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Bowman County Courthouse
104 1st St NW
Bowman, ND 58623

Proposed changes to oil fund formula could mean bigger payout for western N.D. cities, counties

October 31, 2014

The latest round of changes, which will be voted on during the impending biennium of the legislature in Bismarck, changes a major concept of the convoluted formula to distribute more funds to the highly impacted counties and cities that produce the oil responsible for the surge in funds.

 

 

(Above) The existing formula to distribute the funds of the oil and gas production and extraction taxes within the state of North Dakota. The proposed changes would only affect the distribution of the gross production tax (GPT) and would increase the amount of funds directed towards oil and gas producing counties. [Courtesy N.D. League of Oil and Gas Producing Counties]

(Above) The existing formula to distribute the funds of the oil and gas production and extraction taxes within the state of North Dakota. The proposed changes would only affect the distribution of the gross production tax (GPT) and would increase the amount of funds directed towards oil and gas producing counties. [Courtesy N.D. League of Oil and Gas Producing Counties]


By BRYCE MARTIN | Pioneer Editor | bmartin@countrymedia.net

 

The formula to distribute North Dakota’s wealth from its oil and gas taxes has been a constant battle in the state legislature. Periodic changes have been made to try to improve the distribution of funding and make it fair, but it still faces criticism from both sides of the aisle.

The latest round of changes, which will be voted on during the impending biennium of the legislature in Bismarck, changes a major concept of the convoluted formula to distribute more funds to the highly impacted counties and cities that produce the oil responsible for the surge in funds.

In a presentation made during the N.D. Association of Oil and Gas Producing Counties annual meeting held earlier this fall, the existing formula was explained and its proposed changes were discussed.

Bowman City Commission President Lyn James, who was present at that meeting, provided an overview of the presentation Oct. 28 during the Empowering Leaders monthly meeting in Bowman.

The formula is not explicitly easy to follow.

Currently, the distribution formula dictates what portions of the state’s existing 6.5 percent oil extraction tax and 5 percent gross production tax (GPT) go where. The GPT is imposed in lieu of property tax on oil and gas producing properties.

On a heavily detailed flowchart, the directions of the funds are explained—with 30 percent of the combined 11.5 percent tax immediately going to the state’s legacy fund, which was established to preserve the state’s current economic growth.

Following that percentage, 50 percent of the funds go to the Native American tribes that live in areas where oil is produced. Lastly, $10 million from the combined percentage is earmarked for the Oil and Gas Research Fund.

After those three allocations are made, the formula splits off into three directions: one concerning the entire state, one concerning the impact grant fund and one focused on the 18 oil and gas producing counties of western North Dakota.

On one end of the spectrum is the state, for which the 6.5 percent extraction tax is used for constitutional and statutory distributions, including the Common Schools Trust Fund, General Fund and State Disaster Relief Fund.

On the other end is the 5 percent GPT, which is split into fifths—1/5 of the tax funds goes into the impact grant fund, for hub community use. After those distributions are made, remaining funds from the 1/5 go to statutory distributions, which include the Abandoned Well and Site Reclamation Fund and Outdoor Heritage Fund.

The other 4/5 of the GPT is funneled to oil and gas producing areas. $10 million is automatically taken from that 4/5 and given directly to oil and gas producing communities.

From there, the funds continue to be split.

Twenty-five percent of the remaining 4/5 of the GPT, after the initial allocation of $10 million is made, goes to the cities, counties, schools and townships of oil and gas producing communities.

Many of the distributions, with the exception of funds given to oil producing communities, then cycle back until they are either fully allocated or ultimately go into the Legacy Fund and Strategic Investment Fund.

Total revenues from the oil and gas production and extraction taxes climbed to over $3 million last year, up from a meager $66,096 recorded in 2003, according to the presentation. Of that total revenue, only 14 percent was distributed to oil and gas producing counties, totaling just under $500,000.

Under the current formula, James said that Watford City as an example, could see a 1,625 mill levy due to its basic needs for infrastructure improvements, which is unprecedented compared with the city of Bowman’s current mill levy of 76. She said it would likely result in a “mass exodus.”

“They would have to ask, on an average, every [Watford City] resident for another $12,880 in property tax over and above what they pay today,” James said. “And that’s what the legislators need to see. They need to wrap their heads around this.”

However, with a proposed tweak in the formula, the Watford City mill levy becomes manageable when more money is distributed to the areas that need it most in western North Dakota.

The proposed change adjusts the state and local share of GPT. The state share would decrease from 75 percent to 40 percent and the local share would increase from 25 percent to 60 percent. That change alone would increase, for example, the city of Bowman’s allocation from 14 percent to 26 percent of total oil and gas tax revenue.

James said it is likely that, if the formula were changed, legislators would stick with it for at least a 20-year commitment.

Another proposal to be examined during the next legislative session is a one-time surge funding strictly for oil and gas producing counties. Though, James said the numbers for that distribution rapidly change as it is further discussed. Bowman County was listed as sixth in line for the suggested direct allocation, proceeding McKenzie, Mountrail, Williams, Dunn and Divide counties.

The biggest opposition to the formula change, said James, comes from the eastern and central portions of the state.

James said she heard those areas ask, “What’s in it for me?”

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