Unknown to the general American public is that there are twenty-one domestic sovereign wealth funds in the United States of America. While there are twenty-one domestic sovereign wealth funds, only twenty states have a domestic sovereign wealth fund as Texas has two. Most states that have a domestic sovereign wealth fund are solid Republican states. These funds primarily go to funding their education systems as well as financing their state government operations. This partially explains why these states can afford to have low state income taxes, or no state income tax at all.
The first American sovereign wealth funds (SWFs), also known as permanent funds, began with the Land Ordinance of 1785 and the Northwest Ordinance of 1787. The Ordinance of 1875 provided that western lands were to be surveyed and divided into townships of seven square miles, and then divided into thirty-six sections. For each township, the center lot, described as lot number sixteen for each township, should be reserved for the maintenance of public schools within each township.
The Northwest Ordinance instituted a more formal mechanism by which states were able to apply for entrance as an associate state in the Union. Each territory applying for statehood would need to have an Enabling Act which would set out the specific land grant for the maintenance of a public school system. These early attempts to provide for a public school system did not provide for a legal trust fund for the maintenance and investment of any income derived from these plots of land. The incoming states also had considerable leeway in deciding what to do with these specific land grants and how to manage them.
Many states immediately sold these parcels of land to raise money for the establishment of the public school system in the new state.
It would not be until 1835 that the territory of Michigan established the first permanent fund. Michigan immediately sold all its lands and created a permanent school fund, but the fund was swallowed by the Michigan legislature and is no longer an independent entity. Michigan does have a Michigan Strategic Fund, but this fund does not meet the criteria to be classified as a sovereign wealth fund.
Other states entering the Union followed Michigan’s example, but it was not until 1875 that the federal government specifically told the territories entering the Union how they would need to exploit the lands for the use of public education.
The Santiago Principles
The Santiago Principles, or more formally The Sovereign Wealth Funds Generally Accepted Principles and Practices are a loose set of recommendations on how any sovereign wealth fund should conduct its operations. These principles do not have the effect of law and are not binding on any sovereign wealth fund.
The International Forum of Sovereign Wealth Funds has published guidelines as to how sovereign wealth funds should be managed. These principles can be summed up the following summary:
- To help maintain a stable global financial system and free flow of capital and investment;
- To comply with all applicable regulatory and disclosure requirements in the countries in which SWFs invest;
- To ensure that SWFs invest on the basis of economic and financial risk and return-related considerations; and
- To ensure that SWFs have in place a transparent and sound governance structure that provides adequate operational controls, risk management, and accountability.
These principles are voluntary and there is no mechanism in place to police any deviations from these principles.
The Linaburg-Maduell Transparency Index (L-M)
This index was developed by Carl Linaburg and Michael Maduell who work at the Sovereign Wealth Fund Institute. The index is a means of evaluating transparency in sovereign wealth funds. The index has a numerical rating system ranging from one to ten, with ten being the most transparent and one being the least transparent.
The Alaska Permanent Fund
The largest and best known of the sovereign wealth funds (SWFs) in the United States is the Alaska Permanent Fund (APF). The APF is managed by the Alaska Permanent Fund Corporation (APFC). The fund was founded in 1976 by Governor Jay Hammond and from February 1976 to April 1980, the APF was managed by the Department of Revenue Treasury Division. In April of 1980, the Alaskan Legislature created the APFC to manage the Permanent Fund.
The fund itself is divided into two distinct funds. The Principal Fund is non-spendable and must be allocated funds on an annual basis to maintain its value after inflation proofing. The Earnings Reserve Account is the amount of money available for consumption and for the issuance of the Permanent Fund Dividend (PFD). The fund has grown from $734,000 in 1977 to a valuation of $76.3 billion as of March 2023.
The PFD was $1,600 in 2018, $1,606 in 2019, and $992 in 2020—which was disbursed on July 1, 2020, due to the Covid-19 pandemic rather than its normal disbursement date in October. The PFD in 2021 disbursed $3,284. to the eligible residents of Alaska. For a family of six, this would mean a check of $19,704.00. While the dividend is not taxed by Alaska, it is taxed by the federal government.
The dividend is distributed to every eligible Alaskan citizen, regardless of age, on a yearly basis. If the citizen is under the age of eighteen, the dividend is sent to the parents or legal guardian of the minor.
This link shows how the citizens of Alaska benefit from the Alaska Permanent Fund Dividend.
On October 3, 2019, the Alaska Permanent Fund announced that the APFC had created the Alaska Future Fund (AFF). The AFF was capitalized at $100 million from the APFC Earnings Reserve. Barings, one of the world’s leading financial services firms, has been selected by the APFC to head the AFF investments.
The Alaska Permanent Fund was the brainchild of Alaskan Governor Jay Hammond.
Governor Hammond was a resolute conservationist, and it was under his term as Governor that the idea of establishing some sort of “permanent fund” was first put forward.
Working with Hugh Malone, a state representative from Kenai, Alaska, Governor Hammond fought for the creation of the Alaska Permanent Fund. To prevent future politicians from raiding the fund for personal pet projects and rewarding their political supporters, the APF was created through a state constitutional amendment.
Article IX of the Alaskan State Constitution was passed overwhelmingly by the voters of Alaska in 1976. The article gives the fiduciaries of the APF total autonomy in making investment decisions.
The Board of Trustees for the APF is composed of six trustees appointed by the governor of Alaska. The mission statement for the Board of Trustees:
The state of Alaska imposes a mineral severance tax on the crude oil taken from Alaskan state lands. The fees are as follows:
The base tax rate is 35% of the annual Production Tax Value. An additional 13% of the Gross Value at the Point of Production of the taxable gas. In contrast the United States federal government only imposes a 12.5% severance tax.
The Alaska Permanent Fund has a L-M index of 10.
The Alaska Permanent Fund is ranked 21st on the Sovereign Wealth Fund Institute Index.
The Texas Permanent School Fund
The Texas Permanent School Fund (PSF), one of the first sovereign wealth funds in the world, was created in 1854 by an act of the Texas Legislature. First called the “Special School Fund,” the PSF was created to finance the state’s public school system. The PSF was principally endowed with $2 million that the state government of Texas had received from the U.S. federal government in return for surrendering its claims to territory in what are now parts of New Mexico, Colorado, and Oklahoma. The fund was augmented by an additional land grant of millions of acres of land that were then sold, and the proceeds deposited into the PSF. Only earnings from investments of the PSF can be spent.
Monies distributed by the Fund go to the Available School Fund (ASF). In 2022, $1.7 billion was distributed to the ASF.
The Fund also serves as a guarantor for Texas school bonds issued by the various school districts of Texas. Since its inception in 1983, the Fund has guaranteed bond issues for a total of $232.2 billion. With the PSF guaranteeing the school bonds, Texas school districts are able to pay lower interest rates than would normally apply. Charter schools also receives guarantees from the Fund.
The Fund has two different components.
The School Land Board was established in 1939 to manage the sale and mineral leasing of the Permanent School Fund lands. The School Land Board currently manages $10 billion of the PSF portfolio, it also collects the state’s oil and gas royalty revenue and invests in primarily private equities. The land board has the option to send money to the education board to invest, or directly to the Available School Fund, which distributes the money to schools for textbooks and other expenses based on average daily attendance.
The State Board of Education was established in 1939. It controls $34 billion of the Fund’s portfolio which is composed of stocks, bonds, as well as alternative investments. The education board is tasked with deciding how much the endowment sends to the Available School Fund based on a complex formula that includes inflation, student growth and contributions from the land board.
There are fifteen members of the State Board of Education. These members are elected to the Board by the people of Texas. The Board is responsible for the management of the PSF, as charged by the Texas state constitution.
The School Land Board is composed of five members. The Chairman of the School Land Board is the Commissioner of the Texas General Land Office. The Commissioner is an elected office. The election is statewide with the citizens of Texas selecting the Commissioner. The office has a term of 4 years. The other members of the Board are appointees. The Governor of Texas appoints three members, while the Commissioner appoints one member.
The PSF is currently managed by the elected State Board of Education and administered by the Texas Education Agency (TEA), with the Texas Land Office, from 2001, being responsible for the investments of the PSF funds.
In 2021 the Texas State Board of Education formed the Texas Permanent School Fund Corporation (Texas PSF) which will assume administration of the Texas PSF in early 2023.
The actions of the Texas State Board of Education appears to be related to a newspaper article in March 3, 2019 in the Houston Chronicle, written by Susan Carroll and David Hunn, called “Broken Trust.”
The article alleged that the Fund had been outperformed by its contemporaries, missing out on over $12 billion in growth, as well as investing in riskier assets. While not making any allegations, the article commented that outside managers had charged the fund fees of $1 billion dollars going back a decade. At the same time, the school children of Texas saw a decrease in resources because of inflation in that same decade. The decrease in spending coincided with the arrival of more school children due to positive immigration from other state in the Union.
The state of Texas has exceptionally low severance taxes on mineral wealth extracted from state lands.
“The baseline Texas severance tax on oil and gas is:
Gas severance tax = 7.5% of market value of gas produced and saved
Oil severance tax = 4.6% of market value of oil produced
Condensate tax = 4.6% of market value”
As of August of 2022, the PSF has a valuation of $55.6 billion. The Texas PSF is ranked number 26th on the Sovereign Wealth Fund Institute Index. The fund is not rated by the L-M index.
The Permanent University Fund
The Texas Public University Fund (PUF) was founded in 1876 by the Texas state legislature and was originally funded with land grants authorized by the state legislature. The PUF had a valuation of $36.2 billion as of May 31, 2020. Dividends from the PUF only go to the Texas A&M University System and the University of Texas System.
The PUF is managed by The University of Texas/Texas A&M Investment Management Company (UTIMCO). This is their mission statement:
In 1883, the Texas and Pacific Railroad returned one million acres of land to the Texas state government under the belief that the land was worthless. This land was then deeded over to the PUF. Initially what little revenue that the PUF gained from its land grants came from grazing fees. Prior to 1923, the PUF was underfunded but that all changed in May of 1923 when the first oil well on PUF land in Regan County became a major source of income for the PUF. The PUF has since become one of the best-funded education funds in the United States. There have been numerous lawsuits ever since on how to share the bounty of these funds, and the Texas State Supreme Court has at times had to step in to maintain order between the Austin portion of the PUF and the University of Texas System. Unlike the Texas Permanent Fund, the charter for the PUF forbids the sale of any lands contained in the PUF charter.
A not-for-profit corporation that is modeled after the investment management companies of Harvard, Princeton, Sanford and Duke universities, UITMCO is responsible for investing the PUF funds.
UTIMCO is governed by a nine-member board consisting of at least three members of the UT System Board of Regents, four members appointed by the UT System of Board of Regents, of which at least three members have a substantial background and expertise in investments and finance, and two members appointed by the Texas A&M System Board of Regents, on which at least one having a substantial background in and expertise in investment and finance.
UTIMCO manages four different sovereign wealth funds of which the Permanent University Fund is only one. The PUF as of June 2021 had a valuation of $30 billion.
The Fund is not rated by the L-M index.
As the Permanent University Fund is a portion of the UTIMCO, it is not ranked in the SWFI. However, the UTIMCO is ranked 23rd by the SWFI.
New Mexico State Investment Council
The New Mexico Permanent Fund, commonly known as the State Investment Council, began with the entry of New Mexico as a territory of the United States. After New Mexico joined the Union, the Land Grant Permanent Fund (LGPF) was established in accordance with the Ferguson Act of 1893. The initial land grant for the fund was from the public lands given to New Mexico in 1893. Additional funds were given to the Fund in 1912 when New Mexico became a state. It was in 1957 that the LGPF became the State Investment Council (SIC). The creation on the SIC was accompanied by an amendment in the state constitution that gave added protection to the fund from interference from the state legislature.
The SIC is administered by eleven members. The Governor of New Mexico chairs the SIC. Other members include the State Treasurer, the Commissioner of Public Lands, the Secretary for the New Mexico Department of Finance and Administration, the Chief Financial Officer for a state university, four public members appointed by the Legislative Council, and two public members appointed by the Governor.
The SIC has been the object of several different changes to allow it to evolve with the change of economics, both nationally and worldwide. Besides the SIC, there are three other Permanent Funds in the state of New Mexico. They are the Severance Tax Fund, The Tobacco Settlement Permanent Fund, and the Water Trust Fund.
In fiscal year 2000, the SIC contributed $370 million to the state’s General Fund. In 2022, the SIC contributed $1.1 billion. The fund typically contributes 15 percent of New Mexico’s state budget, saving New Mexico taxpayers some $1,300 in taxes each year. The SIC also funds free tuition for the citizens of New Mexico, so long it is at a state university or state college. Trade schools are also free if taken at a public community college.
The severance tax rate for the state of New Mexico is; §7‐29‐1: Severance tax levied on all products severed and sold at the rate of 3.75%
All told, the New Mexico Council Permanent Funds as of 2021 had a valuation of $34 billion. Seventy-five percent of the funds go to the funding of the school system of New Mexico. The other twenty-five percent goes to other state obligations. The L-M index rates the fund as a 9. The fund is ranked 32nd on the Sovereign Wealth Fund Index.
The Permanent Wyoming Mineral Trust Fund
The Permanent Wyoming Mineral Trust Fund (PWMTF) began life as a severance tax in 1969. Passed by Wyoming’s state legislature by a narrow margin, the tax was set at a 1 percent severance tax. In 1974, the Wyoming legislature wanted to increase the tax, but the state’s governor, Stan Hathaway, threatened to veto the tax unless a provision was put in place that part of the money was set aside in a permanent mineral fund. After years of challenging work by the governor along with Senator Dick Jones, a constitutional amendment establishing the Fund was put to the citizens of Wyoming on November 5, 1974.
The ballot initiative passed by a wide margin and the constitutional amendment became effective on January 1, 1975.
This is the amendment that was adopted:
Like the Alaska Permanent Fund, the Wyoming Fund was initially funded by a severance tax on the extraction of minerals from state lands.
The severance tax was fixed initially at 2 percent and was kept at that level from 1975 until 1988. In 1988, the tax was lowered to 1.5 percent with .05 percent being diverted to the state’s savings account. Later, the tax amount was raised to 2.5 percent in 2005. In 2016, 1 percent of the fund’s revenue was diverted to Wyoming’s operating budget to address a shortfall in state government operations.
This is the revenue from extraction fees from 2016 until 2020:
Revenue by Source (FY 2016 to FY 2020)
Fiscal Year State Severance Tax
While the Fund continues to receive revenue from extraction fees, the Wyoming Legislature is now receiving revenue from the Fund’s investments. The revenue generated from the Fund from 1975 to 2015 was $4.65 billion. Of this amount, $4.58 billion was deposited into Wyoming’s General Fund.
There has been controversy about the disbursement of monies deposited into Wyoming’s General Fund.
Senator Charles Scott opined in an article with the Wyo File:
The monies that Senator Scott is talking about came from Wyoming’s General Fund and not from the Permanent Fund itself.
According to the Wyoming Department of the Treasury, the State Loan and Investment Board is composed of the statewide elected officials: Governor, State Auditor, Secretary of State, State Treasurer and Superintendent of Public Instruction.
The PWMTF has been recognized by the Peterson Institute for International Economics as one of the most transparent sovereign wealth funds in the world. The fund is not ranked by the L-M index.
The valuation of the PWMTF as of March 31, 2022, was $26.4 billion. The PWMTF is currently ranked 37th in the Sovereign Wealth Institute index.
Montana’s Coal Severance Tax Trust & Public-School Fund
Montana’s Coal Severance Tax Trust and Public-School Fund were established in 1976 as a result of a Constitutional Amendment by the voters of Montana on November 2, 1976. The Amendment was known as C-3 and was approved by the citizens of Montana by 63.45 percent of the vote for C-3.
Historically, Montana has always relied on mineral extraction fees. The natural resources taxes have been categorized as license taxes/severance or a form of ad valorem (property) tax.
The Fund receives 50 percent of all tax revenue generated by royalties from companies that extract coal and oil from Montana’s state lands. After the monies have been deposited into the fund, the money is then channeled into five sub-trust funds. The other 50 percent of the tax revenues are funneled into eight different sub-funds outside of the Coal Severance Tax Trust. Montana has taken a hybrid approach to the management of its sovereign wealth fund (SWF) as opposed to those of other states.
The principal value of the trust fund cannot be withdrawn and is added to on a regular basis to grow the fund and its investment power. The investment income that is not placed into the trust fund is disbursed to the general fund of Montana’s state budget. The fund’s assets are managed by the Montana Board of Investments, which manages all the funds generated as tax revenue for the state of Montana.
The Montana Board of Investments members are appointed by the Governor of Montana, but each member must be confirmed by the Montana State Senate. The Board consists of 9 members, and the Chairman of the Board is selected by the governor of Montana. Two non-voting members of the Board are legislative liaisons from different political parties. Each member serves a four-year term; the term of five-members must run concurrently with the gubernatorial term.
The professional make-up of the Board is also required by the amendment that established the Fund. One member must be a serving member of the Montana Public Employee’s Retirement Board, one member must be a serving member of the Teacher’s Retirement Board, one member must be an attorney, and other members represent the Financial Community, Small Business, Agriculture and Labor. Other aspects of the Board can be found at this link.
A detailed analysis of the Montana Coal Trust Fund can be found here.
The valuation of the fund as of the end of fiscal year 2020 was $1.19 billion. This fund is not ranked by the Sovereign Wealth Fund Institute (SWFI). This fund is not ranked by the L-M index.
The West Virginia Future Fund
Unlike other domestic sovereign wealth funds in the United States, the West Virginia Future Fund was created by the West Virginia Legislature and not by Constitutional Amendment. West Virginia’s sovereign wealth fund is known as the West Virginia Future Fund. The resulting law establishing the Fund is cited as the West Virginia Investment Management Board Act (the Act) [West Virginia Code §12-6-1 et seq.]
Founded in June 2014, the fund’s mission is to obtain revenue from a non-renewable source of funding and create a renewable source of funding that the state can draw on once the non-renewable funds have dried up. Each year, 3 percent of revenue derived from the extraction of non-renewable energy such as coal, limestone, natural gas, and oil is deposited into the fund. No disbursement of the fund was allowed until 2020. The fund is managed by the West Virginia Investment Management Board.
West Virginia imposes a severance fee of “You will pay 60% of the appraised value on the minerals at the levy rate for your county. The value of these minerals in based on WV Code procedures and is the same for all counties in WV.”
The severance tax rate on coal is 5% of the gross value of the coal produced. However, under some circumstances this rate is a lower rate: There are other aspects to the severance fee charged by the state of West Virginia. This link details the additional rules of the severance tax.
The Board of Trustees for the West Virginia Investment Management Board consists of thirteen members. Three of the members serve by their political offices, the Governor, the Auditor of West Virginia, and the Treasurer of West Virginia. The other ten members of the Board are appointed by the Governor with the advice and consent of the Virginia State Senate. The terms for the members are six year and are staggered.
Of the ten members appointed by the governor, one must be a certified public accountant (CPA), one must be an attorney, and all must have experience in pension management, institutional management, or financial markets. No more than six members of the Board may belong to the same political party. This link will provide the current make-up of the Board.
The value of the fund is $127 million in 2019. This fund is not rated by the SWFI Institute. This fund is not ranked by the L-M index.
Colorado Public School Fund Investment Board
On February 28, 1861, President James Buchanan signed an act of Congress establishing the free Territory of Colorado. Colorado was admitted into the Union on August 1, 1876, and was named the Centennial state. Upon admittance into the Union, Colorado was granted 4 million acres of land, under the 1787 Land Governance Act, which is the basis for the Colorado School Board Investment sovereign wealth fund. While Colorado was granted 4 million acres, only 2.8 million acres remain in the corpus of the fund; 1.2 million acres were sold by the state of Colorado.
In 2007, a committee of eleven state lawmakers convened and later recommended that a “Permanent Fund” be created to take advantage of the severance fees generated by the recovery of oil on Colorado state lands. To this date, no Colorado Permanent Fund has been generated. Per se, Colorado’s school fund is a sovereign wealth fund, but the fees generated come from hunting licenses and from grazing permits on school trust lands.
Colorado took advantage of the model pioneered by the state of Utah which created the Advocates for School Trust Lands (ATSL). The Colorado State Board of Education formed a non-partisan coalition in the early 2000s to educate the public about the use of the Permanent Fund and how the Permanent Fund works. The members of the non-partisan group include representatives from the Colorado School Finance Project, Parent Teacher Association, Colorado Education Association, Colorado Association of School Boards, Colorado Association of School Executive, the Rural Alliance, and the State Board of Education. The coalition works with the State Land Board (who manages the lands) and the State Treasurer (who invests the Public-School Permanent Fund) to represent the beneficiaries—Colorado’s public schools.
Colorado has a metallic mineral severance tax. The first $19,000 of wealth taken from state lands has no tax. Anything above $19,000 has a tax of 2.25%
The fund had assets of $1.2 billion as of June of 2022. This fund is not ranked by the SWFI. This fund is not ranked by the L-M index.
Idaho Endowment Fund Investment Board
Idaho was admitted to the Union on July 3, 1890. When Idaho became a state, it was granted 3.6 million acres of land. At the present time there are only 2.4 million acres belonging to the Idaho Endowment Fund Investment Board.
The Idaho State Board of Land Commissioners (Land Board)—governor, secretary of state, attorney general, superintendent of public instruction, and state controller—are the trustees for the Endowment Lands Trust Funds. According to the Idaho Constitution, the trusts must be managed “in such manner as will secure the maximum long-term financial return” to the trust beneficiaries.
There are nine Endowment Lands trusts. Seven of the nine trusts have a single beneficiary institution, and two benefit multiple institutions. Eight of the nine trusts are structured and operate similarly; the Capitol Permanent trust is different. The following discussion about trust structure and administration applies to the other eight trusts.
Each trust consists of three main parts: the land asset, managed by the Idaho Department of Lands (IDL), and a Permanent Fund and an Earnings Reserve Fund managed by the Endowment Fund Investment Board. Public schools are the largest beneficiary of Idaho’s Endowment Lands. This fund is not ranked by the L-M index.
The fund is ranked sixty-first by the SWFI. The fund has assets of $2.7 billion.
Oklahoma Tobacco Settlement Endowment Trust
The Oklahoma Tobacco Settlement Endowment Trust (TSET) was established from the 1998 Masters Settlement Agreement with the major cigarette makers in the United States. Unlike other states, Oklahoma created the TSET after the citizens of Oklahoma passed a November 2000 constitutional amendment to create a sovereign wealth fund to deal with the health problems caused using tobacco products. As reported by an article in the American Journal of Preventative Medicine,
“The constitutional amendment created a detailed governing body with separate oversight for the endowment trust fund investment and for the grants and programs funded by the earnings from the endowment. One appointed board oversees the endowment’s investments, and the other oversees the expenditures from the fund with the overall purpose of improving the healthy and quality of life of Oklahomans. TSET’s Board of Investors is a geographically diverse five-member board, chaired by the State Treasurer. The remaining four members are appointed by the Governor, Speaker of the House of Representatives, President ProTempore of the Senate, and State Auditor and Inspector.”
This fund is not ranked by the L-M index.
Any change to the structure requires a constitutional amendment by the citizens of Oklahoma. TSET has a valuation of $1.778 billion and is ranked seventy-fourth by the SWFI.
The North Dakota Legacy Fund
In 2009, House Concurrent Resolution No 3054 was passed by the North Dakota Legislature, putting the question to the people of North Dakota on the 2010 ballot on whether to create the North Dakota Legacy Fund.
The ballot measure known as Constitutional Measure One was passed by the voting public on November 2, 2010.
As a result of the vote, thirty percent of the oil and gas tax collected by the state of North Dakota was to be placed into a special fund known as the “Legacy Fund.” Included in the constitutional amendment was the proviso that neither the principal nor the earnings of the fund could be expended until 2017.
The fund’s charter states that any interest earned up to 2017 would become a permanent part of the Legacy Fund and could not be spent. Earnings after 2017 are transferred to North Dakota’s General fund for assisting the state’s governmental operations. Under a constitutional amendment, a vote of two-thirds is necessary for the state to use the fund’s principal. If such a vote passes, only 15 percent of the principal may be used in any fiscal year.
The Retirement and Investment Office (RIO) is responsible for the investment of funds.
As of October 31, 2022, the fund was worth just over $8.5 billion.
The State Investment Board (SIB), which falls under the RIO, is established in Chapter 21-10 of the North Dakota Century Code (NDCC). The eleven member board includes the Lieutenant Governor, the State Treasurer, the State Insurance Commissioner, the Executive Director of Workplace Safety & Insurance, the Land Commissioner, three representatives of Public Employees Retirement System (PERS), and three representatives of Teachers Fund for Retirement (TFFR).
The RIO assists the SIB with investment program administration.
An article in Wall Street Journal has the Republican Party of North Dakota proposing that the state’s already low state income tax be further reduced. According to the article:
Republican Governor Doug Burgum has said that…”the bill would put North Dakota toward eventually zeroing out the income tax for North Dakota.” The elimination of the state income tax is being done by eliminating the state income tax from the bottom up.
Those at the bottom of the economic pyramid will see tax relief first. Since those at the bottom typically will spend any extra income, this will increase demand for goods and services in North Dakota, which in turn will cause an increase in the supply of goods and services. This increase in supply will in turn place upward pressure on wages for those at the bottom of the economic pyramid. Because the demand is endogenous, little or no inflation should occur.
The Legacy Fund is valued at over $8 billion. The North Dakota mineral extraction royalties are 5%. The Legacy fund is rated as a 10 by the L-M index.
The North Dakota Legacy Fund is ranked number forty-nine in the Sovereign Wealth Fund Institute (SWFI) index.
The Alabama Trust Fund
In 1978, a major offshore natural gas field in Mobile Bay, Alabama was discovered, and the state government received bids of $449 million for the right to develop this gas find. This $449 million was used to fund the establishment of the Alabama Heritage Trust Fund (AHTF) in 1982. The AHFT’s income was used to finance a $520 million bond issue for capital state outlays. In 1984, the state of Alabama received an additional $347 million for additional leases. The Alabama Trust Fund (ATF), which was established in 1985 by Amendment 450, grew out of the AHTF. This amendment also terminated the AHTF, and the funds from the AHTF were transferred to the ATF.
Ninety-nine percent of the royalties paid to the state of Alabama go to the ATF, with one percent being allocated to the Department of Conservation-Lands Division. Amendment 450 also directed that, beginning in fiscal year 1989-1990, one percent of the trust income received by the state of Alabama will be placed into the principal portion of the ATF until a maximum of 10 percent is placed into the ATF on an annual basis. The remaining trust fund income is then paid into Alabama’s general fund for expenditure by the state government. The fund and disbursements of the fund have been changed several times.
The ATF is managed by a board of trustees which are comprised of the governor, the state treasurer, the director of finance, three trustees appointed by the governor, two trustees appointed by the lieutenant governor, and one trustee appointed by the speaker of the House of Representatives. The governor, the state treasurer, and the director of finance each serve as a trustee ex officio and as an officer of the board of trustees. The trust’s investment portfolio is spread between domestic fixed income, large and international equity markets, real estate, and other investment instruments.
Return and payment are due the 20th of each month for the previous month.
Oil and Gas severance taxes can be found at this link. This fund is ranked at 9 by the L-M index.
As of February of 2023, the fund had a value of $3.4 billion. The Alabama Trust Fund is ranked sixty-three on the SWFI list.
The Utah School Fund
The Utah State School Trust Fund was established with the Enabling Act upon Utah’s admission as an associate state in the Union of the United States of America in 1894. Under Section 10 of the Enabling Act, a Permanent School Fund was established. Under the School Land Trust Program, investment earnings from the Fund are distributed to every school in Utah based on a per-pupil formula. Investments for this fund are managed by the Utah School and Identification Trust Funds Office (SITFO).
There are ten members of the SITFO investment board. They are the Director, Chief Investment Officer, the Investment Officer, the Finance and Operations Officer, the Senior Investment Analyst, the two Investment Analysts, and the Assistant Administrative Analyst.
SITFO’s Board of Trustees come from the office of the Treasurer of the State of Utah, and four additional members as appointed by the Treasurer. The Treasurer selects the four other members from a list provided to the Treasurer’s office by the nominating committee. The prerequisites are that the process be done in a non-partisan basis, and that the individuals nominated possess expertise in institutional investing. Each member serves a term of six years. This link provides the current Board of Trustees.
In 2019, the Fund was valued at $2.4 billion. In 2019, Utah schools received over $82 million. This fund is not ranked by the L-M index. This fund is ranked sixty-ninth by the SWFI. The fund was contacted for additional information on how revenues are collected and invested, but the fund declined to share this information.
Oregon Common School Fund
The Common School Fund was born following Oregon’s entrance into the association of states of the Union of the United States. The act of Congress admitting Oregon into the Union in 1859 granted sections sixteen and thirty-six of every township for the use of schools. 3.4 million acres of land came under the ownership of the state. Distributions from the Common School Fund came to $100 per student in 2018.
Due to poor management, the sale of the lands granted to the Common School Fund has left only 750,000 acres of the original 3.4 million acres under the control of the Common State Fund. To increase funding for the Common School Fund, those who die in the state of Oregon with no known heirs have their wealth seized and transferred to the Common School Fund. All unclaimed money the state receives is transferred to the Common School Fund until the owner of these funds applies to have these funds returned.
The state treasurer and Oregon Investment Council invest the Common School funds. The four council members are appointed by Oregon’s governor with the state treasurer and the director of the separate agency that administers the Public Employees Retirement System as ex officio members. In 2022, the valuation of the Oregon Common School Fund was $2.1 billion. The return on investment for the Oregon Common School Fund was 7.71 percent from 2015 to 2018. The Oregon Common School Fund is not ranked by the SWFI. This fund is not ranked by the L-M index.
The Louisiana Education Quality Trust Fund
The Louisiana Education Quality Trust Fund (LEQTF) was established in 1986 by popular vote to improve the quality of education in Louisiana. The LEQTF receives its funding through the Federal Outer Continental Shelf Lands Act. The funds from the LEQTF are deposited into the “Permanent Fund.” Once the money has been transferred to the Permanent fund, 75 percent of the income generated from investments as well as royalty income along with 25 percent of the earnings from net capital gains and losses are transferred to a different fund known as the Support Fund, commonly known as the 8(g) fund. The Permanent Fund retains 25 percent of the investment funds and royalty income. Seventy-five percent of the earnings from net capital gains and losses are also retained by the Permanent Fund. The Support Fund makes annual monetary allocations to two state agencies: The BESE for pre-kindergarten to twelfth grades, and Regents for all public higher education. The LEQTF at the end of fiscal year 2019 had a valuation of $1.4 billion. The LEQTF is ranked seventy-fifth by the SWFI. This fund is not ranked by the L-M index. Inquiries into how funds are collected via severance tax, and its disbursement to the fund were not answered.
Minnesota Permanent School Fund
The School Trust Lands in Minnesota were created when Minnesota was admitted into the Union on May 11, 1858. The School Trust Lands are also known as the “Permanent School Fund.” The 1785 and 1787 Land Ordinance Acts, also identified as the Northwest Ordinances, were established to allow settlers to buy land in the new territories of the fledgling United States. These lands were to be divided into townships, with one section in each township set aside for the creation or support of a school. Upon Minnesota’s entry into the United States, the federal government granted the state of Minnesota sections sixteen and thirty-six of every township, for the of schools.
The revenue for the fund comes primarily from the “Production Tax” on the excavation of ferrous metals. “The Production Tax is the largest tax paid by the ferrous mining industry. It is a major source of revenue to the counties, municipalities, and school districts within the Taconite Assistance Area. The Production Tax distributed in 2021 is the tax due for the 2020 production year. The tax rate for concentrates and pellets produced in 2020 was $2.856 per taxable ton. An additional tax of three cents per ton is imposed for each 1% that the iron content exceeds 72%. The taxable tonnage for 2020 is the average tonnage produced in 2018, 2019 and 2020. If this tax is imposed on other iron-bearing material, it is applied to the current-year production.”
Other severance taxes can be found at this link.
Some 8.1 million acres of land became known as the School Trust Lands, which have now shrunk to approximately 2.5 million acres. In addition to these lands, Minnesota also retains mineral rights to an additional one million acres. Today, when School Trust Lands are sold, the state of Minnesota retains the rights to the mineral deposits of those lands. The overall responsibility for the management of the Permanent Fund rests with the Minnesota Department of Natural Resources. At the end of 2019, the Permanent School Funds had a value of $1.5 billion. The Minnesota Permanent School Fund is not ranked by the Sovereign Wealth Fund Index (SWFI).
Mississippi Public School Trust Land
The Mississippi Public School Trust Land was formed when Mississippi was admitted to the Union in 1817. Congressional action called for the survey of land in the state and mandated that land be set aside for the use of funding schools in the new state. The Land Ordinance of 1785, along with the Land Ordinance of 1787, reserved the sixteenth section of land in any state joining the Union for the establishment and maintenance of public schools for the citizens of the new state.
The state of Mississippi, as well as Alabama, was created out of the Mississippi Territories. The Mississippi Territories were created by an Act of Congress in 1798 under the new Constitution of the United States. Mississippi became a state in 1817.
Unlike Alabama, Mississippi did not sell its school trust lands. Rather, the state legislature allowed these lands to be rented out for a specific period. Eventually, these leases were extended to a period of 99 years for the following counties in Mississippi:
The history of the Mississippi Fund is a troubled one. In 1821, the Mississippi Legislature created the Literary Fund (the Permanent School Fund) but in 1823 allowed the Fund to be dismantled. The Permanent Fund was resurrected in 1830 by the Mississippi Legislature under Act of February 12, 1830. In 1833, the Mississippi legislature allowed for the investment of funds from the Public-School Trust Land Fund and became the foundation of the Planter’s Bank in Mississippi. The bank was poorly managed and failed in 1834.
One of the most detailed accounts of the Mississippi Permanent School Fund’s graft and corruption in the 1830s is “Alabama and Mississippi: A Case Study in School Trust Land Management” by John Morgan Maynes from Utah State University. According to Maynes,
…the permanent school fund also became the financial backing for Mississippi’s new Planter’s Bank. This was the first time that the state overlooked its fiduciary duty as trustee to provide benefits to schoolchildren. The legislature used the trust for its own benefit and not for the benefit of public schools by using the school trust resources to back its pet project. Funds were diverted from the Trust into loans for friends and relatives of the state legislature representatives and a great deal of money was lost to detriment of the children of Mississippi.
The fund was valued at $262 million in 2012, but it is not ranked by the SWFI.
While the lessees assumed ownership of the lands, this act was not legal. The locations of the lands granted to the state of Mississippi were from the US federal government. These lessees have no legal documentation that they purchased the land from the state of Mississippi. If, as the lessees claim that they purchased the land from the state of Mississippi during the Civil War, this transaction would be illegal. Mississippi was then in a state of rebellion against the United States federal government, and therefore any sale of federal lands granted to Mississippi for the establishment of a public school system, would not have been legal.
What can be particularly disturbing about the history of the Mississippi Common School Trust Lands is that African American slaves more than likely farmed the leased lands.
While the 13th Amendment did free the slaves and made them citizens with rights under the Constitution of the United States, the Compromise of 1877 effectively re-enslaved these black Americans, with no rights and with no hope of intervention by the federal government to enforce their rights, black American citizens, recently freed, were forced into sharecropping on the very plantations where they had formerly worked as slaves, with no right of appeal to the federal government courtesy of the Republican Party and the Redeemer portion of the Democratic Party.
The Nebraska Permanent Fund and the
Nebraska Temporary School Trust Fund
The Nebraska Investment Council is responsible for the investments of the Nebraska Permanent Fund and the Nebraska Temporary School Trust Fund. These funds are thought to have a valuation of $845 million. Not much information is currently available about these funds; the author reached out to the Nebraska Investment Council for more information about them and was directed to the Nebraska Investment Council website, which neither addresses the Nebraska Permanent Fund or the Nebraska Temporary School Trust Fund. However, the monies from these funds are co-mingled for investments within Nebraska’s General Endowment.
The Nevada Permanent Fund
Nevada was made a state in October 1864. When Nevada entered the Union, under the Northwest Ordinances, it was granted land to fund its public schools. The Nevada Permanent Fund has a troubled history in lawsuits across several different versions of the fund. Nevada’s geography made the survey of the land given to the state by the federal government difficult, as some of the lands were in the desert and some in the middle of mountain ranges. Due to this difficulty, the U.S. Congress allowed for a revision of the land grant in Nevada in 1880. The Nevada Legislature was allowed to select more appropriate land for the benefit of the Nevada Permanent Fund. The new land came to two million acres. In 1926, Nevada again petitioned the U.S. Congress for an adjustment of the law and was able to exchange what it deemed worthless land for a more productive land suitable to meet its children’s educational needs.
Corruption and graft have dogged the land grant at the state level over the years. When Eben Rhoads, Nevada’s first State Treasurer, died in office, it became apparent that he had dipped into the School Fund by $200,000. In 1956, William B. Byrne was accused of selling Permanent School Fund lands at the price of $1.25 an acre, far below the market value in the municipality of Las Vegas. However, upon investigation, it was found that the records of the sale were missing and so no charges were brought.
Corruption was not an unfamiliar figure in Nevada state politics. The Nevada state historian Bob Stewart refers to this period of Nevada state history as one of “enlightened self-interest.”
As of December 2018, the Fund had assets of $371 million, though it too is not rated by the SWFI.
The South Dakota Permanent Trust Fund
South Dakota became a state on November 2, 1889. When South Dakota was admitted into the Union, the federal government granted the state 3.5 million acres of land. These are also known as the Common School Lands.
The mission statement for the permanent fund can be found at this link.
Previously, the fund only invested in bonds and direct loans, the fund now is investing in public equities.
South Dakota School and Public Lands Fund is a government agency based in Pierre, South Dakota. South Dakota Investment Council invest the funds. It is estimated that the fund is worth $222 million. It is not rated by the SWFI. It is not rated by the L-M Index.
Washington Permanent Funds
(Agricultural, Normal, Common, Scientific, State)
When Washington was admitted into the Union in 1889, the federal government granted the new state over three million acres of land. Unlike other states, Washington did not reserve the use of these lands specifically for the use of education. Washington Permanent Funds have also been used to fund the construction of prisons, institutions, and capitol buildings.
The Washington Permanent Funds (Agricultural, Normal, Common, Scientific, State) Washington State Investment Board.
The fund also acquired a little over 620,000 acres of land through the non-payment of taxes, and from those lands simply being abandoned once the forests had been cut down. These lands were transferred to the Forest Board Lands.
The Washington Permanent Funds have been merged into the State Investment Board, and so a value cannot be attached to this permanent fund. However, the State Investment Board manages some$181.7 billion.
A Contrast and Comparison Of
The U.S. Domestic Sovereign Wealth Funds
Based on the value of the various SWFs, it would be profitable to examine which funds have been more successful in growing the value of their funds, and how the funds are used to benefit the citizens of each state.
At the same time, how each fund was set up, and whether these funds were established as a state constitutional amendment, or not seems important.
Some funds were later amended into a state’s constitution, after the establishment of a fund, to protect the fund from the sometimes-predatory behavior of politicians (from both political parties) in attempting to pick winners and losers with a fund’s principal investments for the benefit of a politician’s donor(s).
The states that have protection for their fund by constitutional amendment are successful. The Alaska Permanent Fund is currently valued as slightly over $76.3 billion.
The Alaskan fund did not initially have the protection of being guaranteed investment independence until the creation of the Alaska Permanent Fund Corporation (APFC). The investment board of the fund now has total autonomy on how funds are invested.
The North Dakota Legacy Fund is also protected by the state’s constitution. The value of the Legacy Fund is $8.87 billion. For fiscal years from 2017 to 2019, the fund contributed $455.2 million to North Dakota’s General Fund. The fund contributed $871.7 million to the North Dakota General Fund from 2019 to 2021. In its lifetime, the fund has total lifetime deposits of $7.6 billion. It has distributed to the North Dakota General Fund $1.3 billion.
Those funds not protected by a constitutional amendment have been abused by the state legislature and their political allies, witness the Mississippi fund, or been outright pilfered by politicians for their own private enrichment, witness Nevada.
This article was written to provide the American public with some understanding of the wealth of their state. Overall, the states benefitting from domestic sovereign wealth funds are states controlled politically by the Republican Party. Those controlled by the Democratic Party, apart from New Mexico, have fared poorly.
The domestic sovereign wealth funds that have grown their wealth through an economic investment board have used free market economics to create wealth, a fine example of capitalism.
The way that the states with successful sovereign wealth funds use those funds however, the distribution of money, free education at the college level, the tax relief for the citizens of North Dakota amounts to a fine example of socialism.
Something new is happening in economics. A hybrid between capitalism and socialism has formed, and a new nomenclature is needed.
