Legislators promote loan fund for local governments

Local governments would gain access to a low-interest, revolving loan fund for major construction projects if two Minot lawmakers are successful in steering their investment plan for the Legacy Fund through the Legislature.

Bill sponsors Sen. David Hogue, R-Minot, and Rep. Roscoe Streyle, R-Minot, say the Legacy Fund could contain nearly $6 billion by the time the Legislature meets again in 2019.

“We feel like it’s time to put it to work for the people of North Dakota,” Hogue said.

The 2009 Legislature placed a constitutional amendment creating the Legacy Fund on the November 2010 ballot. Voters approved establishing the trust fund by setting aside 30 percent of the state’s taxes on oil and gas production and extraction starting in 2011.

The bill’s proposal to invest a portion of Legacy Fund principal in loans to build North Dakota infrastructure will accelerate construction and save money for taxpayers, Hogue and Streyle said. Minot taxpayers could save millions in interest payments and inflationary costs should the fund be used to speed up construction of the Northwest Area Water Supply Project and Mouse River Enhanced Flood Protection Project, they said.

“There just isn’t enough horsepower in the Water Resources Trust fund for these big water projects. When we start talking about taking 20 years to complete them, there’s got to be a better way. The Legacy Fund presents itself as a perfect opportunity,” Hogue said.

Projects related to water distribution, flood protection, water treatment plants, wastewater facilities and airports are among likely candidates for loans.

The proposed bill, as currently written, calls for establishing a revolving loan fund through the Bank of North Dakota. The state would transfer 15 percent of the principal of the Legacy Fund – anticipated to be about $900 million – into the revolving loan fund on Dec. 31, 2019. The state would continue to designate 15 percent of oil tax revenues coming into the Legacy Fund over the next 10 years to the loan fund.

Political subdivisions would be able to borrow at an interest rate of 1.56 percent for a term up to 50 years. Schools, which have borrowing opportunity through a separate trust fund, are not included among political subdivisions.

The minimum loan amount is $10 million for a new project or $1 million for refinancing existing debt. Political subdivisions could not borrow more than $200 million for a project unless authorized by the Legislature. No more than 20 percent of the balance of the revolving loan fund could be used for refinancing.

All interest earnings would be deposited in the Legacy Fund, and principal payments would go back into the loan fund.

Hogue and Streyle are joined on the bill by four co-sponsors from Grand Forks, Fargo, Williston and Huff in Morton County.

Co-sponsor Sen. Gary Lee, R-Fargo, vice chairman of the interim Water Topics Overview Committee, said he’s been frustrated by the limited funding and the length of time it takes to complete water projects. He was thinking about the creation of a loan fund when he became aware of the Minot legislators’ bill. His initial thought had been to use Legacy Fund interest to create a loan fund, but he said using principal is even more advantageous.

“I abandoned my plan and decided what they were doing was in the right direction,” he said. “It gives the Legacy Fund a mission, a purpose, to reinvest in the state of North Dakota.”

Minot City Manager Tom Barry called the bill an innovative idea that could have tremendous impact for Minot’s flood protection project. A 1.56 percent annual rate on the five phases of Minot construction would amount to $19.5 million in interest over the term of the loan, he said. A conventional loan at 3.5 percent interest would have the city paying $46.5 million in interest. That increases to $54 million at 4 percent.

That’s millions of dollars in savings that can be put back into the project, leveraging an additional state match at 65 percent, Barry said.

“If we can do that, plus we can realize some additional savings from the bids coming in, we may be able to start working on the east side sooner than we think,” he said.

The numbers become even more impressive over the course of completing the entire basinwide project, which Minot has agreed to fund with city sales tax. The $320 million local share would cost $54.5 million in interest at 1.56 percent or $129.5 million at 3.5 percent interest.

“It makes tremendous sense for the sate to continue to invest in the cities and towns and counties that are trying to bring about these types of improvements and also promote economic development and resiliency,” Barry said.

Hogue said providing funds to keep construction from lagging generates savings because the cost of demobilizing and remobilizing contractors is significant. In Minot, more rapid completion of the flood protection project will mean savings in flood insurance premiums for residents being removed from the flood plain. One estimate is $10 million could be saved in insurance premiums, Hogue said. In addition, completing flood protection more quickly will improve home values in the valley, strengthening Minot’s tax base, he said.

Many eligible projects, particularly water projects, are likely to be have been vetted and approved for state cost sharing. The loan fund will provide the local share of major projects, so to ensure the construction acceleration, state dollars also must be readily available. Streyle said the state could do that through bonding if necessary.

Hogue and Streyle are prepared for the argument that the loan fund will reduce the interest income to the Legacy Fund.

“The Legacy Fund would still get a return, so they are not losing money,” said Streyle, who added political subdivision loans are very low-risk for default. The loan fund also offers local investment as opposed to the out-of-state investments that largely make up the Legacy Fund’s portfolio, he said. Interest earned on the Legacy Fund is deposited in the state’s general fund to support a variety of state spending.

“There’s plenty of cash flow there to do massive projects,” Streyle said of the Legacy Fund. He said the job creation and the multiplier effect of those jobs on the economy would be a huge boost to the state.