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Diverse Group of North Dakotans Releases Consensus Legacy Fund Recommendations

For Immediate Release                                                                          Media Contact:          Patrice Lahlum

November 13, 2014                                                                                                                            701-429-1861

                                                                                                                                                   plahlum@gpisd.net

 

Diverse Group of North Dakotans Releases Consensus Legacy Fund Recommendations

 

BISMARCK – A diverse group of North Dakota public, private, community and nonprofit leaders and citizens have reached consensus on recommendations to help guide the future use of North Dakota’s Legacy Fund.

“Our vision is that North Dakota’s Legacy Fund will provide a permanent, sustainable resource for future generations that fosters self-sufficiency, creates opportunity and enhances quality of life for all citizens,” the Legacy Fund Initiative participants stated in the newly-released report.

Convened by the Great Plains Institute, the 24-member group met seven times over the past year to develop policy recommendations to guide the purposes, governance, investments and future expenditures of the state's oil and gas Legacy Fund.  The group also solicited citizen input through a series of community forums and an online survey conducted in conjunction with North Dakota’s Association of Tribal Colleges.

“North Dakota’s Legacy Fund is special. It differs from other constitutional and state special funds in that North Dakota voters established the Legacy Fund to safeguard a portion of oil and gas revenue and grow it for the future,” the group said.   

Established in 2010 by North Dakota voters through a legislatively-referred constitutional initiated measure, North Dakota’s Legacy Fund currently stands at more than $2.2 billion and has been projected to reach $6 billion by 2017, when Fund returns first become available for expenditure.  Thirty-percent of oil and gas tax revenue is deposited into the Fund.

“For the first and perhaps only time in our state’s history, we can meet the needs and opportunities of the present and steward the development of an extraordinary and permanent resource for the future,” they said.

The project participants were able to craft a consensus vision and guiding principles, along with proposed broader-long-term purposes for the Fund.  In addition, the group proposes governance and accountability mechanisms appropriate to the Fund’s future multi-billion dollar scale.

“It is important that North Dakota implement the highest standards and practices of governance, accountability and transparency to guide Fund policies, procedures, decisions and actions,” the group wrote, noting their development of a “Best Practices” checklist enabling North Dakotans to compare the governance, accountability and transparency of the Legacy Fund against a set of best practices drawn from guiding principles and codes of conduct for other sovereign and state wealth funds.

The group also outlined principles, strategies and priorities for Fund management and future use of returns based on analysis of various revenue scenarios for the Legacy Fund over time.

Using conservative assumptions of oil production and price, Legacy Fund Initiative participants developed a preferred scenario – “Reinvest, Replace and Spend” – on which to base their recommendations.  Under the scenario, the Legacy Fund balance grows to $230 billion by 2060, while providing North Dakotans important benefits in the near to medium term and fully replacing state oil and gas revenue as production peaks and starts to decline. 

Under this preferred scenario, the Legislature would spend 25 percent of annual earnings from 2017-2039 and reinvest the remaining 75 percent back into the Legacy Fund until oil production peaks and begins falling.  At that point, the Legislature would still spend 25 percent of annual earnings, but use a portion of the remaining 75 percent of earnings to replace diminishing state oil and gas revenue, while reinvesting the rest into the Fund.

The group recommends the Legislature establish a North Dakota Legacy Foundation to involve the legislative and executive branches of government in administering Legacy Fund initiatives and guide the use of a portion of annual Fund earnings, subject to oversight by the Legislature. 

Under the ND Legacy Foundation model, the Legislature would establish a biennial critical priority for long-term study and statewide planning.  The group recommends a comprehensive strategy and action plan for building a world class pre-K through 20 education system as the first Legacy Foundation priority.  

Project participants also recommended three ongoing initiatives for the proposed Legacy Foundation:

·         Endowing a higher education scholarship program in North Dakota, as part of developing and implementing the broader strategy and action plan for pre-K through 20 educational excellence.

·         Fostering innovation that builds a bridge to the future, by establishing a “Genius Initiative” to foster transformative private and public sector innovation that  leverages our current success in energy and agriculture to expand and accelerate economic diversification and increase our state’s productive potential.

·         Investing in 21st century economic and community infrastructure that is bold, visionary and transformative and provides returns or allows for repayment of principal to the Fund.  They specifically recommend investing rather than spending Fund earnings on infrastructure in order to leverage the impact over time.

Allocating 25 percent of Legacy Fund earnings to these priorities as recommended could provide about $63 million to each of the three initiatives, or about $189 million total by 2020. This could grow to $131 million in 2025, $222 million in 2030 and $459 million annually in 2040 to each of the three recommended initiatives.

“Through wise management, North Dakota’s Legacy Fund has the potential to truly provide a permanent, sustainable resource for future generations that fosters self-sufficiency, creates opportunity and enhances quality of life for all citizens,” the group said.

“By embracing a sound 25-year strategy, we can advance bold and visionary ideas that provide benefits now, while building a bridge to our future,” they concluded.

The Northwest Area Foundation, the North Dakota Natural Resources Trust and the Consensus Council, in partnership with the Bush Foundation, provided grant funding to support the project.  The full report and additional project information can be found here: www.betterenergy.org/legacy-fund.

 

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