By: Geoff Simon |

Executive Director Western Dakota Energy Association

Thanks to the foresight of North Dakota voters who established an oil tax trust fund, the state now has hundreds of millions of dollars of interest income available to meet the needs of the state’s citizens. Establishing the fund was the easy part. The tough part is coming up with an agreement among policy makers about how, or even if, the money should be spent.

A ballot issue approved by voters in 2010 established the Legacy Fund to capture a portion of the state’s oil tax revenue for use by future generations. Thirty percent of all oil tax revenue collected by the state is deposited in the Legacy Fund. For the first seven years of the fund’s existence, that money accumulated untouched. A constitutional measure prohibited spending the fund’s principal and interest through 2017. Till that point, every dollar remained in the fund.

But change came. At the conclusion of the 2017-19 biennium, the Legacy Fund’s earnings – $454 million – were transferred to the state general fund. The 2019 Legislature appropriated most of the money for patching up the state’s budget and replenishing its “rainy day” fund, which was depleted during the 2017 session following the slump in oil prices. However, thanks largely to higher oil prices, the state has returned to relatively good financial shape. The Legacy Fund has grown to $6 billion. Thus, the current debate is over how to use the earnings generated in the coming biennium.

To answer that question, the 2019 Legislature approved a study to examine possible uses for the earnings of the fund. The study directed the committee to consider tax relief, reinvestment of earnings, funding for research, funding for technological advancements, workforce development, and career and technical education.

MANY IDEAS ALREADY ON THE TABLE

Several ideas were floated during the 2019 session, but all were rejected. One of those measures would have asked voters to change the constitution so all earnings would once again be reinvested, and could only be spent with a two-thirds vote of the legislature.

Otherwise earnings would remain in the Legacy Fund. Financial calculations presented by Rep. Corey Mock, D-Grand Forks, showed if all earnings were reinvested for the next 40 years, the Legacy Fund would grow to $143 billion.

Also rejected during the session was a proposal introduced by Rep. Craig Headland, R-Montpelier that would have created the Income Tax Rate Reduction Fund. Headland’s legislation would have used Legacy Fund earnings to reduce personal and corporate income taxes, possibly eliminating them altogether within 10 years.

In his budget proposal, Governor Doug Burgum suggested nine separate uses for $300 million in Legacy Fund earnings. Some were ultimately approved by the legislature, but were not funded with Legacy dollars. Among his proposals, Burgum wanted to appropriate $50 million toward construction of the Theodore Roosevelt Presidential Library and Museum at Medora;

$80 million to support local infrastructure and school construction loan pools; $35 million for a behavioral health facility in Jamestown and $30 million to support the development of the drone industry in North Dakota.

Senate Majority Leader Rich Wardner, R-Dickinson, who serves on the interim Legacy Fund Earnings Committee, pitched several ideas this fall. He believes any use of the money should accomplish three things:

1) improve quality of life;

2) reduce the tax burden; and

3) lessen the state’s dependence on the federal government.

Wardner would like to devote 25 percent of Legacy earnings to the state’s Highway Trust Fund, which he said would fend off an inevitable need to raise the state’s motor fuel tax. State law provides that most of the money in the highway fund, 61.3 percent, be distributed to the state Department of Transportation for its road and bridge program. Counties receive 22 percent of the money, cities 12.5 percent, townships 2.5 percent and the remaining 1.5 percent goes to transit operations.

“It's going to keep taxes down because we're not going to raise the fuel tax,” Wardner said in pitching the proposal. “We're going to raise the quality of life because we won't kill as many people on the highways, and we're not going to be so dependent on the federal government and the dollars we get from them.”

Wardner would also like to see a good chunk of the money go to support school construction needs, but he hasn’t determined how the money should be distributed. His priority is schools in the oil patch that are struggling to cope with enrollment increases attributable to growth in the oil industry. He said quality schools are essential to recruit the workforce to sustain that industry growth.

“Everybody across the state likes the revenue that's coming in from oil and if we're going to put more revenue into the pot, you need more workforce,” Wardner said. “What's going to bring the workforce? Good schools. If we don't have the schools, we're going to havepeople that are just going to pass on coming to North Dakota.”

LEGACY FUND COMMITTEE WILL HIT THE ROAD

The interim committee ischaired by House MajorityLeader Chet Pollert, R-Carrington, who has asked the Legislative Council to produce a forecast so the committee knows how much earnings will grow.

“What's it going to be four years from now, what's it going to be eight years from now?” Pollert said. “And how much of those earnings do we spend, or do they go back into the principal. We've got a number of folks who think it shouldn't be tapped at all.”

Pollert said he would like to see Legacy dollars spent on lasting infrastructure projects, which would include support for the Red River Water Supply project that would bring water from the Missouri River to communities in eastern North Dakota.

“When you talk about a water system or a sewer system, you're talking about something that's going to last 30, 40, 50 years,” Pollert said. “To me that's worth having the discussion about.”

Pollert wants to hear input from people all around the state. That means the committee will do some traveling. It’s met twice already, in Bismarck and Fargo. Next, it will head to western North Dakota. Pollert said the committee will meet in Watford City in either late January or early February, 2020.

Geoff Simon is the Executive Director of the Western Dakota Energy Association (WDEA).

The association’s work supports sustainable energy development and responsible revenue sharing for its city, county and school district members, and promotes the greater good of North Dakota.

Reprinted with permission of Bakken Oil Business Journal