A bill in the state House of Representatives that would earmark a portion of the Legacy Fund for in-state investments made strides at the Legislature this past week, being passed by the House Finance and Taxation Committee with a 13-0 vote.
It’s a nod to the growing support of a bill that, if passed, would allow Legacy dollars to be invested in infrastructure projects and provide capital for in-state businesses. Perhaps no one is more excited than Jon Godfread, the state’s insurance commissioner and member of the State Investment Board, a longtime proponent of investing money here at home. At present, most Legacy investments are made out of state.
In December, Godfread discussed Legacy Fund investment possibilities during a meeting with the Grand Forks Herald’s editorial board. That was prior to the opening of the 2021 session of the Legislature.
Now, House Bill 1425, sponsored by Rep. Mike Nathe, R-Bismarck, targets 10% of the state’s Legacy Fund toward fixed income investments in the state, and another 10% for equity investments – or $800 million toward fixed income and $800 million toward equity, “so you're talking about potentially $1.6 billion of impact into the state of North Dakota, which I think is very meaningful,” said Godfread, a Grand Forks native.
“The biggest thing with this bill, I think, is that we do these investments all over the country and all over the world; there isn't a lot of change in the process, it's just a matter of targeting some of those investments in North Dakota. When you do that you get an inherent multiplier effect of investing in your own communities, to get jobs and growth and expansion, and all the things that come with capital investments in our state.
“Currently, we're doing that for other communities all over the world but not targeting that here in North Dakota. It's always been my stance that, certainly with the Legacy Fund, a portion of those dollars should be directed to our state, because they are the people's dollars.”
North Dakota voters in 2010 approved the Legacy Fund, which sets aside a portion of oil and gas taxes. The constitutional language does not specify uses of the fund, according to information from the state’s Insurance Department, but the principal of the fund is invested by the State Investment Board, a 13-member group chaired by Lt. Gov. Brent Sanford.
North Dakota has some $7 billion in its Legacy Fund, but most of it is invested almost entirely outside of the state.
“It was the people of North Dakota who put the Legacy Fund into place 10 years ago, and I think (this bill) fits the mission,” Godfread said.
Among other things, it would allow a business owner in one area of the state who wishes to open a location in another part of the state to do so through a capital infusion – a cross-subsidization of the same company in which management may infuse a division with capital if it believes the venture will become profitable.
The hiccup is that expansion projects need to go where the capital market is, and having North Dakota invest in projects in-state will give businesses the opportunity to grow here instead of venturing to other places.
As an example, Godfread mentioned the Northern Plains UAS Test Site in Grand Forks and Grand Farm in Fargo, both of which are innovative ventures where companies can get off the ground with their new products and technologies.
“We'll be able to point to these amazing companies that started in North Dakota, did their testing here in North Dakota, and got off the ground in North Dakota,” he said. “But when it came time for that first, second, third and fourth round of capital they needed to expand, they had to go to LA, they had to go to Denver, they had to go to Minneapolis to get those capital infusions.
“We've certainly learned with COVID that you can really work just about anywhere, and so they're going to be drawn to where the capital investments are. We've got to be able to have at least a competing fight in that arena, otherwise we're going to have done all of this work … simply to be a training ground for companies that will go to the larger markets.”
He said the bill sets good policy direction for the SIB because “capital begets capital.”
The bill now goes to the House Appropriations Committee. Godfread knows there are several more steps before it potentially lands on the governor’s desk, but he is hopeful that is where it will wind up.
“Now is the time to certainly be looking at doing this in North Dakota, simply because of the wonderful opportunities that we're going to have before us,” he said. “I think over the next five to 10 years we're going to be uniquely situated to do a lot of really important things for the world. If we don't have the ability to infuse capital into North Dakota’s growing companies, I think we're really going to miss the boat. We're going to look back and say, ‘Boy, I wish we would have done that sooner.’”