EXECUTIVE SUMMARY

The North Dakota Legacy Fund was established in 2010 to create a perpetual source of revenue derived from taxes on oil and gas activity in the state. The fund has been touted as a tool of fiscal responsibility, setting aside revenue to provide for North Dakota’s needs when finite natural resources are no longer profitable. Since the Legacy Fund’s principal and earnings became available for use, legislators and voters have put forth a number of proposals for consideration. These proposals showcase the different views North Dakotans have about the purpose of the fund. With the North Dakota Legislative Assembly’s actions likely to set precedence for future use of the funds, we set out to further explore these proposals.

In this policy paper, we apply a public choice framework using political and economic analysis to categorize three types of proposals and to examine the institutional factors that are likely to guide politicians, bureaucrats, voters, and special interests. After reviewing the history of the North Dakota Legacy Fund and other sovereign wealth funds, we provide an overview of the institutional framework surrounding the fund.  Finally, we suggest evaluating different approaches by considering a unified vision to guide the use of the Legacy Fund.

Based on our analysis, we conclude that legislators will face pressure to spend money on one-time or residual spending projects that provide short-term benefits for their constituents. We also note that legislators will be more likely to use the Legacy Fund as a budget stabilization tool during times of economic distress.  These approaches will be weighed against the long-term benefits of reinvesting the fund to secure additional revenue for an uncertain future.  We do not endorse a single approach, but instead outline a framework for policymakers and citizens to analyze current and future proposals.

Read the full report.