Commentary: Legacy Fund loan idea is promising -- but should go further
The North Dakota Legacy Fund is fed by a portion of the state's share of petroleum revenues. The fund, which started collecting deposits in 2011, now has a balance of more than $4.2 billion and the cash is pouring in lately at the rate of between $42 million and $45 million a month. So far, the only use that has been made of the fund, which is intended to enable the state to make strategic investments to create a better future for its residents, has been to balance the budget. Last session, beset by a steep drop in revenues caused by slumping oil and farm commodity prices, legislators appropriated $200 million from the fund's earnings for the current budget cycle.
Everyone would agree that tapping the Legacy Fund to pay for routine government operations fails to qualify as a strategic investment. It's a glaring lack of visionary leadership that, seven years after the fund started accruing, North Dakota's elected leaders have yet to map out a strategic plan for investing the voter-approved fund. Fortunately, a promising idea has surfaced. A group of Republican legislators is proposing to use up to 15 percent of the Legacy Fund's principal balance—$780 million is available for the 2019-21 budget—to make loans to political subdivisions for public works projects. The loans would have a payback period of up to 50 years at an interest rate of less than 1.6 percent. The loans would pay for water projects, such as the $1 billion Red River Valley Water Supply Project, and flood control, such as the $2.2 billion diversion channel to protect the Fargo-Moorhead metro area. Loans also could help pay for water and wastewater treatment plants and airport projects.
The low-interest loans would benefit rural and urban communities throughout the state. Earnings from the loans would replenish the fund. This would be an investment by the Legacy Fund, not an expenditure. Importantly, it would put North Dakota investment dollars to work in the state, for the benefit of its residents. It's a great idea—as far as it goes.
The mentality of North Dakota leaders seems to be to save the Legacy Fund intact for the distant future. A bipartisan group that recommended a range of scenarios for the fund projected it could balloon to a balance of $230 billion by 2060. That was during the peak of the boom, a revised estimate last year concluded that maximum potential was cut in half—still a whopping $100 billion-plus.
We'd like to see the fruits of the Legacy Fund benefit this generation as well as providing for future generations. Specifically, for instance, we'd like to see more generous low-interest loan programs for college students. If a North Dakota city could borrow at less than 1.6 percent for public works projects, couldn't we do better than the 4.97 percent loans now available to college students? There are all sorts of creative possibilities. Through the Legacy Fund, North Dakota has the ability to brand itself as a land of opportunity. But it will require an investment mentality, not merely a savings mentality, on the part of our leaders.