The Legacy Fund has been tempting North Dakotans for some time and now two Minot Republicans want to use the fund’s principal for the first time.
Voters approved a constitutional amendment establishing the Legacy Fund in 2010. The amendment puts 30 percent of state tax revenues on oil and natural gas production in the fund. The Legislature wasn’t allowed to spend any of the fund’s assets until June 2017. A two-thirds vote of the North Dakota House and Senate is needed to spend any of the fund's principal. Lawmakers may not withdraw more than 15 percent of the principal every two years.
Sen. David Hogue, R-Minot, and Rep. Roscoe Streyle, R-Minot, are primary sponsors of legislation they plan to introduce in the 2019 Legislature. They want to use up to 15 percent of the fund's principal every two years for loans at 1.5 percent interest.
Cities, counties and other political subdivisions would be eligible for the loans that have a $10 million minimum and 50-year maximum term. The idea is that communities could use the loans for large and expensive infrastructure projects.
The loans would be handled by the state-owned Bank of North Dakota. School districts would not be eligible for the loans. Any loans exceeding $200 million would need approval of the Legislature.
The Hogue-Streyle bill would need a two-thirds vote of both chambers to pass.
According to the North Dakota Retirement and Investment Office website, actual market value of the Legacy Fund as of Jan. 31 is $5,420,062,895.
The principal balance of the Legacy Fund as of Jan. 31 is $4,643,420,713. The reason this amount is higher than what’s been deposited into the fund is because all earnings accrued prior to June 30, 2017, became part of the principal of the fund.
In the past, both Republicans and Democrats have shown interest in tapping into the Legacy Fund for a variety of purposes. Overall, the Legislature has resisted the efforts.
During the 2017 session the Legislature used $200 million of the fund's earnings to balance the state budget.
Hogue and Streyle say there’s a lot of interest in their proposal. The loans are seen as a way to get major infrastructure projects completed in a more timely manner. For Hogue and Streyle that’s important as Minot considers a multimillion-dollar flood protection project in the wake of the 2011 floods.
When the Legislature debates the bill one of the questions likely will be if this is the best way to use the fund. Different approaches have been suggested for tapping the Legacy Fund.
An analysis by Great Plains Institute concluded that the value of the Legacy Fund can double or triple through prudent management. The group outlined several scenarios for managing the fund.
An advisory group to the institute explained its preferred option, the "reinvest, replace and spend" management scenario under which the Legacy Fund would be tapped for investments, including replacing declining oil and gas revenues, and would have an estimated balance of $50 billion by 2060.
The Legislature would spend 25 percent of annual earnings until 2039 under this scenario, reinvesting the remaining 75 percent back into the fund until oil production peaks and begins falling.
House Majority Leader Al Carlson, R-Fargo, predicted the Legislature would develop a strategy for the Legacy Fund in the 2019 session. Whether lawmakers will want to use some of the principal from the fund remains to be seen.
It could come down to a debate over investing in major projects now or waiting to invest in the future. The state needs to develop a plan for using the Legacy Fund and stick to it. Trying to chip away at the fund every legislative session isn’t good management. The money is tempting for many uses, but overall intent has always seemed to be to build for the future.
Legislators need to develop a strategy before deciding on the Hogue-Streyle bill.