Why North Dakota May Be the Best State in the Country to Live In

CBS MoneyWatch

While many states are confronting severe budget shortfalls and dragging economies, North Dakota has a different sort of problem. It's stuck deciding how best to deal with a budget surplus. Yes, a surplus. North Dakota's balance sheet is so strong it recently reduced individual income taxes and property taxes by a combined $400 million, and is debating further cuts.

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That's not exactly what residents of California ($25.4 billion projected budget shortfall for the 2012 fiscal year), Texas ($13.4 billion), New Jersey ($10.5 billion), New York ($10 billion), and 42 more states with projected 2012 budget shortfalls are in line for.

I can just hear the snarky comment formulating in your head right about now -- something about North Dakota's rough winters, and comparative lack of high-brow culture or pro sports teams, no doubt. Duly noted. But if we keep the conversation to economics and fiscal policy, North Dakota has plenty to admire.

North Dakota: We're No. 1 ... or Darn Close to It!

North Dakotans are way too polite to make that boast, but I'll do the honors. Here's how North Dakota outranks most states:

Lowest unemployment rate among the 50 states. North Dakota's 3.8 percent unemployment rate is less than half the national rate.

Statewide GDP growth of 3.9 percent ranked third in the nation in 2009 behind Oklahoma and Wyoming (2010's figures are not yet available.)

Best job growth last year. A Gallup survey reported that North Dakota businesses had the best ratio of hiring to firing among the 50 states.

Stable housing market. Across the nation, nearly 1 in 4 homeowners with a mortgage are underwater. In North Dakota, just 1 in 14 have negative equity, the fourth lowest negative-equity ratio among all the states. The state also has the third-lowest home foreclosure rate. Affordable homes are a big part of the story here; let's just say you don't need to overstretch to own. According to Zillow, the median home price in North Dakota is below $150,000. That's less than three times the state's median household income. By comparison, even after sharp post-bubble price declines, the median priced home in California is still about five times median household income.

Low violent crime rate. The incidence of violent crime per 100,000 residents in North Dakota in 2008 (latest available data) was the fourth lowest in the country and nearly 60 percent lower than the national average.

Lowest credit card default rate. According to TransUnion, North Dakotans seem to have a handle on spending within their means.

Add that all up and you have the makings for a pretty contended bunch. In fact, Gallup recently concluded that North Dakota is the third happiest state in the U.S., trailing only Hawaii and Wyoming. (The saddest state? West Virginia.)

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Riding the Global Commodity Wave

North Dakota's economic good fortune is pretty much a function of being a major producer of two very in-demand commodities: wheat and oil, both of which have seen huge global price increases. The state is the country's #1 producer of durum wheat -- that's what pasta is made from -- and is also a major grower of other crops including barley, pinto beans, and flaxseed.

The state also currently accounts for 2 percent of domestic oil production. Sound puny? Keep in mind that North Dakota has just 650,000 residents, accounting for about 0.20 percent of the overall U.S. population. And it's aggressively ramping up its oil production. During the past 12 months, North Dakota's crude oil production is up 43 percent, and is triple the rate from five years ago.

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Planning for a Rainy Day

While residents are indeed seeing some of the revenue over-flow returned to them via income tax and property tax cuts, they are also supportive of tucking away some of today's winnings for less robust times. This past November, nearly 64 percent of North Dakotans voted in favor of establishing a Legacy Fund that will siphon off 30 percent of total revenue collected from oil and gas production into a special savings account to help the state if/when the boom busts. The earliest the Legacy Fund can be tapped is 2017 and even then any disbursements from this de facto state emergency savings fund must be approved by at least two-thirds of the state legislature. During North Dakota's 2011-2013 budget cycle (it operates on a 2-year budget), the fund is expected to reach $619 million, or about one-fifth the state's proposed spending for that entire period. Of course, not every state has a commodity-driven windfall at its disposal, but I also don't think every state's residents would be so behind saving current revenue for a rainy day.

There's also another uniquely North Dakota economic engine worth noting. North Dakota has the only state-owned bank in the country. Established way back in 1919 amid a rash of farm foreclosures, the bank provides capital to smaller local banks, reducing their reliance on big national banks that, um, sometimes like to turn off the lending spigot. Moreover, when the state bank turns a profit, residents benefit. Over the past 10 years, the state bank has deposited about $300 million back into the state's general fund.

Sure it's easy to take a good-natured swipe at North Dakota's lousy winters. But a strong economy and a fiscal ethos that appreciates the value of saving deserves some respect, if not outright envy, as well.

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