FARGO — North Dakota officials are bracing for a significant budgetary shortfall as they begin crafting the state’s 2027-29 budget, anticipating hundreds of millions of dollars less in revenue than the current 2025-27 biennium. Preliminary estimates suggest a decline of $700 million to $800 million, according to Allen Knudson, a budget analyst and auditor for the North Dakota Legislative Council.
Knudson projects a general fund balance of approximately $300 million at the start of the 2027 biennium, a substantial decrease from the $1 billion available at the beginning of the 2025-27 cycle. The extent of the shortfall will depend on revenue performance for the remainder of the current biennium, he cautioned.
A confluence of economic factors is contributing to the projected decline. Slower economic growth and lower-than-expected oil prices are key drivers, Knudson said. Changes stemming from federal tax policies, specifically those enacted under the “One Big Beautiful Bill,” are also expected to reduce state tax revenue by an estimated $130 million this biennium. These changes include the exclusion of taxes on tips and overtime pay, as explained by North Dakota Office of Management and Budget (OMB) Director Joe Morrissette.
“That all lowered the state tax money that comes in, so it affects our state tax collections,” Morrissette said. “Solid for the taxpayers, subpar for the state budget.”
Whereas Morrissette does not anticipate “across-the-board” cuts to state government, the OMB is actively seeking cost-saving measures across all agencies. The office is engaging in discussions with agencies to develop spending reduction strategies in preparation for what is expected to be a “extremely challenging budget cycle.”
“Next biennium, if we just meet our forecast and we’re looking at just what expenditures our ongoing revenue stream can support, it’s going to be something less than what we’re currently spending,” Morrissette said. “So that’s where we get to this discussion of the budget reductions in the next biennium.”
Governor Kelly Armstrong has already initiated budget preparations, directing his Cabinet to begin work on the budget months ago. Armstrong indicated that he has instructed agencies to refrain from creating new full-time positions or initiating new programs. He acknowledged that the expansion of state government over the past two decades, fueled by the oil boom and population growth, has become unsustainable.
“Government has to grow to catch up, but our current growth of government is also unsustainable,” Armstrong said. He views the upcoming budget process as an opportunity to “reset” state government, focusing on efficiency and evaluating the effectiveness of existing programs.
The state Legislature approved a record budget of nearly $20.3 billion for the 2025-27 biennium, representing a 3% increase from the previous cycle and a 50% increase from the 2013-15 budget. Approximately 9% of North Dakota’s general fund revenue is derived from oil taxes. Current projections estimate oil prices will remain between $57 and $59 per barrel, a forecast Morrissette says the state is currently tracking closely.
“Our production has been just a little bit above forecast, and overall the forecast is fairly conservative,” Morrissette said. “So far, we’re fine there.”
The OMB recently offered a voluntary separation incentive program to state employees, providing three months of pay to those who opt for early retirement. As of February 6th, 17 employees had accepted the offer, 21 declined, and many had not yet responded. More than 4,000 employees are eligible for the program.
Morrissette emphasized the importance of mindful spending and encouraged agencies to reconsider filling open positions. He also noted that agencies are not obligated to spend their entire allocated budget for the current biennium.
“We always want them to make good, thoughtful decisions and only spend what they need to,” he said.
A revised revenue forecast is expected in March, which Morrissette anticipates will show lower revenue than previously projected. The state’s Budget Stabilization Fund, commonly referred to as a “rainy day” fund, currently holds $938 million and could be utilized to address budget shortfalls if necessary. However, Morrissette noted that tapping into the fund is a rare occurrence, citing the state’s ability to navigate the COVID-19 pandemic without drawing from it.