.

North Dakota’s budget institutions, rules, and constraints

North Dakota uses a biennial budget. North Dakota has the least constrictive budget process in the country: the state does not have a balanced budget requirement, any tax and expenditure limits, or any limits on authorized debt and debt service.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

North Dakota’s recent fiscal debates

  • North Dakota uses federal taxable income as the starting point for individual income tax. The Tax Cuts and Jobs Act of 2017 (TCJA) made significant changes to federal taxable income, and these changes “flowed through” to North Dakota’s tax. Because of how the TCJA’s changes interacted with North Dakota’s income tax, some North Dakota families with several children are now paying more in state tax. North Dakota’s legislature has made no significant efforts to reform the state’s individual income tax since the TCJA was enacted. The House did pass legislation in 2019 that reduced state income taxes and replaced the revenue with money from the state’s Legancy Fund (supported by severance tax revenue), but the bill died in the Senate.
  • North Dakota had the most tax revenue growth of any state from the Great Recession through the end of 2018. In 2019, North Dakota lead all states in annual tax revenue growth. This tax revenue growth was driven almost entirely by its severance tax revenue. In 2017, severance tax revenue accounted for 17 percent of North Dakota’s state and local general revenue, by far the highest total of any state. (The next-highest states were Alaska and Wyoming with 5 percent; only three other states had severance tax revenue account for 2 percent or more of general revenue.) Although the severance tax revenue lets North Dakota keep other taxes low, it also creates challenges. The volatility of severance tax revenue requires states to have flexible budgeting arrangements, other readily exploitable revenue sources, or significant rainy-day funds to accommodate unforeseen changes in severance tax revenue flows.

North Dakota’s current budget

Governor Doug Burgum announced his proposed FY 2020–21 budget in December 2018. The governor highlighted his proposals to increase spending on education, infrastructure, and other services (all while not increasing taxes) in his budget address. But at the outset he stressed that North Dakota must responsibly and transparently use its severance tax revenue. He also recommended the state deposit the maximum amount allowed (15 percent of general fund spending) into the state’s rainy-day fund. North Dakota had enacted large spending cuts in the previous budget when oil prices and severance tax revenue collapsed.

The legislature passed its budget in April 2019 and generally followed the governor’s recommendations. In a press release, however, the governor lamented that the enacted budget transferred $765 million in oil tax revenue to the general fund to balance the budget and that it did not add as much as requested to the state’s reserves.

Governor Burgum gave his 2020 state of the state address in January 2020.

For more on North Dakota’s budget, see