(upbeat music) - Hello, and welcome to North Dakota Legislative Review.

I'm Dave Thompson.

Thanks for joining us.

Our guest of the program is the Chairman of the House Finance and Tax Committee, Representative Craig Headland from Montpelier.

Representative, thanks for being here.

- Well, thank you, Dave, for having me.

- Well, let's just tell people how long have you been Chairman of House Finance and Tax?

- Dave, I think the first session I served as chairman was in the 2015 legislative session.

- So you've seen a lot in terms of revenue going up and down and revenue going up again.

- We've seen the highs and lows.

- And speaking of revenue going up, one of the big issues, at least from my perspective, this issue is going to be tax and tax relief.

And you are shepherding, right now, the income tax.

Tell us where you're at with that.

- Yesterday in the finance and tax committee in the house we passed out three income tax measures.

One of 'em would provide a flat rate of 1.5% with a zero bracket for the first $47,000 roughly of income for a single filer.

And then I think it's about 75,000 for a couple that's marrried and filing jointly.

- And that was one of the bills?

- That's one of the bills.

A second bill is a little bit higher of a flat tax rate, a rate of 1.99%, which is a little different the way it's crafted.

It provides a credit up front of $800 for an individual filer and $1,600 for a married couple that files jointly.

- And the third bill?

- The third bill is a path to zero, and it.

the bill itself.

would work whether we pass any tax relief or not.

But essentially what it does, in times of prosperity, if the forecasted revenue is 10% over what it had been forecasted at, it would trigger a one half percent reduction in the marginal rate or rates depending on where we end up.

- And, of course, we're talking about income tax rates because that was one of the governor's priorities as well to try to say that income tax probably affects more people in the state of North Dakota.

Am I correct?

- It does.

I think there's about, there's 566,000 people who file income taxes in North Dakota, and that's a much, much greater number than those who own property.

- Well, in terms of your bill, does it affect out-of-state taxpayers?

- Well, it depends on which bill that you're.

- Okay.

- Gonna speak to.

And the bill with the one point half percent flat rate and the zero bracket up front, it been coined the governor's bill.

It's actually my bill that I had offered.

That bill would reduce rates for every taxpayer.

The 1.99% rate with the credit that's provided up front, it's a credit that would be provided to only North Dakota residents.

So it, the difference in that bill is every taxpayer would be impacted by the 1.99% rate, but if you're a North Dakota resident, you would receive the credit which would minimize that impact to those that would be paying at a lesser rate today.

- Okay, now is the plan for all three bills to go to the floor at the same time and say, "Okay, pick and choose, which we want."

- As of right now, Dave, that is the plan.

We haven't chosen a day.

It's gonna have to be early next week, Monday, Tuesday, or possibly Wednesday.

We haven't chosen the day that we're gonna run the tax bills out.

I think it depends on how the scheduling with some of the other committees and some of the significant important legislation they have and how they, the leadership feels they wanna run that.

But we do wanna try to run the tax bills on the same day.

- And I suppose the reason you're doing it next week is you're getting close to cross over.

- We are getting cross, close, to cross over.

Those bills do have to be voted on prior to that.

So all the house bills will be voted on, and they'll cross over during crossover.

- Now the Senate passed some property tax relief.

Oh, one was that to put more money into Foundation Aid and to lower mills from 60 mills to 40 mills and also something to do with the Homestead Tax Credit.

They're coming over to the house.

How does, is there a way to reconcile both concepts at least?

- Well, I believe that's what will occur at the end of the session.

The house did also pass a Homestead Tax credit bill out of committee that has not been voted on on the floor yet.

That's gonna be part of the tax package that the house sends over.

So the house is dealing with both income tax and homestead property tax relief for those that are 65 and older.

The senate has passed those two measures as you talked about, one of 'em, a mill every buy down for education funding.

And the other one is a little bit different, homestead tax credit bill, so.

- It's all very interesting.

And what do you have to do to reconcile this?

- Well, I think it'll be just a negotiation between the house and senate leadership tax committees.

And we'll just see how it all flushes out.

But I think there's a number of how much tax relief we believe we can afford and sustain into the future that is like a total of what we would provide between both income tax and/or property tax.

- But what I hear you saying is there's probably room for something in both.

- Well, I think that's definitely the case.

- We talked about tax bills.

Another bill that came up was removing the trigger from the oil tax.

And tell me why that was an important bill.

- Well, Dave, oil production has become a significant piece of North Dakota's economy.

In fact, it's the leading industry.

It's overtaken the egg as far as the revenue it produces and how those dollars run through our economy.

The trigger, essentially, when it triggered, led to, the trigger amounts to what we see as a windfall profits tax.

So, as North Dakota is reliant on oil, the key thing that we need to do is to keep production up.

And how we do that in the Bakken is by capital being applied, you know, for various things that they do in the oil industry, but it's capital intensive in the oil patch.

And in order to keep production up, we have to have a stable tax environment.

And we've believed that it was just not good tax policy.

It's not business friendly tax policy to, when things are good, you know, to put essentially what amounts to a 20% surcharge tax on that industry.

And what we found out, and I think this is what's significant about that piece, is that, you know, we went through the times of really bad oil prices during Covid, and we lost some oil companies and, you know, some of those midstream companies that we all need, you know, to keep oil production up.

When oil recovered, things did stabilize and, you know, it got high enough where the tax trigger actually kicked in, and you would expect to see additional investment in and more capital brought to, you know, either increase production during times of high prices or at least maintain where the levels that we were at.

However, we didn't see that with the trigger applied.

And, you know, it's just one of the, probably, one of the reasons that we didn't see that additional investment.

And, frankly, I think, during other times without the trigger, you know we might have possibly seen an increase in production, which, you know, brings additional revenues to the state.

So it's all about bringing capital to North Dakota and getting it invested in the oil play in the Bakken.

- It sounds like you're saying play the long game, not the sugar game.

- It's the long game, yep.

- And I think you mentioned that, you know, if they don't invest in North Dakota, they have other places, shale plays to invest in.

- They do.

You know, we're in a real competition with New Mexico and Texas and their Shell Oil plays.

And, you know, when the trigger was first enacted, when we dealt with the oil tax back, I believe, it was in that 2015 session, and that high trigger was put into place.

We were in a different time in the Bakken.

At that time, you know, the Bakken was the prominent shale oil tax play, and we really didn't have to compete with the states of Texas and New Mexico for where that capital gets applied.

We're in a different world today, and I think we saw the impacts of the time when the trigger was on and where the investment went.

And it did not come to North Dakota as we had hoped.

- Permian Basin.

- Permian Basin.

- So that is another, perhaps, incentive to say to the oil industry, "We need you to stay here.

We're going to remove the trigger, so you won't have to face this 20% increase in revenues."

- We absolutely do need that industry here, and, you know, as the Bakken ages and it becomes more of a mature play, you know, there are other things that we're gonna have to do that, you know, may look like they're going to reduce revenues upfront, but, again, it's about keeping production at levels that we really need to keep this economy going and keep that Bakken play an important piece for American energy production.

- Another one that's there along the same lines is this bill about a tertiary recovery or enhanced oil recovery?

You, there's a bill that, I think your name is on the bill, isn't it, Craig, about?

- Well, you're talking about the restimulation.

- Restimulation, that was the word I was searching for.

- That is another bill that was brought to us by one of our larger oil companies in the state, and, you know, their choices of where they want to put their investment up.

You know, I think this company is one of those companies that has developed most of their leases.

And so if they're gonna continue to bring capital to North Dakota versus investing it in the other place that they're heavily active in, we needed to take a look at doing something for a restimulation or what they call a refrack.

And I think this bill was put forward to address that.

It passed out of the committee, I believe, unanimously.

And that will be on the floor, I believe, tomorrow for a vote.

- So, but that does, I think that you said that might need some tweaking.

- It might need some additional tweaking.

We did tweak it from the way it was introduced, tried to limit the exposure to North Dakota revenues and, at the same time, still provide enough of an incentive for an oil company to invest in a well that has lost its production.

And the real goal here would be, is to have an active well not become a stripper well where you lose the tax revenue, the extraction piece altogether.

- And talking to the EERC, there's a lot of studies that if you could find a way to unlock the refracking, if you want to call it, or just using carbon to get in there, you know, carbon's sequestered, to enhance oil recovery there's a lot of oil that's still available.

- There is so much oil in the Bakken that, you know, there's enough oil that will last for generations to come.

We need to continue to incent.

We need to continue to find reasons for companies to invest.

You know, as time passes, technology changes, and it seems that we're able to get more and more oil out of that rock than we were in the past.

Now when you talk about secondary and tertiary recovery, you're really addressing a move on like a whole oil field where this refrack is like a particular well.

- Okay, targeted to a well.

- Yes.

- Yeah, similar to what that company's doing in Beaumont County, correct?

- Well, they are, they have a tertiary recovery.

They're using CO2 to enhance the oil production.

I believe, anecdotally, I've been told it's working very well.

Production has gone up to levels that they really only imagined.

So there are things and improvements in technology that are really gonna help North Dakota and all shale oil plays in the future.

And kudos to our EERC who's helping develop technology that's gonna work in the Bakken in a horizontal well.

I believe the wells that you've referred to down in Bottineau County are your traditional critical older wells, so.

- I know there's some more work to do on Bakken.

- [Craig] There is.

- What's the best way to, to get that oil out?

- Yeah, there is more work to be done there, but I think we're really close, and, you know, we already have incentives in place, you know, for when that technology is ready and to be deployed into the Bakken.

So we're ready with tax policy.

I think we're just waiting on the technology to get there.

And, to my understanding, it's really close - Now, I just have to ask you, since we're talking general tax policy, has there been any discussion about tax incentives for getting animal agriculture back in North Dakota?

- Well, there hasn't been any chatter about tax incentive itself.

It's more of the business structure associated with bringing that capital in.

The animal agriculture in today's terms with some of the size and scope of 'em are really expensive.

You know, we've heard dairies, a 25,000 head dairy cost an upwards of 30 million dollars, you know, so, again, that's more than your average family farm is gonna be willing to invest with the risk associated with doing that, so.

- What do you think about the idea of carve outs?

I'm calling carve outs.

Some people are also calling carve outs of the corporate farming law that we have in North Dakota to allow animal agriculture to, you know, to expand a bit.

- Well, I think I agree with them.

You know, I think we need to do everything we can to incent that with all the manufacturing or the, what's happening with soybeans, corn, and all of that, we really need a place for those feed stocks to go.

They, everything can't be loaded on a rail and shipped outta here.

So, you know, the best way we can do that is to bring some animals here.

We bring some production, it's gonna help those companies that are are trying to get all the oil they can outta soybeans and and the uses for that.

But it's those feed stocks that we need to worry about and the benefit of what that would bring to local communities.

I think we really feel that animal agriculture and, you know, getting some of those located here would really help our rural communities, the small towns, because of where they'd be located.

- Are there special exemptions that the legislature is considering for these things like a Cargill soybean crushing plant or anything like that?

- I don't know that we've addressed any special exemptions for any of the current processing plants, but we've got exemptions on the books to try to encourage them to come here.

And, as you are probably aware, the latest to announce is a soybean crushing facility that's gonna be located in Grand Forks.

We already have the soybean facility at Spirit Wood.

We have one that's being built in Castleton.

And then we have just recently announced one in Grand Forks.

There are also corn processing facilities that are being discussed as well.

- So you're seeing that type of potential for economic expansion in North Dakota?

- That's correct.

There, you know, there's even a lot more exciting projects happening than that.

I think we're on the cusp of announcing a fertilizer plant to possibly, fertilizer production plant being announced.

You know, it depends on policy that gets past this session, and, you know, we're working as hard as we can to make sure that we've got the business environment to get all that we need for our North Dakota economy here.

Our farmers need fertilizer, and, you know, we're the, essentially, the last stop as fertilizer comes up the Mississippi or gets unloaded in the ports.

So what we can produce here is help, is very helpful.

- Now here's something a little different, but, again, we're talking taxes.

There have been studies over the past few bienniums.

Interim committee took a look at the exemptions that are already in statute and looking at what are used, which aren't used, which can go, or which need to stay or be enhanced a bit.

Any thoughts on how that study's gone?

- Well, we have been, and I have been part of those interim committees that have looked at those exemptions.

And what we've tried to do with existing exemptions is is there a need to continue with the exemption?

Have we been able to incent what we were trying to, and part of the discussion recently was the soybean processing facility exemption.

I believe it was two interims ago we had the discussion, and we hadn't been able to incent in everything, so we discussed whether we should take it off the tax roles or not.

The decision was made at that time to leave it in place.

And here we are just a few years later, and we have three facilities that are being proposed and being built.

- And three facilities for, I think, North Dakota's becoming one of the top soybean producers in the world.

- Well, North Dakota, I believe, ranks high.

I don't recall our exact position in production, you know, as far as states go, but we do have, I believe, two of the three top producing counties in the whole country located right here in North Dakota.

- I'd like to shift gears again and just ask you, are there other particular issues that you're really interested in and kind of keeping your eye on this session?

- Aside from taxation?

- Aside from taxation.

Which is gonna take up most of your time, I understand, but.

- Well, certainly, workforce has, you know, really come to the forefront.

Our need for labor and the workforce I don't think has ever been greater in North Dakota, and that all fits in with the tax policy, the income tax reductions we're looking at.

But, you know, all other things that we can do, you know, to try to encourage people, as they leave other states because of high taxes and other things, you know, to give North Dakota some consideration.

- So you're talking about building a climate in North Dakota where people wanna move here and fill some of the 30 or 40,000 jobs that are out there.

- Absolutely, Dave.

That's what we're trying to accomplish this session, and I think we're gonna have some success.

- What about childcare?

- Childcare is a big issue, and I believe that there are pieces of legislation in regards to childcare that are gonna pass this session to try to help young families that, it becomes a problem that they either can't find the adequate childcare, which I think is the biggest problem.

We just don't have enough of those different businesses, small businesses, you know, we don't have enough people willing to do it, and that's a problem.

But hopefully there's ways we can incent that.

- And, can I say, you've probably seen that whole attitude about, you know, state involvement in getting childcare started or helping childcare out.

That seems to have evolved since, really, the early nineties is what I can remember, through now here we are sitting in 2023 and workforce is like issue number one.

- It it really has.

I've been on the tax committee for a while, and we've had different bills over the years.

Some have passed.

Some have failed for various reasons.

But, the bottom line is, today we're almost in dire straits where we really have to do something to help young families because if they can't find childcare, one of the parents is not able to enter the workforce.

And, when we're so short on labor and skilled labor, you know, what else are we gonna do?

- And, of course, that is a ubiquitous type issue because you hear complaints from the oil industry, "We need more workforce.

We need more people doing frack crews.

We need more people doing oil and gas production."

And you hear it from retailer.

You hear it from manufacturing now if you're talking about the the corn crushing plants, the soybean crushing plants coming.

Those are good paying jobs.

But can you find people to work?

- Dave, I don't think there's a sector of our economy that isn't challenged with workforce issues.

We know, in the agriculture community, we're challenged with workforce issues, technology, service, you know, oil production, manufacturing.

I think you could go right down the list, and you'd find that every area is short of labor and workforce.

- Another overarching issue.

- Very.

- Again, you're talking about the top three or four issues.

Those were my top three or four.

We have a few minutes left.

I wanted to ask you about your feeling about changing the retirement plan for new hires, for state government from a defined benefit to a defined contribution plan.

That bill is going through.

- That bill is going through.

And I think we really have to address it this session while we have the economic resources to do it.

We can continue to kick the can down the road, Dave, and, you know, we, if we had addressed it a few years back when we had an opportunity, it would've cost us 25% of what it's gonna cost us today.

And this is taxpayer money we're talking about.

But, at the same time, we've also made a promise to those employees that have come and they've dedicated their careers to the state, and they deserve what they've been promised and we feel obligated to do it.

However, you know, moving forward, I think younger generation doesn't care as much about a pension.

They actually prefer a 401K type of package that is mobile, and they, so they don't get locked into one position and have to make a career out of a position that, essentially, in order to get their pension, their retirement, that they've been so promised.

- So you're basically saying what some of the studies have shown is that people aren't spending as much time in jobs as they used to.

- Well, that's right.

- They're changing jobs.

- [Craig] Yep.

- Unlike some of us who have been in our jobs over 40 years, but that's all right.

- Well, some of us have only really known one job, and, you know, I think there's a blessing that goes around with being able to, you know, have a job and then see it through till retirement.

But, you know, some like change.

Some like to move around and do different things, and to each his own.

- Well, we have about a half minute left, and I ask every guest this question, what's, how, when do you adjourn?

- Well, I, it's gonna be the end of April.

I think, my guess is we're gonna go 78 days.

- Okay, you're saying 78, which is, anywhere between 75 and 78 is what I'm hearing, so.

Well, thank you for taking the time of being here.

- Well, thanks a lot for having me, Dave.

It was a great conversation, and I would be happy to come and talk with you anytime.

- Great.

Thank you.

Our guest, Representative Craig Headland from Montpelier, Chairman of the House Finance and Taxation Committee.

For Prairie Public, I'm Dave Thompson.

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