North Dakota is setting aside some of its oil tax collections into a fund for the future.
It’s called the “Legacy fund.” Thirty percent of oil tax collections go into that fund. It cannot be touched until 2017, when interest income on the fund could be spent by two-thirds vote of each hose of the North Dakota Legislature.
The country of Norway has a fund for the future as well. As Prairie Public’s Dave Thompson reports, the Norwegian fund is set up differently.
In the 1970s, Norway created what’s called the “Norwegian Pension Fund Global.” The law says all oil tax money goes into that fund.
“All the government’s net cash flow from the petroleum sector goes into that fund, with the exception of whatever’s being spent on an annual basis through a so-called fiscal rule," said Dag Dyrdal, the director of global external relations of the Central Bank of Norway. " So some contributions are given to the budget on an annual basis.”
Dyrdal says normally, around four pecent of those revenues are appropriated by the Norwegian parliament to Norway’s general fund, to balance the budget. He says a significant portion of the fund is invested in equities – stocks – around the world. And he says it’s been that way since 1998.
“It is invested internationally, highly diversified across many different countries and sectors," says Dyrdal. "So far, we have an annual return on the fund since ’98, when we started out with equities, of close to five percent.”
The Norweigian fund is now around $600-billion – and is projected to be over a trillion dollars in the next ten years. Dyrdal says when the fund was created, no one thought it would get that big.
“The oil prices at the time were very different from where they are today, so that has given a strong boost to the fund over the last 10 years, says Dyrdal. He also says despite the amount of money put into equities, the investment decisions have been conservative.
“Well, I think changes to the strategy are conservative, in the sense it requires a broad consensus in Parliament, so usually it takes years rather than months to make significant changes to the investment strategy," says Dyrdal. "But of course, most people would not say the 60 percent equity allocation is a conservative strategy as such. But for a long term fund like ours, I think that’s a good strategy.”
The investments have had about a five percent return. And Dyrdal says he expects that to grow over the next several years, even though there have been recent ups and downs in the markets.
“It’s a roller-coaster right now," says Drydal. "You see lots of volatility. We had a great first quarter. Second quarter does not look as promising. And I think that’s going to be the outlook going forward – a lot of uncertainty right now.”
Dyrdal says it’s interesting to him that North Dakota has set up its own legacy fund. So far, the Legacy Fund is not invested in any stocks. Dyrdal says it reminds him of where Norway was in the 1970s.
