BISMARCK — Interest is growing in using a portion of the $7.9 billion Legacy Fund’s earnings to invest in North Dakota companies and communities to boost the state’s economy.
Insurance Commissioner Jon Godfread, who serves on the State Investment Board, is pushing to have 20% of the fund’s earnings dedicated to investments in North Dakota, with 10% going to buy bonds and 10% for stock in state companies.
Startup and early stage ventures, including efforts like the proposed Grand Farm autonomous farm and Bushel, which makes smartphone applications for farmers, as well as those in the unmanned aerial systems and energy sectors, need capital to flourish, Godfread said.
By investing the Legacy Fund’s wealth on Wall Street, North Dakota is transferring economic opportunities to other states and abroad, he said.
“There’s an inherent pull to go where the capital is,” Godfread told The Forum Editorial Board. “You get an inherent multiplier effect by investing in your own communities.” He added: “We really struggle in getting capital in this state.”
The State Investment Board, which oversees investments for state funds, including pension systems for public employees and teachers, has approved allocating $500 million in Legacy Fund earnings in the state through the state-owned Bank of North Dakota.
So far, about $400 million of that allocation has been invested, said David Hunter, North Dakota’s chief investment officer.
“That’s a pretty good chunk of money,” Hunter said. The $67 billion Alaska Permanent Fund allocates $200 million for in-state investments, he said.
Besides Godfread’s proposal, Gov. Doug Burgum advocates setting aside $1.25 billion in Legacy Fund earnings for a revolving loan fund to bond for infrastructure projects throughout the state.
Legislators are floating similar bonding proposals to tap the Legacy Fund for a $1 billion bonding program for infrastructure, including one by Sen. Rich Wardner, R-Dickinson, the Senate majority leader. Several bill drafts are expected when the North Dakota Legislature convenes in January.
“It’s good to hear more ideas,” said Hunter, who added that the Legislature, not the State Investment Board, decides how to spend Legacy Fund earnings.
Godfread acknowledges that his is one of several proposals for targeting Legacy Fund earnings likely to be heard in the upcoming session. “I envision a lot of discussion about it,” he said.
A survey released in October by the Jamestown Development Corp. found that 79% of likely North Dakota voters favored investing more Legacy Fund earnings in North Dakota. A large majority — 72% — said the Legacy Fund could make riskier investments in the state than outside.
Investment firms in North Dakota are capable of advising the allocation of Legacy Fund investments in the state, Godfread said.
“We’ve got investment firms in the state that are chomping at the bit to do this,” he said. Instead, the state funnels the vast majority of its investments to Wall Street firms, meaning the money is invested elsewhere, Godfread said.
“Everyone else is benefitting but North Dakota,” he said.
A Fargo lawyer, Luke Heck, also has been advocating policies to mandate that North Dakota target some of its investment funds, including the Legacy Fund, on investments in the state.
“There’s opportunities to get a return on investment in North Dakota,” he said, adding that the decision to allocate at least $400 million in the state acknowledges those opportunities.
Investment officials point to their duty to follow the “prudent investor” rule and to maximize returns while minimizing risks.
“I think the question becomes who’s the client? The state and its citizens or the State Investment Board?” Heck asked in calling for the state to examine policies that govern Legacy Fund investments.
Heck, who has been meeting with Republican and Democratic legislators on possible legislation, wants lawmakers to become involved. Legislators in both parties appear interested in crafting a law defining “responsible investment,” he said, including concerns about human rights violations, which is of concern in the case of state investments in Chinese companies.