Funding the Future With Fracking

North Dakota is socking away billions from its shale-oil boom.

WATFORD CITY, ND - JULY 30: An oil drilling rig is seen in an aerial view in the early morning hours of July 30, 2013 near Watford City, North Dakota. The state has seen a boom in oil production thanks to new drilling techniques including horizontal drilling and hydraulic fracturing. 
Getty Images
Ben Geman
Add to Briefcase
See more stories about...
Ben Geman
Feb. 24, 2014, midnight

North Dakota sits at the cen­ter of the shale-oil boom, and it’s a com­fort­able seat to be in.

The state has seen a ten­fold in­crease in oil pro­duc­tion in the past dec­ade, bring­ing its daily yield to 1 mil­lion bar­rels. And with pro­duc­tion up, job­less­ness has plunged: At less than 3 per­cent, un­em­ploy­ment is lower in North Dakota than any­where else in the na­tion. But the state has been on a mini­ature ver­sion of this ride be­fore, and its of­fi­cials know that the boom-and-bust nature of en­ergy de­vel­op­ment makes it a fickle eco­nom­ic main­stay. In­deed, North Dakota’s eco­nomy was hurt in the mid-1980s after oil pro­duc­tion dipped. The state is cur­rently pro­du­cing far more oil than it was 30 years ago, and that growth would make a sim­il­ar plunge all the more pain­ful. 

This time, however, of­fi­cials think they’ve found a way to make their oil wealth out­last their oil boom: The Le­gis­lature and voters in 2010 amended the state con­sti­tu­tion to cre­ate the North Dakota Leg­acy Fund.

Since Ju­ly 2011, 30 per­cent of state taxes on oil-and nat­ur­al gas pro­duc­tion and ex­trac­tion have been siphoned in­to a low-risk in­vest­ment fund. Not a dime of that can be spent un­til mid-2017 at the earli­est. Even then, spend­ing any­thing but the in­terest will re­quire a two-thirds vote of each branch of the Le­gis­lature. And even if le­gis­lat­ors au­thor­ize tap­ping in­to the fund, not more than 15 per­cent of the prin­cip­al can be spent dur­ing any two-year peri­od.

The fast-grow­ing fund had al­most $1.8 bil­lion as of late Janu­ary, and that’s fore­cast to grow to roughly $3 bil­lion by mid-June of 2015 and to keep climb­ing, ac­cord­ing to the Of­fice of the State Tax Com­mis­sion­er.

“There is a pretty com­mon view that we have an ob­lig­a­tion to hus­band this re­source for fu­ture gen­er­a­tions,” said Brad Crab­tree of the Great Plains In­sti­tute, a non­profit group that works on en­ergy policy.

The lock­box is an ac­know­ledg­ment that the re­source won’t last forever. “The Leg­acy Fund was cre­ated, in part, due to the re­cog­ni­tion that state rev­en­ue from the oil and gas in­dustry will be de­rived over a fi­nite time frame,” notes the fund de­scrip­tion that’s tucked in­to state re­ports.

North Dakota is hardly the only state with some kind of trust fund for en­ergy-de­vel­op­ment rev­en­ues. And its pool of money, in its in­fancy, isn’t the biggest either. State of­fi­cials have, however, at­trac­ted praise for how for­ward-look­ing the Leg­acy Fund and oth­er ef­forts are.

“North Dakota’s ap­proach to oil and gas rev­en­ue and its fisc­al po­s­i­tion­ing for the fu­ture com­pares with few oth­er states, in­clud­ing many that have reaped sub­stan­tially lar­ger oil and gas rev­en­ue over past dec­ades,” notes a story pub­lished by the Fed­er­al Re­serve Bank of Min­neapol­is’s in-house news­pa­per. “North Dakota’s per­man­ent trusts, par­tic­u­larly the Leg­acy Fund, are poised for ro­bust growth thanks to bal­loon­ing con­tri­bu­tions from rising en­ergy taxes coupled with a man­date for long-term sav­ings.”

Not every­body loves the idea. Uni­versity of North Dakota eco­nom­ics pro­fess­or Dav­id Flynn says the wind­fall from oil and gas taxes could in­stead be used to re­duce in­come- and prop­erty-tax bur­dens. “I would rather see more in the way of broad­er tax re­form at this time,” he said.

But he’s in the minor­ity in the state, where voters have wel­comed the idea of cre­at­ing a long-term trust.

The fund was cre­ated un­der the watch of then-Gov. John Ho­even, now a Re­pub­lic­an U.S. sen­at­or.

“Sen­at­or Ho­even be­lieves the Leg­acy Fund is a way to look pro­spect­ively at North Dakota’s suc­cess­ful oil and gas de­vel­op­ment, a way to po­s­i­tion the state to be­ne­fit the people of North Dakota for many years in­to the fu­ture,” said Ho­even spokes­man Don Can­ton.

As the bil­lions ac­cu­mu­late, so do ideas for how to spend the money, set­ting up a pos­sibly con­ten­tious de­bate in years to come.

The Great Plains In­sti­tute has con­vened a stake­hold­er group to de­vel­op re­com­mend­a­tions for the fu­ture uses of the fund. For Crab­tree, the in­sti­tute’s vice pres­id­ent for fossil en­ergy, what to do with the wind­fall is an open ques­tion, and he’s glad that res­id­ents are in a po­s­i­tion to ask.

“Any time you use a non­re­new­able re­source on a sig­ni­fic­ant scale,” he said, “no mat­ter how big a re­source or how long it might last, it is prudent to set some of that aside for the fu­ture.”

What We're Following See More »
STAKES ARE HIGH
Debate Could Sway One-Third of Voters
3 hours ago
THE LATEST

"A new Wall Street Journal/NBC News poll found that 34% of registered voters think the three presidential debates would be extremely or quite important in helping them decide whom to support for president. About 11% of voters are considered 'debate persuadables'—that is, they think the debates are important and are either third-party voters or only loosely committed to either major-party candidate."

Source:
YOU DON’T BRING ME FLOWERS ANYMORE
Gennifer Flowers May Not Appear After All
3 hours ago
THE LATEST

Will he or won't he? That's the question surrounding Donald Trump and his on-again, off-again threats to bring onetime Bill Clinton paramour Gennifer Flowers to the debate as his guest. An assistant to flowers initially said she'd be there, but Trump campaign chief Kellyanne Conway "said on ABC’s 'This Week' that the Trump campaign had not invited Flowers to the debate, but she didn’t rule out the possibility of Flowers being in the audience."

Source:
HAS BEEN OFF OF NEWSCASTS FOR A WEEK
For First Debate, Holt Called on NBC Experts for Prep
4 hours ago
THE DETAILS

NBC's Lester Holt hasn't hosted the "Nightly News" since Tuesday, as he's prepped for moderating the first presidential debate tonight—and the first of his career. He's called on a host of NBC talent to help him, namely NBC News and MSNBC chairman Andy Lack; NBC News president Deborah Turness; the news division's senior vice president of editorial, Janelle Rodriguez; "Nightly News" producer Sam Singal, "Meet the Press" host Chuck Todd, senior political editor Mark Murray and political editor Carrie Dann. But during the debate itself, the only person in Holt's earpiece will be longtime debate producer Marty Slutsky.

Source:
WHITE HOUSE PROMISES VETO
House Votes to Bar Cash Payments to Iran
4 hours ago
THE DETAILS

"The House passed legislation late Thursday that would prohibit the federal government from making any cash payments to Iran, in protest of President Obama's recently discovered decision to pay Iran $1.7 billion in cash in January. And while the White House has said Obama would veto the bill, 16 Democrats joined with Republicans to pass the measure, 254-163."

Source:
NO SURPRISE
Trump Eschewing Briefing Materials in Debate Prep
4 hours ago
THE DETAILS

In contrast to Hillary Clinton's meticulous debate practice sessions, Donald Trump "is largely shun­ning tra­di­tion­al de­bate pre­par­a­tions, but has been watch­ing video of…Clin­ton’s best and worst de­bate mo­ments, look­ing for her vul­ner­ab­il­it­ies.” Trump “has paid only curs­ory at­ten­tion to brief­ing ma­ter­i­als. He has re­fused to use lecterns in mock de­bate ses­sions des­pite the ur­ging of his ad­visers. He prefers spit­balling ideas with his team rather than hon­ing them in­to crisp, two-minute an­swers.”

Source:
×