Just as the United States has banks and auto companies too big to fail, North Dakota has a Legacy Fund that is too big to spend, now ranging somewhere around $7 billion. We are awed by such a fund after spending 130 years fighting off wolves.
It is a paralyzing amount and if we bust it open we are afraid of something like the Boston Molasses Flood that poured two million gallons of gunk into the streets on Jan. 15, 1919, and killed 21 people.
If we opened the Legacy Fund, the fear of the Legislature is that money would pour out like Boston molasses, uncontrolled in response to the unmet needs of the state. A figure with that many zeros is bound to attract a lot of flies. So we just admire it as it grows.
Up to this date, the only courageous thing we have done is rob the fund’s interest to balance the state budget. Interest is supposed to accrue to the principal, but accounting rules have never been much of a concern in Bismarck. We operate more on the principle of band-aids.
While every session of the Legislature has seen a variety of bold suggestions for the Fund, few have come up with enough concrete facts to manufacture a feasibility study.
Now comes Rep. Mike Nathe of Bismarck with House Bill 1425 that proposes to divert 10% of future oil tax collections for creating a loan program for cities, counties and business and to divert another 10% for stocks and equity in North Dakota companies.
Rep. Nathe argues that his bill would make it possible to focus capital on qualified projects in North Dakota. In turn, this capital would have an economic impact that would create more jobs, higher wages, new profits and more tax revenue.
While Nathe’s legislation would require fine-tuning, it looks like a partial answer to the undercapitalization that has restricted economic development in the state. We are reaping the sin of undercapitalization in the COVID-19 disaster that is weeding out all sorts of small businesses too undercapitalized to survive months of revenue losses.
Undercapitalization in North Dakota is so serious that the availability of new money will produce, in addition to solid proposals, a number of risky ventures that will test the discipline of the deciders.
The inventors of bigger and better widgets will appear, very likely with a local legislator and a mayor, to support new technology for widget-making even though widgets have been replaced by duct tape.
North Dakota is a small state of personal relationships, making the maintenance of harmony an important function in society. Harmony is served when everyone gets what they want. When someone gets something, everybody should get something. This has been the legislative rule for the universities since our creation in 1889.
In this kind of environment, who is going to determine the feasibility of various proposals? Don’t look at the members of the State Investment Board. I’ve been there, and I didn’t trust myself to make final decisions on investments.
To get around any kind of favoritism, it would be wise to assemble a group of neutrals to make the decisions, a sort of shark tank, made up of out-of-state business people that have no friends in North Dakota.
While we’re investing money that will result in good future returns, we need to remember that investment in people would result in higher qualifications and better jobs. A lot of America’s prosperity can be attributed to the “G.I. Bill” that paid for the education of millions after World War II.
Nathe’s bill will suffer amendments before passage, but it is a good risk that could get the Legacy Fund into building North Dakota’s future.
Lloyd Omdahl is a former state lieutenant governor and professor at UND.