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North Dakota lawmakers somber as low oil prices, lost revenue loom ahead of 2015 Legislature

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BISMARCK, North Dakota — Some North Dakota lawmakers were somber Monday as they descended on the state Capitol faced with crude prices that have slipped to a more than five-year low and below a threshold that could threaten billions of dollars of oil tax revenue for the state.

Oil prices "are without a doubt" the single biggest concern for lawmakers as the 2015 Legislature begins Tuesday, said Sen. Dwight Cook, chairman of the Senate Finance and Taxation Committee.

"It's a big, black cloud hanging over the session," the Mandan Republican said of tumbling prices for North Dakota sweet crude that are the lowest they've been since mid-2009 — fetching just more than $50 a barrel Monday.

Senate Minority Leader Mac Schneider said it's the first time in years that the Legislature has had to consider the prospect of low oil prices. He said the state must look carefully at spending while making long-term investments on such things as education.

"We have to begin preparing for life after oil," the Grand Forks Democrat said.

North Dakota is banking on $8.3 billion in oil tax revenue when the next budget cycle begins on July 1. But if the monthly average price stays below a $52.58 "trigger price" for five consecutive months, North Dakota's petroleum industry could see an estimated tax cut of $5.3 billion, the state Tax Department says. Should that happen, oil prices would have to remain above the threshold for five consecutive months for the tax to resume.

PHOTO: Sen. Dwight Cook, R-Mandan, poses for a photo at the state Capitol in Bismarck, N.D., on Monday, Jan. 5, 2015.  Cook, the chairman of the Senate Finance and Taxation Committee, says oil prices “are without a doubt” the single biggest concern for lawmakers as the 2015 Legislature begins Tuesday. (AP Photo/James MacPherson).
Sen. Dwight Cook, R-Mandan, poses for a photo at the state Capitol in Bismarck, N.D., on Monday, Jan. 5, 2015. Cook, the chairman of the Senate Finance and Taxation Committee, says oil prices “are without a doubt” the single biggest concern for lawmakers as the 2015 Legislature begins Tuesday. (AP Photo/James MacPherson).

The potential loss of oil revenue comes at a time of explosive growth for the state that has led to greater spending needs.

North Dakota's Legislature ended its longest session ever in 2013, when it logged 80 days — the maximum allowed by the state constitution. It also set a record budget: $14 billion over two years, or about $10 billion more than a decade ago.

Gov. Jack Dalrymple's two-year, $15.7 billion budget plan released last month assumes North Dakota sweet crude will fetch $74 a barrel when the next budget cycle begins and $82 a barrel when the biennium ends on June 30, 2017. The governor's preferred budget calls for $3.7 billion to help western North Dakota's oil-producing region address its rapid growth.

North Dakota's legislative session would end before tax breaks for drillers would begin, if oil prices continue to fall.

With the oil trigger price clock now ticking, lawmakers may have to expedite their work on other legislative issues, Cook said.

"This could create a situation where we would have to finish our work as soon as possible, adjourn, and save days so we could come back and address this," Cook said.

Oil revenues make up a relatively small part — currently about 3.6 percent — of the state's general fund, which finances state government and a variety of programs. North Dakota's general fund can take in no more than $300 million in oil tax revenues per two-year budget cycle. But the general fund also is financed by taxes on income and sales, which also would be affected by depressed oil prices.

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