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Legacy Fund rebounds after losing value in March and April

Legacy Fund rebounds after losing value in March and April

North Dakota state Capitol

The North Dakota state Capitol in Bismarck is offset by flowers in full bloom in June 2018.

North Dakota's Legacy Fund lost value during the coronavirus-related market downturn in March and April, but the state's oil tax savings account has since recovered and now is close to where it was before the slump, according to the state's chief investment officer.

David Hunter told the Legacy and Budget Stabilization Fund Advisory Board on Wednesday that the Legacy Fund peaked in mid-February at just over $7 billion, Prairie Public reported. The board comprises state lawmakers and officials who help guide the fund that's derived from 30% of monthly oil tax revenue.

"Given the strong capital market and economic conditions at the time, including over $1 billion in net investment income in 2019, the fund did well," he said.

But it lost 12.6% during the first quarter of the year due to impacts of the global pandemic, according to Hunter. It has since rebounded and is now down by only 1.3%, he said.

"And after incorporating the estimated returns for the month of May and the first half of June, we believe the Legacy Fund will have an estimated market value of $6.9 billion," Hunter said.

State Treasurer Kelly Schmidt told the Tribune last week that the fund this Friday will receive about $10.24 million from oil tax revenue, the lowest deposit in history, reflecting plummeted oil prices and production in April amid the pandemic.

The record monthly deposit is $117.16 million made in August 2014. The fund's average monthly deposit is $54.7 million.

Advisory Board Chairman Rep. Keith Kempenich, R-Bowman, told the Tribune last week that the fund "is a long-term investment, so that's how we approach this."

The fund generated more than $455 million in earnings in the state's 2017-19 budget cycle. Earnings accrue over a two-year budget cycle and then transfer to the state's general fund.

Legislators are discussing changing the definition of earnings, which are defined in state law as the dividend and interest earnings of the fund, according to Senate Majority Leader Rich Wardner, R-Dickinson.

"We never know what that's going to be, until June 30, the end of the biennium," Wardner said. "Because that's always in flux, it's really tough to budget."

Lawmakers are considering changing the definition so the earnings become a percentage of market value.

"You take the principle, and you take a five-year average of the principle balance, and you say, 'OK, we're going to take 4% of that, and that's what we're going to expend as income," Wardner said.

"The percent of market value of the fund does not change as much as the earnings do, so that gives us some stability and allows us to plan and budget," he said.

The Budget Stabilization Fund -- the state's rainy day fund for offsetting revenue shortfalls -- suffered some losses in March but has recovered and is now at $724 million, Hunter told the board Wednesday. The fund is capped at $726.5 million. Money above that amount goes into the state's general fund.


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