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Rep. Craig Headland, R-Montpelier.

Rep. Craig Headland, R-Montpelier, has a proposal to do away with the state's income tax. 

North Dakota legislators adopted a cautious approach to budget-writing last week and that appears wise.

The House and Senate appropriations committees unanimously approved a forecast that assumes a $42.50 per barrel North Dakota oil price for the 2019-21 biennium. That’s lower than the executive forecast from Gov. Doug Burgum’s office and the forecast by IHS Markit, a firm hired by legislators for a second opinion.

The executive figured prices would increase from $46 to $50 per barrel over the next two years, while IHS forecast them a few dollars higher. Legislators expect oil production of 1.35 million barrels per day. They estimate the oil and gas revenue from the production will be around $4.06 billion in the next biennium, that’s 12.2 percent less than Burgum’s prediction.

The Tribune Editorial Board believes committees were correct to follow a conservative forecast. Oil prices have been volatile the last few years and when you are budgeting ahead for two years based on an educated guess, you need to be careful. At the peak of the oil boom it was easy to be optimistic. Those days appear over.

Commodities prices also have suffered and need to be considered, especially as the trade war continues.

Burgum’s proposed budget is fairly conservative so it appears legislators will be more cautious about spending. The estimate adopted by legislators on Wednesday expects about $4.17 billion in total general fund revenues in 2019-21. Mike Nowatzki, Burgum’s spokesman, said the governor stands by their forecast. Nowatzki questioned the assumptions in the IHS report to legislators on Monday.

Legislators will adopt another revenue forecast in March, which will give them time to tweak budgets before the end of the session.

Most observers expected spending to be tight this legislative session. Some proposals being offered could alter how budgets are developed.

Rep. Craig Headland, R-Montpelier, has a plan to eliminate state income taxes and use earnings from the Legacy Fund to replace the lost revenue. Headland, who chairs the House Finance and Taxation Committee, said his proposal would gradually reduce individual and corporate income taxes as the Legacy Fund earnings increase. He argues eliminating the taxes would make the state more attractive to workers. Headland said it’s also a way to use the Legacy Fund so it benefits everyone.

There are a number of other proposals to use Legacy Fund money so how far Headland’s plan goes remains to be seen. The idea of eliminating taxes could be appealing to a lot of North Dakotans. However, it’s almost certain this session will be careful about how much they spend and where they spend it. Until there’s a dramatic change in economic forecasts that’s the smart approach.

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