Stockpiling other people’s money is a lousy goal for the government
In 2009 the North Dakota Legislature passed a constitutional amendment to create a fund out of a portion of taxes on oil and gas development.
It was approved by the voters, as all constitutional amendments in our state must be, in the 2010 election.
Today what is now called the Legacy Fund has a balance of going on $5 billion and is widely praised by newspaper editors and politicians and gadflies from around the state as one of the wisest policy moves our state has made in decades.
Yet, to this date, nobody has really figured out what we’re supposed to be doing with all this money.
Saving may be a virtue on an individual level, but I’ve always been dubious about the government stockpiling other people’s money absent a well-defined purpose.
I voted against the Legacy Fund in 2009. I was very much in the minority.
Since we have the fund now, my preference would be to use it. Which is why I support a plan announced by a group of lawmakers earlier this year which would invest a portion of the principal of the Legacy Fund into low-interest loans to local governing entities for infrastructure projects.
We can have a debate on the sort of projects the loans should be limited to. We can also debate how large a percent of the Legacy Fund ought to be invested in these projects, how large the loans should be and at what interest.
It’s absolutely something we should be doing, however.
I cannot imagine a better use for the billions of dollars piled up in the Legacy Fund than using them to facilitate faster, cheaper build out of infrastructure projects that are going to get built anyway.
Last week Republican lawmakers announced a new infrastructure plan based on oil revenues flowing into state “bucket” funds. That’s all well and good, but the most interesting part of the press release they sent out announcing the plan was a reference to this idea for using the Legacy Fund as capital for infrastructure loans.
It’s an indication that this idea may be gaining traction.
Still, some argue that we shouldn’t be using the Legacy Fund’s principal. Treasurer Kelly Schmidt, in particular, has been an outspoken opponent leaving the fund’s principal alone.
I understand and respect Schmidt’s reasoning, but she’s simply wrong.
For one thing, I am not in favor of building some massive tower of money in the Legacy Fund without beginning to define some goal to the exercise.
For another, this lending plan would not diminish the Legacy Fund’s principal. The low-interest rates the fund would receive from these loans would mean that it’s rate of return is diminished. But the principal would continue to grow, both from other investments of the principal and from ongoing revenues from oil taxes.
The Legacy Fund represents money taken out of our state’s economy. If we’re going to do that, it should be used toward some benefit to the state beyond a big bank balance.
Follow Rob on Twitter at @RobPort.