North Dakota Gov. Kelly Armstrong calls for cuts to agency budgets for 2027-29 biennium

North Dakota Gov. Kelly Armstrong wants state agencies to tighten their belts next budget cycle to begin correcting a revenue-spending imbalance that has developed over the past couple decades.

His request to cut budgets comes at a time when the Iran war has disrupted the global oil market, which North Dakota's economy is heavily tied to.

Over the next several months, agencies will prepare their budget proposals for the governor's blueprint, which he will present to the Legislature in early December in advance of the 2027 session.

In a presentation to state agency heads Wednesday, Armstrong said the state is financially healthy with steady revenues, full reserves and a strong, diverse economy, "but 20 years of growth in North Dakota has come with 20 years of growth in state budgets."

"We have had a balance problem in our state budget, and it's the growing gap between our ongoing revenues and our ongoing expenditures, and it's a slow-burning storm," Armstrong said. "We have to start correcting deficit spending in the general fund."

Armstrong directed agencies not to include any new full-time employees or new building projects in their proposals and warned that any new ongoingspending that agencies propose will need to be offset with reductions elsewhere in their budgets.

Armstrong said there will need to be exceptions for ongoing projects, such as hiring staff for the new Heart River Correctional Center in Mandan.

He asked agencies with budgets of less than $10 million to hold spending flat for the coming biennium, agencies with budgets of $10 million to $20 million to reduce their budgets by 3%, and agencies with budgets over $20 million to reduce their budgets by 10%.

Armstrong acknowledged that 10% is a "big cut" but said it is necessary.

"I don't want to do austerity measures and I don't think anybody in this room or anybody in North Dakota wants to be put in this position of where we have to do austerity measures," Armstrong said.

Austerity measures are actions taken by the government, typically during economic downturns, meant to stabilize the economy. Often they take the form of tax increases or emergency spending cuts.

Despite the directive to reduce budgets, Armstrong stressed that current agency salary budgets would be fully funded, meaning Armstrong is not incentivizing agencies to reduce their budgets by cutting their workforce.

He said his requests are part of a long-term strategy to close the General Fund gap between revenues and expenditures by 2032. The General Fund is the state's primary operating account.

Interim Health and Human Services Commissioner Pat Traynor told reporters his agency has already been discussing potential cuts but had not been given a specific reduction target until Wednesday.

HHS planned to begin meeting as early as Wednesday afternoon on how to "get creative" in meeting the 10% reduction request, according to Traynor.

The department has the largest budget of any state agency. Lawmakers appropriated roughly $5.8 billion for the agency for the 2025-27 biennium.

Traynor told reporters the reductions could be complicated by how much funding the agency receives from the federal government.

"That (10% reduction) can impair our ability to get matching funds from the feds. So we're going to go through with a fine-tooth comb," he said. "I think it's an opportunity to galvanize our team to really thoughtfully analyze how we can actually improve service to North Dakotans and have the least amount of impact to the citizens that we serve."

Armstrong also asked agencies with budgets of $20 million or less to prepare an additional 3% reduction package as a contingency.

"This is a 'break-glass-in-case-of-emergency' request, given the volatile energy market," Armstrong said. "I'm not asking you to plan for this 3% in your budget. I'm asking you to identify what it would be if we would ever need it."

Oil taxes are a major component of the state budget, comprising more than $5 billion in tax revenue during the 2023-25 biennium.

Office of Management and Budget Director Joe Morrissette said the state is using the best projections available to estimate where the oil market is headed, but forecasting can be difficult.

"The volatility, it's been just incredible," Morrissette said. "We've seen volatility even before the recent Middle East action where we had production that was both above and below our forecast for this biennium."

Despite the volatility, General Fund revenues are tracking "as close to the forecast" as possible for the 2025-27 biennium so far, according to Morrissette.

The state has a record $20.3 billion budget for the current biennium, including a $6.1 billion General Fund.

Though Armstrong will put together an executive budget going into the 2027 legislative session, lawmakers will make the final decision on how the state spends its money.

"Not every legislator has the same opinion on any of these things, right?" Armstrong said. "What I give them is the best decision packages we can give them through the hard work of everybody else in the room."

House Appropriations Committee Chair Rep. Don Vigesaa, R-Cooperstown, called the requested budget cuts a "prudent move."

"We've been aware of this looming budget gap, and we've had that for a few bienniums, but the cost to continue for many of our expenses is getting to be a large number," Vigesaa said.

He told the Tribune that the Legislature held the General Fund's expenditure growth to only 2% during the 2025 legislative session and said the state would need to have "very conservative budgeting going forward."