15.9379.

05000

Prepared by the Legislative Council staff

2015-17 BIENNIUM ESTIMATED OIL TAX ALLOCATIONS HOUSE BILL NO. 1176
This memorandum provides information on 2015 House Bill No. 1176 and 2015-17 biennium estimated oil tax
allocations based on the January 2015 revised revenue forecast.

HOUSE BILL NO. 1176

House Bill No. 1176 includes the following:
Excludes up to 80 percent of the 75 percent of a school district's oil and gas gross production tax
distributions that are imputed in the calculation of state school aid payments if the distribution is used to
pay eligible school construction loans or bonds.
Removes the June 30, 2015, expiration date of the oil and gas gross production tax formula changes made
by the 2013 Legislative Assembly in House Bill No. 1358.
Changes the definition of a hub city related to employment percentages from employment in the mining
industry to oil and gas-related employment and clarifies that the hub cities' allocation percentages be
updated annually.
Increases the annual amounts allocated to hub cities under North Dakota Century Code
Section 57-51-15(1) from $375,000 per percentage point of oil and gas-related employment to $500,000
per percentage point.
Increases the annual amounts allocated to hub city school districts under Section 57-51-15(1) from
$125,000 per percentage point of oil and gas-related employment to $150,000 per percentage point.
Allocates $1.75 million each fiscal year for each county that received $5 million or more of oil and gas tax
collections in the prior state fiscal year for distributions to school districts, excluding hub city school
districts.
Decreases the oil and gas gross production tax revenue collections allocated to the oil and gas impact
grant fund from $240 million per biennium to $140 million per biennium.
Increases the amount allocated to counties related to the 4 percent of the 5 percent oil and gas gross
production tax from 25 to 60 percent of all revenue above $5 million.
Technical corrections to the distributions to political subdivisions in Sections 57-51-15(4) and 57-51-15(5)
to provide clarity and consistency.
Provides additional reporting requirements for counties and school districts, including requirements to
report revenues and expenditures, ending fund balances, and detailed information on the amounts
expended from the allocations.
Provides funding of $120 million from the general fund to the Department of Transportation for paved and
unpaved road and bridge projects in counties that received no allocation or less than $5 million in annual oil
tax allocations in state fiscal year 2014.
Provides one-time funding of $139 million ($140 million allocated to the fund less approximately $1 million
for administrative costs) from the oil and gas impact grant fund to the Department of Trust Lands for
undesignated oil impact grants.

2015-17 BIENNIUM ESTIMATED OIL TAX ALLOCATIONS

The schedule below provides a comparison of 2015-17 biennium estimated oil tax allocations based on current
law to estimated allocations based on the provisions of House Bill No. 1176. The amounts shown reflect
allocations for August 2015 through July 2017. Formula changes to the allocation of oil and gas gross production
tax collections to political subdivisions become effective with July oil production and September distributions. As
a result, the amounts shown for political subdivisions reflect one month of allocations under the 2013-15 biennium
formula and 23 months of allocations under the 2015-17 biennium formulas being considered. Attached is a
flowchart reflecting the 2015-17 biennium allocations reflecting the formula changes in House Bill No. 1176.
The 2015-17 biennium estimated oil tax allocations are based on the January 2015 revised revenue forecast,
which reflects oil prices increasing from $45 to $65 per barrel and average daily oil production of
1.2 million barrels per day during the 2015-17 biennium. The estimates reflect an oil extraction tax effective
rate of 1 percent for the first 10 months related to the $52.59 trigger price provisions and an oil extraction tax
North Dakota Legislative Council

January 2015

15.9379.05000

effective rate of 6.1 percent for the remaining 14 months of the biennium. The estimates also reflect an oil and
gas gross production tax rate of 4.8 percent for the entire 2015-17 biennium.
The employment percentages shown for the hub cities reflect data provided by Job Service North Dakota. The
employment percentages related to current law are based on employment in the mining industry, but the
employment percentages related to House Bill No. 1176 are based on oil and gas-related employment.
The amounts shown for the legacy fund and the strategic investment and improvements fund reflect transfers
from the strategic investment and improvements fund to the legacy fund that may occur if the strategic investment
and improvements fund unobligated balance is in excess of $300 million. Based on legislative action through
January 29, 2015, the strategic investment and improvements fund unobligated balance is estimated to be
approximately $53 million on June 30, 2015. As a result, the amounts shown below for current law allocations are
based on the strategic investment and improvements fund unobligated balance being in excess of $300 million
only for the last few months of the 2015-17 biennium.
2015-17 Biennium January 2015 Revised Revenue Forecast Estimates
Current Law
House Bill No. 1176
Legacy fund
$1,305,400,000
$1,186,240,000
Three Affiliated Tribes
314,050,000
314,050,000
Oil and gas research fund
10,000,000
10,000,000
Oil and gas impact grant fund
240,000,000
140,000,000
574,530,000
1,236,560,000
Political subdivisions1
Abandoned well reclamation fund
10,000,000
10,000,000
North Dakota heritage fund
16,720,000
16,720,000
Foundation aid stabilization fund
172,760,000
172,760,000
Common schools trust fund
172,760,000
172,760,000
Resources trust fund
345,520,000
345,520,000
General fund
300,000,000
300,000,000
Property tax relief fund
341,790,000
341,790,000
Strategic investment and improvements fund
442,610,000
21,740,000
State disaster fund
22,000,000
0
Total oil and gas tax revenue allocations

$4,268,140,000

$4,268,140,000

Increase (Decrease)
($119,160,000)
0
0
(100,000,000)
662,030,000
0
0
0
0
0
0
0
(420,870,000)
(22,000,000)
$0

The amounts shown for the allocations to political subdivisions include the following:
Current Law

House Bill No. 1176

Increase (Decrease)

Employment Percentages
House Bill
Current Law
No. 1176
Hub Cities
Williston
Dickinson
Minot
Mandan
Bismarck
West Fargo
Jamestown
Fargo
Grand Forks
Total hub cities

40
22
6

64
39
12
9
3
3
2
2
2

$56,390,000
29,690,000
8,900,000

$117,270,000
65,400,000
20,790,000
8,630,000
2,880,000
2,880,000
1,920,000
1,920,000
1,920,000

$60,880,000
35,710,000
11,890,000
8,630,000
2,880,000
2,880,000
1,920,000
1,920,000
1,920,000

68

136

$94,980,000

$223,610,000

$128,630,000

17,000,000
301,230,000
101,300,000
30,700,000
29,320,000

39,810,000
615,760,000
206,150,000
90,460,000
60,770,000

22,810,000
314,530,000
104,850,000
59,760,000
31,450,000

$574,530,000

$1,236,560,000

$662,030,000

Hub city school districts

Counties
Cities (excluding hub cities)
Schools (excluding hub city school districts)
Townships
Total

NOTE: The amounts reflected in this schedule are preliminary estimates. The actual amounts allocated for
the 2015-17 biennium may differ significantly from these amounts based on actual oil price and oil
production.
ATTACH:1

North Dakota Legislative Council

January 2015

15.9517.01000

Prepared by the Legislative Council staff

2015-17 OIL AND GAS TAX REVENUE ALLOCATION FLOWCHART

(REFLECTING HOUSE BILL NO. 1176)
This memorandum provides information on the estimated allocation of oil and gas tax collections for the 2015-17
biennium based on the January 2015 revised revenue forecast. A summary of the funds is included in Appendix A, and
a more detailed schedule of the distribution of oil and gas gross production tax collections is included in Appendix B.

2015-17 BIENNIUM
January 2015 Revised Revenue Forecast Estimates
Collected by Tax Department $4,268 million

Distributed by State Treasurer

Oil and gas gross production tax $2,269 million

$178 million

Distributed by formula

Legacy fund $1,186 million

Tribal share $314 million

$136 million

Oil extraction tax $1,999 million

Oil and gas research fund $10 million

Distributed by percentage

Oil and gas impact grant fund $140 million

Political subdivisions $1,236 million (Appendix B)

10

Foundation aid stabilization fund $173 million

10%

Abandoned well reclamation fund $10 million

11

Common schools trust fund $173 million

10%

North Dakota heritage fund $17 million

12

Resources trust fund $345 million

20%

$57 million

State's share $664 million

$607 million

Transfers to
Distributed
by formula
13
16

General fund - First $200 million

17

Property tax relief sustainability fund - Next $342 million

16A

General fund - Next $100 million

18

Strategic investment and improvements fund - Next $22 million

19

State disaster relief fund - Next $0 million

18A

Strategic investment and improvements fund Any additional revenues - $0 million

Transfer to

2A

Legacy fund - 25% of revenues in strategic investment and

improvements fund exceeding $300 million - $0 million

Energy conservation
grant fund $1 million

Renewable energy
14 development fund $3 million

Infrastructure
15 revolving loan fund $35 million
Summary of Estimated 2013-15 Distributions
Total
Legacy fund
$1,186,240,000
Tribal share
314,050,000
Oil and gas research fund
10,000,000
Oil and gas impact grant fund
140,000,000
Political subdivisions
1,236,560,000
Abandoned well reclamation fund
10,000,000
North Dakota heritage fund
16,720,000
Foundation aid stabilization fund
172,760,000
Common schools trust fund
172,760,000
Resources trust fund
306,770,000
Energy conservation grant fund
1,200,000
Renewable energy development fund
3,000,000
Infrastructure revolving loan fund
34,550,000
General fund
300,000,000
Property tax relief sustainability fund
341,790,000
Strategic investment and improvements fund
21,740,000
State disaster relief fund
0
Total
$4,268,140,000
Shading in number boxes represents
constitutional allocations

ATTACH:2
North Dakota Legislative Council

January 2015

APPENDIX A
The table below provides a brief description of the taxes and funds included in the flowchart on the previous page.
The changes to the allocations included in House Bill No. 1176 are boldfaced.
Box
1

Tax/Fund
Oil and gas gross
production tax

2 and
2-A

Legacy fund

Tribal share

Oil and gas

research fund

Oil extraction tax

Oil and gas impact

grant fund

Political
subdivisions

Abandoned oil and

gas well plugging
and site
reclamation fund
North Dakota
heritage fund

10

Foundation aid
stabilization fund

11

Common schools
trust fund

12

Resources trust
fund

13

Energy
conservation grant
fund
Renewable energy
development fund

14

15

Infrastructure
revolving loan fund

Description
North Dakota Century Code Section 57-51-02 provides for a tax of 5 percent of the gross value at the
well of oil produced in North Dakota unless exempted. The gross production tax on gas is four cents
times the gas base rate adjustment for each fiscal year as calculated by the Tax Department.
Article X, Section 26, of the Constitution of North Dakota, provides for a deposit to the legacy fund of
30 percent of total revenue derived from taxes on oil and gas production or extraction. Section
15-08.1-08 provides that if the unobligated balance in the strategic investment and improvements fund
exceeds $300 million at the end of any month, 25 percent of any revenues received for deposit in the
strategic investment and improvements fund must be deposited instead in the legacy fund.
Chapter 57-51.2 provides the requirements for allocating oil and gas tax revenues to the Three Affiliated
Tribes within the Fort Berthold Reservation. The oil and gas tax revenues are allocated 50 percent to the
state and 50 percent to the Three Affiliated Tribes.
Section 57-51.1-07.3 (2003 Senate Bill No. 2311) establishes the oil and gas research fund.
2013 Senate Bill No. 2014 amended Section 57-51.1-07.3 to provide that 2 percent of the state's share
of the oil and gas gross production tax and oil extraction tax revenues, up to $10 million per biennium, is
to be deposited into the oil and gas research fund. All money deposited in the fund and all interest
income are appropriated as a continuing appropriation to the Oil and Gas Research Council.
Section 57-51.1-02 provides for a tax of 6.5 percent of the gross value at the well on the activity in North
Dakota of extracting oil from the earth unless exempted.
Section 57-51-15 (1989 House Bill No. 1302) establishes the oil and gas impact grant fund for deposit of
revenue from oil and gas gross production taxes. 2013 House Bill No. 1358 amended Section 57-51-15
to provide that revenue from the tax equal to the first 1 percent of the gross value of oil at the well of oil
production, up to $240 million per biennium, is to be deposited into the oil and gas impact grant fund.
The fund is used to provide grants to political subdivisions impacted by oil development. House Bill
No. 1176 decreases the allocation to the oil and gas impact grant fund by $100 million, from
$240 million to $140 million.
Oil and gas gross production taxes are apportioned to political subdivisions pursuant to Section
57-51-15 as amended by 2013 House Bill No. 1358. House Bill No. 1176 increases the allocations
to political subdivisions by increasing the amount allocated to counties related to the 4 percent
of the 5 percent oil and gas gross production tax from 25 to 60 percent of all revenue above
$5 million. House Bill No. 1176 also increases the amount allocated to hub cities and hub city
school districts and provides an allocation of $1.75 million per fiscal year to school districts in
counties that received $5 million or more in oil tax allocations in the prior state fiscal year. See
Appendix B.
2013 House Bill No. 1333 amended Section 57-51-15 to provide that 4 percent of the first 1 percent of oil
and gas gross production tax to be allocated to the abandoned oil and gas well plugging and site
reclamation fund, but not in an amount exceeding $5 million per state fiscal year and not in an amount
that would bring the balance of the fund to more than $75 million.
2013 House Bill No. 1278 created a North Dakota outdoor heritage fund to preserve natural areas and
public lands and amended Section 57-51-15 to provide 4 percent of revenues from the first 1 percent of
the oil and gas gross production tax up to $15 million per state fiscal year.
Article X, Section 24, of the Constitution of North Dakota, provides for a distribution of 10 percent of oil
extraction taxes to the foundation aid stabilization fund. Section 24 also provides that the principal of the
foundation aid stabilization fund may be expended only upon order of the Governor to offset foundation
aid reductions that were made by executive action due to a revenue shortfall.
Article IX, Section 1, of the Constitution of North Dakota, provides for a common schools trust fund to be
used to support the common schools of the state. Article X, Section 24, of the Constitution of North
Dakota, provides for a distribution of 10 percent of oil extraction taxes to the common schools trust fund
to become part of the principal of the fund. Article IX also provides for the deposit of other revenue
sources into the common schools trust fund. Only earnings of the common schools trust fund may be
spent. The earnings are distributed to school districts as part of the state school aid formula.
Section 57-51.1-07 provides for a distribution of 20 percent of oil extraction taxes to the resources trust
fund. Article X, Section 22, of the Constitution of North Dakota, provides that the fund may be used,
subject to legislative appropriation, for constructing water-related projects, including rural water systems,
and funding of programs for energy conservation.
2013 Senate Bill No. 2014 amended Section 57-51.1-07 to provide for a transfer of one-half of 1 percent
of the amount credited to the resources trust fund from the resources trust fund into the energy
conservation grant fund, up to $1.2 million per biennium.
2013 Senate Bill No. 2014 amended Section 57-51.1-07 to provide for a transfer of 5 percent of the
amount credited to the resources trust fund from the resources trust fund into the renewable energy
development fund, up to $3 million per biennium.
2013 Senate Bill No. 2233 created an infrastructure revolving loan fund within the resources trust fund to
provide loans for water supply, flood protection, or other water projects. Ten percent of the oil extraction
tax allocations deposited in the fund are designated for the infrastructure revolving loan fund.

APPENDIX B

JANUARY 2015 REVISED REVENUE FORECAST ESTIMATES OF 2015-17 BIENNIUM

DISTRIBUTION OF 5 PERCENT OIL AND GAS GROSS PRODUCTION TAX COLLECTIONS
(REFLECTING HOUSE BILL NO. 1176)
Annual distribution of 5% oil and gas
gross production tax
Chapter 57-51

Estimated 2015-17
allocation

1% of the 5%

$132,460,000

$500,000 per fiscal year to hub

1
cities for each full or partial
percentage point of private covered
employment in the mining industry

4% of the 5%

$39,810,000

$33,540,000

$150,000 per fiscal year to hub city

school districts for each full or partial
percentage point of private covered
employment in the mining industry
$1.75 million for each county that
received $5 million or more for
distributions to school districts

Oil and gasproducing counties

State share

Legacy fund
(Article X, Section 26, of
the Constitution of
North Dakota) 30% of total gross
production taxes

0%

First $5 million

100%

40%

Over $5 million

60%

Oil and gas impact grant fund $140 million per biennium
Remainder to state share

Estimated 2015-17
allocation
$8,060,000

For a county that received less

than $5 million

For a county that received

$5 million or more

Counties - 45%

Counties - 60%

County must levy 10 mills for road

purposes to be eligible.

County must levy 10 mills for road

purposes to be eligible.

$3,580,000

Cities - 20%

$6,270,000

Schools - 35%

Schools - 5%

Based on average daily attendance

distribution basis

Based on average daily attendance

distribution basis

Cities - 20%
2

Townships - 3%

Estimated 2015-17
allocation
$607,700,000

$202,570,000
$50,650,000

$30,385,000

Based on the proportion of township miles

relative to township miles in the county
Summary of Estimated 2015-17 Distributions
Total
Hub cities
$223,610,000
Hub city schools
39,810,000
Counties
615,760,000
Cities
206,150,000
Schools
90,460,000
Townships
60,770,000
Total

$1,236,560,000

Townships - 3%

$30,385,000

Distributed equally among all the townships

in all the counties that received
$5 million or more

Hub cities - 9%

$91,150,000

Distributed based on percentages:

Williston 60%, Dickinson 30%, Minot 10%

A "hub city" means a city with a population of 12,500 or more, according to the last official decennial federal census, which has more than 1 percent of
its private covered employment engaged in the mining industry, according to data compiled by Job Service North Dakota.

Hub cities and hub city school districts must be omitted from this apportionment.