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Advisory board chairman predicts Legacy Fund won’t be tapped in 2017

BISMARCK — The chairman of the board that recommends how to invest North Dakota’s Legacy Fund predicted Monday that state lawmakers won’t tap the fund — now valued at more than $2 billion — when they first get the opportunity in 2017.

“I don’t think there’s going to be a will to appropriate it,” said Rep. Keith Kempenich, a Bowman Republican and chairman of the Legacy and Budget Stabilization Fund Advisory Board.

Lawmakers proposed the rainy day fund in 2009 and voters approved it in 2010, agreeing to set aside 30 percent of the revenue generated by state taxes on oil and gas production and extraction.

Whether the state should dip into the fund sooner rather than later has become a topic of debate as the fund’s balance has climbed faster than projected because of higher-than-expected oil production and prices.

The fund grew to $2 billion in April and is projected to have a balance of about $2.68 billion by January 2015, though it will likely beat that projection, according to David Hunter, executive director of the North Dakota Retirement and Investment Office.

“I would be shocked if we did not exceed that by several hundred million dollars,” he said.

As approved by voters, the fund’s principal or earnings can’t be spent until after June 30, 2017. Spending the principal after that date requires two-thirds approval in each house of the Legislature.

Legislative Council has interpreted the language to mean that lawmakers could appropriate money from the fund during the 2017 session, but the money couldn’t actually be disbursed or spent until after June 30, 2017.

But Kempenich predicted that lawmakers won’t appropriate money from the fund until 2019, and only then if there’s an identified use for it, noting the state is enjoying a budget surplus.

“As long as we have the ability to meet our obligations without getting into this, we’re looking toward the future,” he said.

Rep. Gary Kreidt, R-New Salem, who also sits on the seven-member advisory board, said the Legacy Fund could have $5 billion to $6 billion by 2017, and some already have “big ideas” of how to spend it.

“I look at this as a long-term investment for the state of North Dakota, and hopefully we don’t start tapping into it” at the first opportunity, he said.

Late last year, the nonprofit Great Plains Institute formed a Legacy Fund Initiative group to develop a vision for the fund’s future and make recommendations to the Legislature. Bank of North Dakota President Eric Hardmeyer, one of about two dozen leaders from various sectors serving on the panel and also an advisory board member, said the public needs to see a short-term plan for using the Legacy Fund, cautioning that otherwise they could take matters into their own hands through an initiated measure.

“If there isn’t some sort of return … then people start getting antsy,” he said.

The advisory board also received an update Monday on the transition to a new Legacy Fund investment strategy that began in July 2013, shifting investments from short-term bonds to higher-risk stocks, bonds and real estate with hopes of seeing a better return on investment than the 1.6 percent earned annually in the fund’s first two years.

The fund’s investments yielded a return of 3.93 percent for the year ending March 31, and the goal is to hit 6.4 percent by the time the transition is completed in January, Hunter said.

Kempenich said the investment growth is “a little slower” than what the board would like to see, but added, “We knew this was going to take some time.”

Mike Nowatzki

Mike Nowatzki reports for Forum News Service. He can be reached at (701) 255-5607.