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North Dakota Senate leader proposes Hub City oil distribution funding plan

North Dakota Senate leader proposes Hub City oil distribution funding plan

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Sen. Rich Wardner

Sen. Rich Wardner is chairman on the Energy Transmission and Development Committee which met in Dickinson Tuesday to discuss its Hub City status.

DICKINSON -- North Dakota Senate Majority Leader Rich Wardner has presented a proposal for oil tax distribution to hub cities in the oil patch to the Western Dakota Energy Association.

The proposal would, he said, make meaningful changes to the state’s oil and gas tax distribution framework, all with the goal of protecting monies allocated to the 17 western oil producing counties of North Dakota from legislative scrutiny.

Wardner said in an interview after his presentation to the association on Thursday that he wants to get the Hub City funding out of the line of fire and protect it for the oil producing counties that have been hit hard with infrastructure needs.

Oil tax distribution in North Dakota boils down to two taxes -- an oil and gas gross production tax and oil and gas extraction tax. The gross production tax exists “in lieu of” a property tax and it provides the bulk of funding for Hub Cities.

“(The state) told the political (subdivisions) out here in the 1950s, ‘You’re not going to be taxing the oil.’ But the political subs, the counties, the cities and the school districts have impacts from that,” Wardner said. “The state said, ‘We’ll take care of you in lieu of a property tax.’ ”

The production tax is that method of “taking care” of the oil producing parts of the state, though it is frequently targeted by representatives from other parts of the state, Wardner said.

“There are people in other parts of the state who are saying ‘they are getting way too much money.’ But they don’t understand … how we’ve got hammered out here,” Wardner said. “It’s needs. We’re not dealing with wants out here. We’re just trying to make sure we can take care of the necessities.”

In lieu of a property tax on oil producers, the production tax feeds the state and the political subdivisions of the oil-producing counties. It is a 5 percent tax on production that is divided in 1 percent and 4 percent streams. The 1 percent stream doesn’t fluctuate if the price of oil goes up or down. The 4 percent stream fluctuates based on the market -- and it is the stream that Wardner wants to float to Hub Cities.

Here’s how it works: Of the 17 oil-producing counties in the state, nine of them receive over $5 million per year. The eight counties who receive less divide their totals with 45 percent going to the county, 20 percent going to the city and 35 percent going to the schools.

For the nine counties who receive more than $5 million per year, the money is distributed differently: 60 percent of it goes to the county, 20 to the cities, 5 percent to the schools, the townships receive two different 3 percentages and Hub Cities receive 9 percent. This leaves schools in well-funded counties receiving proportionally less.

The schools are made whole with funds from the 1 percent stream. Wardner’s proposal consolidates that and all Hub City money into the 4 percent stream.

The remaining money from the 1 percent stream would go right into the state, with some allotments given to a heritage fund and a reclamation fund.

This proposal would divide the production tax money by a 60/40 split between counties and the state, rather than its current 70/30, accommodating for the additional $101.6 million that will be added into it from the 1 percent stream.

“We’re not really asking for any more money, and remember when the price of oil goes down, all of these numbers get smaller,” Wardner said. “Remember if the price of oil goes up, there will be more money here -- the state will get more money, and so will the cities.

“If we get more money, it means there’s more activity out here. We want more oil work out here, we want more workers out here.”

The proposal is intended to protect the Hub City monies while laying down a groundwork to distribute future energy profits, he said, with no new money being added -- it’s just being distributed in different ways.

Dickinson City Administrator Shawn Kessel said he likes this proposal for the consistency it could bring.

“The other intent behind this proposal is that it doesn’t get touched for three to five to 10 bienniums, so this might be our ability to finally have some stability in regard to the legislation,” Kessel said. “They’ve tweaked the way they reimburse cities through the oil and gas gross production tax every session for the last four sessions. For us, it’s really a great place to start to know that in three years, six years and eight years, we will have access to a certain number of funds. It frees us up to make decision in the long-term rather than the short-term.”

The oil tax changes in Wardner’s proposal include:

A school impact fund would receive 2 percent of the counties’ 40 percent tax allocation. This impact fund cannot be deducted from, but would expressly be intended for school construction and debt repayment.

There is no longer any crossover from the 1 percent stream; instead, the proposal gives the schools a flat 7 percent of the higher total, resulting in $35.6 million in funding on top of what they get in the impact fund. “Which is almost the same (as they get currently) and we have 2 percent in an impact fund for school construction and school debt,” Wardner said. “I think they’ll be fine with that.”

Cities similarly see a shift in percentages, but receive comparable levels of funding, going from 20 percent and $81.8 million to 16 percent and $81.4 million.

Counties would receive 48 percent, down from 60 percent, but the amount of actual money they’d receive remains close to what it is currently. “It’s 48 percent of more dollars,” Wardner said. Currently the counties receive $245.5 million, under the proposal they would receive $244.2 million.

Townships get consolidated under a flat 4 percent funding, which leaves them with about $5 million less than they currently receive all-told.

Although townships would receive less money, Wardner addressed that.

“Here’s what I’m advocating: you keep your money, you don’t share it with anybody,” he said. “So if you’re in the Big Four, Mountrail, McKenzie, Williams and Dunn you’re going to be in the ballpark. There are other counties: Burke, Bowman, Stark, Billings -- they would lose some funding. But where’s the action? We’ve gotten to the point where with the surge money, we were able to take care of many of the needs. Those four counties -- that’s where the activity is.”

This is not the final version of this proposal, which has already undergone five iterations, and Wardner said multiple times he wanted to talk to members of the Energy Association, including school administrators and leaders, to get feedback on this proposal.

From Dickinson’s perspective, Kessel seemed to think this proposal was politically realistic and beneficial.

“At the end of the day, we have to be very conscious of what we can pass. If you consider that as the finality … I think what Senator Wardner has proposed is an excellent foundational document,” Kessel said. “I don’t think this is the final result yet.”

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