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New group to focus on how to spend, invest Legacy Fund Fund

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news Dickinson, 58602
Dickinson North Dakota 1815 1st Street West 58602

BISMARCK – A nonprofit organization that specializes in energy policy is pulling together a broad panel of leaders and planning public input meetings to discuss how North Dakota should spend its Legacy Fund, which oil and gas revenue has helped swell to $1.4 billion.

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Brad Crabtree, program director of the Great Plains Institute, said the goal is to develop a “consensus vision” for the fund’s future and make recommendations to the state Legislature on the long-term governance, investment and purposes of the fund, which can’t be tapped until 2017.

“North Dakota is tremendously privileged to have this oil and gas resource, and the people of North Dakota had the foresight to establish the oil and gas Legacy Fund,” Crabtree said Tuesday. “And given its importance for our future, the recommendations to the Legislature need to have the thinking, input and agreement from the broadest possible set of voices.”

The Legacy Fund Initiative group has its first meeting scheduled for Nov. 14 in Bismarck. It consists of 24 leaders representing government, industry, business, human services, the environment and other interests, Crabtree said.

Members will likely meet four or five times to develop their recommendations and then fan out across the state to solicit input at community meetings next spring or summer, “so that a community-level or grassroots perspective is incorporated into the work of these leaders,” he said.

The idea for the group arose after the Great Plains Institute, which is based in Minneapolis and has staff in Minnesota and North Dakota, led a delegation of North Dakota leaders to Norway in June 2012 to study the Norwegian energy system. The trip included a briefing by officials from Norway’s Government Pension Fund Global, which was created in 1990 as a way to ensure present and future generations benefit from the country’s petroleum wealth.

“We realized that … a broad set of North Dakotans had not yet had the opportunity to talk about the future of our Legacy Fund,” Crabtree said by phone from California, where he was attending the Interstate Oil and Gas Compact Commission’s annual meeting.

North Dakota voters approved a constitutional amendment in 2010 to set aside 30 percent of the state’s taxes on oil and gas production and extraction into the Legacy Fund starting in 2011. The fund also receives 25 percent of unobligated dollars over $300 million from the Strategic Investment and Improvements Fund.

State lawmakers can’t touch the Legacy Fund’s principal or interest and investment earnings until July 1, 2017. By law, any spending of the principal will require a two-thirds vote of the Legislature, and not more than 15 percent of the fund’s principal may be spent during a biennium.

The Legacy Fund continues to exceed original expectations as a result of the state’s thriving oil and gas industry, reaching a market value of $1.44 billion as of Sept. 30.

The State Investment Board voted in June to diversify the Legacy Fund’s investments, moving them from short-term bonds to higher-risk stocks, bonds and real estate by January 2015, with hopes of seeing a better return on investment than the 1.6 percent earned annually in the fund’s first two years. A consultant’s study showed the fund could take in about 6.5 percent annually through more aggressive investments.  

But those diversified investments also will mean “slightly higher” management fees for the Legacy Fund, said Darren Schulz, interim chief investment officer for the state Retirement and Investment Office, which oversees the fund’s investments.

Rep. Keith Kempenich, R-Bowman, chairman of the Legacy and Budget Stabilization Fund Advisory Board, said during Tuesday’s board meeting that as the Legacy Fund grows, he’s hearing more comments from legislators about the management fees.

“My main concern is we track the expense of what this is costing us to do,” he said.

The current management fee as a percentage of Legacy Fund assets is at 0.1 percent, which at the Sept. 30 balance equates to $1.44 million. Schulz said the fee has been “very competitive” for a fund dealing in short-term fixed income.

Because North Dakota’s Legislature meets in the spring and lawmakers can’t touch the fund until July 2017, they likely won’t appropriate money from the fund until the 2019 session, Kempenich said. Interest earnings accruing on the fund after June 30, 2017, will be transferred to the state’s general fund at the end of each biennium.

Kempenich said lawmakers during the 2015 legislative session will tackle when they should begin to tap the fund and for what purposes. Crabtree said the Legacy Fund Initiative “is meant to be a contribution to that legislative discussion in advance of the session.”

Crabtree said the initiative is being supported with a $138,600 grant from the philanthropic nonprofit Northwest Area Foundation, established in 1934 by Louis W. Hill, son of the late railroad executive James J. Hill.

 
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