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Oil state - North Dakota rejects rigid permanent fund

2008-11-29 05:03:00
Author: BizWire

When oil approaches $150 per barrel, as it did this past summer, Alaska gets some unexpected company in the list of U.S. political jurisdictions that consider themselves “oil states.” North Dakota, for example.

In the recent election, residents of that state considered, but rejected, the creation of a new Alaska-style permanent fund to hold their burgeoning oil wealth. Actually, North Dakota has had an oil trust fund for more than a decade, but it received a lot more attention this year, as oil prices spiked.

That’s understandable — analysts said the new permanent fund on North Dakota’s ballot would have collected $600 million, had it been in place this fiscal year.

North Dakota voters rejected the fund. Critics said it was too rigid. After the first $100 million in oil earnings, every additional petro-dollar would have gone into the savings account. Then, spending any money from the account would have required a three-quarters majority in the North Dakota House and Senate. And only 20 percent of the money could have been spent in any given two years. All the earnings would be fair game for the Legislature.

This may have appeared rigid to folks in North Dakota, but proposing something similar in Alaska could create a riot. Granted, putting every cent over $100 million into savings would have been fairly extreme. But allowing legislators then to tap the fund principal? And allowing 20 percent of the fund to be spent in two years? Here in Alaska, that would be heresy, not to mention unconstitutional. It’s a major political issue if someone merely proposes to spend the earnings that are left after paying dividends.

Since the election rejection, people in North Dakota are talking about a fund fed more like Alaska’s. Our Permanent Fund takes 25 percent of the state’s mineral lease rentals, royalties and bid bonuses. The other three quarters are left to the Legislature to spend. It’s a moderate split, and the Legislature often has been generous with its voluntary contributions to the fund.

It will be interesting to see whether North Dakota voters, if they create a fund, will allow their Legislature to tap the principal. Few in that state seem to be advocating the kind of absolute protection that we have here in Alaska. But then, there’s been no talk of a dividend. That would change the politics of the question, no doubt.

And while North Dakota looks our way for guidance, Alaskans might gaze back. If we enter an extended period where oil production and prices both fall, legislators may find themselves under pressure to put our Permanent Fund earnings on the table.

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