Legacy Fund committee urges caution with spending oil revenue
North Dakotans voted in 2010 to establish the Legacy Fund, setting aside 30 percent of oil and gas revenue as a permanent savings account for the state.
“We just thought over the long term, we knew that oil revenues eventually would decline; it’s a finite resource,” Harms said during a meeting with The Bismarck Tribune editorial board.
The money became available to spend after June 30, 2017. Spending the principal requires support from two-thirds of the Legislature. No more than 15 percent of the principal can be spent during a two-year budget cycle.
Former Bismarck legislator Dave Weiler, also a member of the original committee, said the option to spend the principal was meant to be only in a disaster or extraordinary situation.
“When we put this together, there was never a thought of ever spending the principal,” Weiler said.
Members of the committee are “adamantly opposed to invading the principal,” Harms said.
Gov. Doug Burgum’s budget proposal does not touch the Legacy Fund principal.
Burgum proposes spending $300 million in Legacy Fund earnings for projects that have a statewide or nationwide reach and provide a lasting impact for citizens, such as $50 million for the Theodore Roosevelt Presidential Library and Museum.
The Legacy Fund committee is still forming its policy ideas and did not take a position on Burgum’s budget proposal.
However, members said they’re concerned about committing Legacy Fund earnings before they’re deposited.
In 2017, legislators committed $200 million from Legacy Fund earnings to fund ongoing operations, Schmidt said. The dollars were committed from the earnings projected for 2017-19.
“They pre-spent that money to balance the budget,” she said.
Schmidt cautions that committing those dollars before they’re deposited adds another layer of risk to a fund that already sees ups and downs due to the volatility of the oil industry.
“Why would we add additional risk to do that?” Schmidt said. “Let’s wait until we have it in hand and then, if you are specifically wanting to spend the earnings, wait until you’ve got it in your hand and you know exactly how much there is before you go out and spend it. That’s just finance 101.”
For 2019-21, the Legacy Fund is projected to earn $306 million, Schmidt said. Burgum’s proposal would commit nearly all of those earnings.
Burgum spokesman Mike Nowatzki said the governor is taking a more responsible approach than was taken in 2017 by proposing to use Legacy Fund earnings for one-time projects, not to fund ongoing expenses. Nowatzki added that the state's budget is built on projected revenues.
Legislators also are proposing initiatives funded with Legacy Fund earnings. Members of the Legacy Fund committee said they plan to be active in the upcoming session when projects are proposed.
“If we as a state decide to spend all of the earnings, if we set that precedent, we are likely to continue to spend all of the earnings for years to come,” Harms said.
The market value of the Legacy Fund was $5.6 billion on Oct. 31, though Schmidt said she expects the account took a hit with the recent stock market volatility.
Legacy Fund earnings for the 2017-19 budget cycle were $306.5 million at the end of September, but down to $286 million at the end of October, Schmidt said.
The Legacy Fund is projected to have a balance of $14.4 billion in July 2025 if no earnings are withdrawn. That balance is projected to be $12.6 billion if all earnings are withdrawn, according to Schmidt.