The rapid growth of the Legacy Fund and the potential opportunity to further accelerate that growth led the North Dakota Legislature to propose Measure 3 to voters.
The measure on the Nov. 5 ballot would change some of the rules and definitions surrounding the Legacy Fund, which was established by voters in 2010 as a trust fund that covers 30% of the state’s oil and gas production tax. .
“It’s growing faster than we expected,” said Rep. Corey Mock, D-Grand Forks. “I didn’t expect Legacy Fund to reach $1 billion for at least 10 years.”
Legacy funds currently hold more than $10 billion.
Under the terms established when the fund was created in 2011, Congress can spend up to 15% of the capital with a two-thirds vote. 15% was expected to generate $150 million over 10 years. Given the current size of the fund, Congress is proposing to reduce the principal’s eligible expenditures by 5%, or $500 million, said Mock, the sponsor of the Congressional resolution establishing Measure 3, a constitutional amendment. he said.
Reducing the expendable principal is one part of Measure 3. The other part deals with the fund’s income.
For the first seven years, the proceeds from the Legacy Fund were not available for use, but now the proceeds are automatically transferred to the General Fund on June 30 of odd-numbered years.
The technical change in Measure 3 eliminates the June 30 distribution and replaces it with language stating that the proceeds will be contributed to an investable legacy income fund. Proceeds are currently not invested.
Mock said tying distributions to a specific date becomes a problem due to market fluctuations. He said the market could turn bullish or, conversely, the country could be forced to sell assets at a loss.
“It was very difficult for managers to budget, predict and invest wisely because we were calculating everything on a specific day. But this is the only fund that operates this way.” Mock said, noting that other state funds use moving averages.
In addition to the Measure 3 resolution, Congress passed Senate Bill 2330. The bill defines legacy income as 7% of the five-year moving average of the fund balance.
“This can be liquidated into a cash account and maintained for transfer without risk of penalties. We are not putting our stock positions at risk. We are not changing our investment strategy due to timing. There’s no need,” Mock said. “It’s much more predictable. We already know what our revenue will be next year.”
Mock said a fiscal analysis prepared by the Legislative Council using information from the state investment manager showed the impact of the changes related to Measure 3 and SB 2330 is significant.
Based on current return definitions and a fund return of 5.5%, by 2035, legacy funds will have approximately $20 billion in assets and approximately $1.3 billion in revenue. By 2045, the fund will have just over $30.3 billion in assets and $2 billion in revenue. In 2055, the Fund will have assets of $41.3 billion and revenues of $2.8 billion.
With the proposed changes to principal expense and return definitions, and a 7.2% return, legacy funds could hold more than $24.6 billion and generate $1.4 billion in returns by 2035. That’s about $100,000 more than if you didn’t make the changes. But by 2045, the fund is expected to grow to $43 billion, generating more than $2.6 billion in revenue, and by 2055, the $65.5 billion fund is expected to generate more than $4 billion in revenue. .
Mock said that while the investment committee believes a 7.2% return is realistic, a scenario using a lower return would still generate significantly more revenue than it currently does.
The numbers used in the forecast also predict a decline in oil revenue going into the fund. Mock said the forecast is based on input from the North Dakota Department of Mineral Resources.
SB 2330 passed the House and Senate without opposition. House Concurrent Resolution 3033, which created Bill 3, passed by a vote of 45-1 in the Senate and 92-1 in the House.
Voters will decide on Nov. 5 whether to also support Measure 3’s changes to the Legacy Fund with a “yes” vote.
“The bill went through many variations and proposed measures that we believe are very responsible,” Mock said. “People are well aware that legacy funds are important assets, so this small change can have a meaningful impact.”
Replace measure 1
outdated words
North Dakota voters will decide to replace outdated language in the state constitution with a new definition with Measure 1 on the Nov. 5 ballot.
Measure 1 was placed on the ballot by the 2023 Legislature.
This bill would replace “North Dakota School for the Deaf” with “School for the Deaf” in the constitutional reference. “State Hospital for the Insane” would become “State Hospital for the Treatment of People with Mental Illness.” “Institutions for the Mentally Disabled” would become “facilities for individuals with developmental disabilities,” and “State Hospital for the Mentally Disabled” would become “State Hospital for the Care of the Mentally Disabled.”
A “yes” vote on Measure 1 will make these changes.
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