What If the Governor, the Attorney General and the Agriculture Commissioner All Went to the Pokey?

During last year’s campaign for and against Measure 5, the Clean Water, Wildlife and Parks amendment to the North Dakota Constitution, opponents of the amendment—the Greater North Dakota Chamber, the North Dakota Grain Growers, the North Dakota Petroleum Council, the North Dakota Farm Bureau, the North Dakota Farmers Union, the North Dakota Stockmen, the Lignite Energy Council and others—used as one of their sticking points the fact that there is already an Outdoor Heritage Fund in state government and it will provide $30 million this biennium for the same kind of projects the CWWP proponents advocated for.

Voters heard that number–$30 million—over and over. “We don’t need Measure 5. There is already an Outdoor Heritage Fund with $30 million for conservation projects.”  Then the Governor came out and said he was going to increase it to $50 million in the next biennium. The use of those figures was an important factor in the voters’ rejection of the CWWP Amendment, which various estimates ranged from $200 to $400 million per biennium for conservation projects.

That’s background. This is not another screed against the lying opponents of Measure 5. This is about that Outdoor Heritage fund that already exists. Something bad is going on, and I can’t figure out why. But it is time somebody asked for some answers.

I’m going to put the bottom line at the top. So far, in the first 18 months of the 2013-2015 biennium (there are 24 months in a biennium, and it started July 1, 2013), the Outdoor Heritage Fund has collected less than half of that $30 million. Here’s a direct quote from the State Treasurer’s website:

As of December 19, 2014, the Outdoor Heritage Fund has received $14,708,577.88 since its inception on July 1, 2013.

            Okay, so the fund is running a little—well, a lot—behind projections. Three fourths of the way through the biennium, the fund has collected less than half of what it was projected to raise, and with the precipitous drop in oil prices, it’s likely not going to get to $30 million, because the tax that funds it is based on a percentage of the price of a barrel of oil.

But here’s the problem: despite the fact that the fund has only collected $14.7 million, the three men responsible for spending the money in the fund—the Governor, the Attorney General and the Agriculture Commissioner, who make up the North Dakota Industrial Commission—have already spent $19.3 million. You read that right. Jack Dalrymple, Wayne Stenehjem and Douglas Goehring have overdrawn their bank account by $4.6 million.

The numbers are real. I’m not making this up. Here’s a quote from a press release issued by the Industrial Commission on January 9, 2015—three weeks ago:

The 2013 Legislature appropriated up to $30 million per biennium from oil and gas production tax revenue to support outdoor recreation and conservation projects including access to public and private lands for outdoor activities, farming and ranching stewardship practices, fish and wildlife habitat preservation, and outdoor recreation areas. A total of $19,312,625 has been awarded during the biennium.

            Prior to January 9, the Commission had given out $14.1 million in grants, well within the amount shown a couple weeks earlier in the State Treasurer’s report.  On January 9, according to that same press release, they approved $5,202,225 in new grants.

Add ‘em up. It’s $19,312,625.  

Bank balance: $14.7 million. Checks written: $19.3 million.

In addition, there is one more grant round scheduled for April 1, 2015. Here’s another quote from the Industrial Commission press release:

The next application deadline is April 1, 2015. More information about the program, including the application process can be found on the Outdoor Heritage Fund website. http://www.nd.gov/ndic/outdoor-infopage.htm.

April 1 is just two months from now. Conservation groups, city park boards, state agencies, local wildlife clubs, and deeply committed local groups interested in adding swing sets to their playgrounds are busy writing grant applications to get them done in time for the April 1 deadline, because they’ve been told there’s still more than $10 million of that $30 million left to be divided up before the end of the biennium, Which ends just three months after that April 1 deadline.

The Industrial Commission is still saying that’s there’s going to be $30 million in the fund, and they’re spending money like it is so. The last financial statement presented to the Outdoor Heritage Fund Advisory Board, at their December 15 meeting last month, showed anticipated biennial revenues of $30 million. Which, according to the Commission’s own numbers, means there is still more than $10 million to give out in the next six months.

Except there isn’t.

I’ve got a friend who’s worked in government many, many years, and knows budgets, and accounting, and tax collections, and things like that. Things an English major like me could never figure out. My friend says that during the slap-happy days last summer when oil was cruising along at about $88 a barrel, the fund was collecting about $930,000 a month. He says the price of oil is probably half that now, so the fund is probably collecting about half that much in taxes. That would be about $465,000 a month. As of that last financial statement, there were about 6 months left in the biennium. So that would come to about $3 million more in anticipated income for the rest of the biennium, bringing the total income to roughly $18 million in collections for the biennium that ends June 30.

Except that the Industrial Commission has already spent more than $19 million.

Gulp.

It’s probably not a cash flow problem, because it’s likely many of the grant funds haven’t been paid out yet. They might get paid out in stages, as projects get underway, or at the end of a project, when all the bills come in.

But any organization or agency that hasn’t gotten its check by June 30 is probably in trouble. Because state government, by law, cannot commit future biennial appropriations for expenses incurred in this biennium. In other words, you can’t charge things now to the next biennial budget. Because, you know, the price of oil could drop and the Legislature could decide to just kill the program. Then there wouldn’t be any money to pay the bills.

And if my friend’s research is right, and these numbers are right, and the bank account really is overdrawn, then what? Do we send the state’s top three elected officials to the pokey?

Thing is, they should have known better. Here’s what someone who follows the Legislative process told me:

Sometime after the bill that created the Outdoor Heritage Fund was introduced in the 2013 Legislature, supporters of the bill, HB1278, discovered that the Legislative Council was scoring the legislation as having a fiscal impact of only $17.62 million. Closer analysis revealed that oil production would need to increase significantly in order to achieve a level of $30 million for the fund, due to the way the bill was drafted. Although the sponsors, especially Rep. Todd Porter, were aware of the problem with the bill draft, the language was not changed during remainder of session, despite efforts by conservation interests. (Porter was angered that conservation groups had also supported separate legislation that would have created a larger fund with a more conservation-oriented advisory committee. Coincidentally, Porter received a public service award from the North Dakota Petroleum Council for his work on the Outdoor Heritage Fund.) 

            In May, after the Legislature had gone home, Fargo Forum reporter Patrick Springer wrote a story about that. Springer wrote

A glitch in the funding formula for North Dakota’s new Outdoor Heritage Fund means the conservation initiative is projected to have only a little more than half of the $30 million authorized for the next biennium. The fund is projected to raise $17.62 million during the 2013-2015 budget, well short of the $30 million cap allowed by the law to fund conservation projects.”

            Springer noted in that story back last May that Governor Dalrymple was saying that the legislators decided not to adjust the funding formula during the session because there was a “very real possibility” that production levels would exceed the estimates the state’s Office of Management and Budget used in its revenue forecast for the fund.

“We know the collection is going to be growing, basically every month,” the governor said. “There was talk of adjusting the percentage. There’s a lot of people who think production levels are about to jump again.”

            My friend who follows the Legislature told me this week:

Since the bill was enacted, oil production and prices have exceeded the original legislative assumptions (830,000-850,000 barrels per day for the two years of the biennium, and $75-80 per barrel for the two years). The outlook was so rosy that in September, 2013 OMB predicted the Outdoor Heritage Fund would grow to $23.8 million during the 2013-15 biennium based on increased production of 1,290,000 barrels per day by the end of the biennium.

But sometimes state regulators aren’t all-powerful, and the “invisible hand” intervenes.  According to Lynn Helms’ January 14, 2015 “Director’s Cut” the price of North Dakota sweet crude has sunk to $29.25 per barrel and North Dakota oil production hovers at 1,183,000 barrels per day.

            Uh huh. So there weren’t a lot of people predicting a 50 per cent drop in the price of oil, which has two effects: an immediate loss of revenue, because the fund comes from a percentage of oil taxes collected (which itself is a percentage of the price of a barrel of oil), and a drop in exploration, resulting in, at best, a stabilization in production instead of the hoped-for regular monthly production increases.

Still, the Industrial Commission has been walking a pretty fine tightrope, giving out grants as late as this January that exceeded OMB forecasts, even after watching the price of oil tank for four or five months. I don’t think there are a lot of state agencies that are allowed to do that. But when the chairman of the Commission is the Governor, and the Attorney General is sitting beside him, well . . .

And that’s the way it all appears to me, an English major, writing a story with a lot of numbers in it. I’m sure if I am wrong, someone will be quick to point that out.

I’m a little puzzled by all this. Oh, I’m not puzzled that the Governor and all his fellow opponents of Measure 5 used the $30 million figure to defeat the measure, and even increased it to $50 million for the last few months of the campaign. This was just another of the lies they told, lies which went unchallenged by the woefully inexperienced Pollyanna-ish proponents of the measure. The lobbyists for the Greater North Dakota Chamber, the North Dakota Grain Growers, the North Dakota Petroleum Council, the North Dakota Farm Bureau, the North Dakota Farmers Union, the North Dakota Stockmen, and the Lignite Energy Council are all up there at the Capitol these days, so I hope they’ll all go running down to the Governor’s office and make sure the Governor has a plan to cover his tracks, because, after all, they promised the voters $30 million . . .

Look, the Industrial Commission members had to know the number was wrong, yet they kept on spending the money as if the number was right. I just don’t get it. Unless . . . unless they planned to take advantage of a loophole called a “deficiency appropriation,” and ask the currently-meeting Legislature to appropriate more money to the fund, and then announce with a fanfare that they are so concerned about conservation that they are putting MORE MONEY into the Outdoor Heritage Fund, when all they are really doing is covering their tracks of bad management and overspending.

I don’t know. I hope they have an answer to all this. Because I’d really hate to see the Governor, the Attorney General and the Agriculture Commissioner go to the pokey. Then again . . .

UPDATE 11:58 A.M. FRIDAY, JANUARY 30:  Just released figures from the North Dakota Legislative Council project revenue to the Outdoor Heritage Fund for the 2015-2017 (next) biennium to be $16,720,000, based on a revised state revenue forecast due to falling oil prices. Remember, the Governor promised us $50 million if we’d vote against Measure 5. Stay tuned. 

UPDATE #2, 12:50 P.M. FRIDAY, JANUARY 30: I missed this earlier: The Legislative Council’s latest revised revenue projections for the 2013-2015 (current) biennium estimate the Outdoor Heritage Fund will receive only $18,700,000. As noted above, the Industrial Commission has already spent $19,312,625. Uh oh. Now we’ve got a real problem.

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