Lawmakers return from N.D. trip, push Future Fund

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August 30, 2013

West Virginia

By Phil Sletten

CHARLESTON, West Virginia: Lawmakers returned from their trip to North Dakota to examine the state's "Legacy Fund" and collect ideas and lessons for the implementation of a similar fund in West Virginia. The fund, which has been proposed as a "Future Fund" by President of the Senate Jeffrey Kessler (D), would collect severance fees from industries extracting resources from the state and reserve a portion of them for later use. North Dakota's fund has collected a significant amount of money from the oil boom there in recent years, and West Virginia lawmakers are interested in applying the concept to growing natural gas production in the state.[1][2]

North Dakota lawmakers created the Legacy Fund after considerable debate and a rejection of a constitutional amendment by voters that would have created a similar fund. However, in 2010, voters overwhelmingly approved the proposed constitutional amendment creating the current Legacy Fund. This reserve is fed by funneling 30 percent of all state taxes on oil and gas extraction to this fund, which cannot not be accessed by lawmakers until at least 2017 unless two-thirds of the legislature supports using the fund. After 2017, lawmakers will be restricted to using the interest generated from the fund without a two-thirds vote, and no more than 15 percent of the principal may be spent in any two-year period. The fund accrued approximately $1.5 billion in the first 20 months of its existence, which was significantly more than initially projected.[1][3]

Kessler spearheaded a trip to North Dakota, attended by 19 legislators, some of their staffs, and several other interested West Virginians. The fact-finding mission cost the state $25,481, and the interested non-governmental citizens paid their own way.[1] On the trip, the legislators learned about the pitfalls and challenges the North Dakota Legislative Assembly faced while crafting their policy, and Kessler hopes that the West Virginia Legislature may avoid some of the same mistakes North Dakota's legislators made.[2] Kessler noted that the biggest lesson from the trip was that the model is "something that’s tried and true and it works."[4]

State Senator David Sypolt (R) went on the North Dakota trip already supporting the idea of a fund, but reported coming back to the state with a clearer idea of the necessary hurdles. He supports amending the West Virginia Constitution to build the Future Fund, arguing that would hold legislators to account and also require citizen participation and approval. Kessler said he would consider such an amendment, and also noted that he wanted the severance taxes to come only from oil and gas sources rather than coal, noting that coal's peak production has likely passed in the state.[2]

Notably, North Dakota's Legacy Fund revenue has come largely from oil production, whereas West Virginia lawmakers are expecting their Future Fund Revenue to come mostly from natural gas production. Kessler expects natural gas production in the state to increase dramatically in the coming few years, but others such as Corky DeMarco of the West Virginia Oil and Natural Gas Association, are less optimistic on natural gas production in the near-term. Another industry official noted that energy companies may have accessed to natural gas reserves in Virginia, Kentucky, Pennsylvania, and Ohio, and adding a new layer of taxation to fill a Future Fund might cause some companies to look to other states. However, Ted Boettner of the West Virginia Center on Budget and Policy noted that western states have much higher severance taxes, and revenue cannot be extracted from the industry once the resources are depleted.[5]

See also