Driven primarily by continuing record oil production from the Bakken Shale formation, North Dakota’s economy is booming and is on target to produce more than $3.5 billion in tax revenues by the end of the state’s current two-year (2011-2013) fiscal year budget period, according to the state tax commissioner.

Tax Commissioner Corey Fong released a report last month showing that North Dakota’s total taxable sales and purchases during 1Q2012 were about $5.3 billion, an increase of 52% compared to the 1Q2011. More recently Fong noted that oil production was about 50% greater now than the estimates used when the current state two-year budget was approved by the legislature.

Lawmakers last year estimated oil production of 425,000 b/d in setting the budget; in May, North Dakota reported production averaging 640,000 b/d (see Shale Daily, July 24). “It’s astounding and significant,” Fong told local news media recently. “It’s been in some cases challenging to forecast what’s going to happen.”

In the first quarter, Fong said, 14 of 15 major economic sectors reported gains when compared to the same time a year earlier, and mining and oil extraction recorded one of the biggest gains with a 99% increase. Retail trade, the sector often looked to as a measurement of consumer confidence, grew by 27%, representing an increase of $284 million. The construction sector had the largest percentage of growth, increasing 113% when compared to the first quarter of 2011.

“North Dakota is experiencing an unprecedented expansion of its economy right now,” Fong said. “And, while oil development is contributing in large part toward our economic expansion, this report shows strength across all of our state’s key economic drivers. Every sector, with the exception of one (education, health and social services), reports growth in taxable sales and purchases.”

Under a state voter-created oil tax trust fund enacted two years ago, 30% of the oil tax money is reserved for the trust and cannot be touched by state lawmakers for another five years. Some of the funds go to other trust funds benefiting schools and water projects, and another slice of the funds is dedicated to reducing property tax rates. Finally, some of the oil tax revenue is reserved for western North Dakota counties where the oil boom is ongoing.

Thus, even if the estimated added $1.6 billion in oil tax revenue comes to pass, most of it is pre-designated for various uses, according to state Sen. Ray Holmberg, chairman of the appropriations committee. There isn’t necessarily a lot of extra money for the lawmakers to spend, Holmberg told local news media recently.