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Future Fund for West Virginia looking brighter

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Creating a Future Fund for the state has been on the minds of many West Virginia officials for the last several years, but this year it might become a reality.

The Future Fund, Senate Bill 461, sponsored by West Virginia Senate President Jeff Kessler, D-Marshall, along with 31 of the 34 members of the Senate, passed the body unanimously and was sent to the West Virginia House of Delegates Feb. 21.

The House introduced the bill Feb. 21, where it was double-referenced to the House Judiciary and Finance committees. 

The Judiciary committee was scheduled to take up the bill first.

Kessler's bill, if passed by the House, would allow the state to save 25 percent of its oil and gas severance taxes, resulting in more than $175 million to be placed into the fund.

What it does

Under the bill, the severance tax collars could not be appropriated, or used, until 2020, when officials estimate it will reach upwards of "billions" of dollars.

Kessler said he was delighted the bill passed unanimously without any type of resistance or objection.

"I think people have come to the realization this oil and gas opportunity creates a second bite of the apple for us to create some real wealth and opportunity this time, if we manage this resource a little better than we have in the past," he said.

Kessler said the Mountain State has historically been rich in natural resources but remains at the bottom of the rankings for other areas including income, population and education. He is hoping all of that can change with the Future Fund.

"If we had the courage, sense or foresight to do this 100 years ago when coal was in its heyday we'd be the richest (state) instead of the poorest," Kessler added.

If the Legislature would have capitalized on the coal severance tax back in the 1970s, Kessler said, the state would have about $8 billion in reserves earning about $800 million a year at 10 percent interest, by his estimation.

He said with the enormous supply of resources, there is no reason for West Virginia to give them away.

"You can create a real pot of wealth and change our state forever," Kessler said.

Other states' successes

In looking to examples of other states in the country following the future fund process and capitalizing on their natural resources, Kessler said one of those states, North Dakota, has seen a lot of benefits.

North Dakota started a Legacy Fund that takes advantage of the state's oil and gas stream. The fund grew by $1.3 billion in its first few months.

"The future fund is more of a progress fund, a fund that will be available to create long-standing wealth for the people in this state," Kessler added.

Alaska, Montana, New Mexico, Utah and Wyoming also have created versions of future funds. 

Alaska capitalizes on 25 percent of mineral-related (oil) income and legislative appropriations. Montana has a Coal Severance Tax Trust Fund where 50 percent of coal severance taxes are collected. New Mexico has a Severance Tax Permanent Fund where 12.5 percent of severance taxes are collected from coal, oil and natural gas. Utah uses a State Endowment Fund where severance tax revenues are in excess of $71 million from oil and gas tax, with revenues in excess of $27.6 million from coal mining. Wyoming has a Permanent Mineral Trust Fund where 2.5 percent of severance taxes on natural gas, oil and coal are collected.

Working in West Virginia

Ted Boettner is the executive director of the West Virginia Center on Budget and Policy and said he has been working on a Future Fund for West Virginia for at least three years.

Boettner said the fund is about giving West Virginia the opportunity to have a "sunny" day fund that will continue to grow interest as a result of capitalizing on the state's natural resources — coal and natural gas.

"It's a way to turn West Virginia's non-renewable, depleting natural resources into something that can build over time," Boettner said. "If we would've done this 100 years ago, we would've been one of the richest states in the country."

Boettner said some might be weary of another "fund," but the Future Fund would be to protect the long-term fiscal health of the state. With severance taxes making up more than 10 percent of the budget, and the expectation they  will only decrease over time, Boettner said the Future Fund is meant to pay out more in interest than it receives in severance taxes, and it can be utilized at that point, which would not be until 2020.

"That will largely benefit the state's budget to ensure my grandchildren benefit from the extraction today and in the future," he said. "This is a way to build assets. 

"This is a sunny day fund — this is to be used to help make our economy stronger and better and for our workforce to have more skills so we can grow jobs."

The point for the fund is for the principle to never be tapped, only for the fund to grow larger every year.