T H E F U T U R E F U N DA b r i g h t e r f u t u r e f o r W e s t V i r g i n i a

A Brighter Economic Future For the Mountain StateSeptember 3-4 – Clay Center for the Arts & Sciences

TED BOETTNERExecutive Director

OVERVIEW

What is a permanent mineral trust fund?

Which states have permanent mineral trust funds?

What is the WV Future Fund?

How could we strengthen the WV Future Fund?

Why should West Virginia create a Future Fund?

WHAT IS A PERMANENT MINERAL TRUST FUND?

Permanent mineral trust funds are attempts by governments to convert non-renewable natural resource (oil, natural gas, coal, and other minerals) wealth into a renewable source of wealth for future generations.

Permanent mineral trust funds are invested similar to pension funds and a portion of the fund is used each year to financially bolster the state’s economy through strategic investments (e.g. education, infrastructure, and tax relief).

These funds are “permanent” because the principal of the fund is usually constitutionally protected.

STATES WITH PERMANENT MINERAL TRUST FUNDS

A CLOSER LOOK: THE PERMANENT WYOMING MINERAL TRUST FUND

FY 75

FY 77

FY 79

FY 81

FY 83

FY 85

FY 87

FY 89

FY 91

FY 93

FY 95

FY 97

FY 99

FY 01

FY 03

FY05FY0

7FY0

9$0

$500,000,000$1,000,000,000$1,500,000,000$2,000,000,000$2,500,000,000$3,000,000,000$3,500,000,000$4,000,000,000$4,500,000,000$5,000,000,000

0%2%4%6%8%10%12%14%16%

Fund BalanceAppropriated Revenue (Cumulative)Investment Return Rate

Source: Wyoming State Treasurer's Office

THE WEST VIRGINIA FUTURE FUND (S.B. 167)

Principal and interest would not by used for 20 years.

Fund can be used for diversification of the state’s economy, tax relief, education and workforce development and for purposes which other funding sources are not available.

Funding of West Virginia Future Fund would be 25 percent of excess proceeds from oil and natural gas severance taxes beyond a designated benchmark (e.g. $64.8 million).

THE WEST VIRGINIA FUTURE FUND

Oil & Gas Severance Tax Revenues

$50.0

$37.5

$12.5

$100 million

Future Fund

Other Funds

Benchmark

PROJECTED BALANCE OF WEST VIRGINIA FUTURE FUND

2020 2030 2040$90

$596

$2,045

$319

$1,501

$4,188 EIA Well Data

Source: WVCBP analysis of EIA Annual Energy Outlook 2012 data and WVGES dataNote: Assumes no dividends are paid out and uses $64.8 million benchmark.

Expressed in Millions

STRENGTHENING THE WEST VIRGINIA FUTURE FUND: LESSONS FROM OTHER STATES

Include a safeguard against raiding the corpus of the fund by passing a constitutional amendment.

Dedicate a portion of coal severance tax revenue to the fund.

Begin using earnings from the fund within 5 years to gain support.

Deposit Rainy Day Fund B (Tobacco Settlement $$) into the WV Future Fund.

WHAT IF A WEST VIRGINIA PERMANENT MINERAL TRUST FUND HAD BEEN CREATED IN 1970?

1980 1990 2000 2011

$315$1,246

$3,111

$7,915

Source: WVCBP analysis of EIA data, WVDOR data, and WV Blue Book (1970-1980)Note: Assumes 1% severance tax on coal, oil, and natural gas dedicated to Future Fund

Balance Expressed in Millions

PAYING IT FORWARD

It’s about our future!