A Note From Pete Simpson:

This month we address the issue of Wyoming’s Permanent Mineral Trust Fund – its purpose and its meaning for Wyoming both now and in the future.  Kerry Drake’s column, Sometimes Wyoming needs to spend rather than save, piqued the interest of many – mine included. So, I invited two of the most knowledgeable individuals on this topic I know to contribute their views: State Senator, Charles Scott, of Casper, senior statesman in the Wyoming Legislature and its longest serving member, and Sam Western, author, journalist, lecturer and Adjunct Professor of Economics at the University of Wyoming.

Not surprisingly, they come at the subject from very different perspectives. Senator Scott instructs us on the purposes of the Fund and urges our consideration of its worth as presently administered. Sam Western, on the other hand, questions the state’s management of the Fund and asks whether the present strategy is wise for the long run. That is, of course, what the Forum hopes for – views that can stimulate reasoned debate and discussion. Which of these views accord with your own and what do you see in our future?

— Peter K. Simpson


The Permanent Mineral Trust Fund is Wyoming’s financial centerpiece

Guest Essay by Charles Scott
— March 25, 2014
Sen. Charles Scott (R-Casper)

Perhaps the smartest financial move the people of Wyoming have ever made was the establishment of the Permanent Wyoming Mineral Trust Fund. The Fund has already been Wyoming’s fiscal savior in several economic downturns and promises to be our long-term financial anchor.

The fund was ratified as part of our Constitution by the people of Wyoming at the 1974 General Election and began accumulating funds in 1975. The text of the Constitutional provision establishing the Fund is simple:

“The Legislature shall provide by law for an excise tax on the privilege of severing or extracting minerals of one and one-half percent (1 1/2%) on the value of the gross product extracted. The minerals subject to such excise tax shall be coal, petroleum, natural gas, oil shale and such other minerals as may be designated by the Legislature. Such tax shall be in addition to any other excise, severance or ad valorem tax. The proceeds from such tax shall be deposited in the Permanent Wyoming Mineral Trust Fund. The fund, including all monies deposited in the fund from whatever source, shall remain inviolate. The monies in the fund shall be invested as prescribed by the Legislature and all income from fund investments shall be deposited by the State Treasurer in the general fund on an annual basis. The legislature may also specify by law, conditions and terms under which monies in the fund may be loaned to political subdivisions of the state.

An important provision in the constitution is that the income generated is deposited in the General Fund. Dedicating the income to the General Fund means that the legislature has the ability to spend the income where it is needed most. Over the years there has been an attempt or two to earmark fund income to special purposes, but because that would require amending the constitution, these efforts never get anywhere. The result is that the income from the fund is available to help the state meet its essential obligations when economic times are tough, reducing the need to raise taxes under these circumstances.

A second key provision is that the fund itself is inviolate, meaning that the money in it cannot be appropriated and spent. My experience over the years is that money in any fund not protected by this kind of constitutional provision can and will be spent in an emergency. When Wyoming’s tax revenue goes way down because our mineral industries are in the bust phase of their historical boom and bust cycle, the legislature can be faced with the choice of raising taxes or cutting popular and needed programs like education. The vast majority of our state spending is in three hard-to-cut areas: education, medical assistance, and corrections. Under these circumstances the permanent funds would be raided if they were not constitutionally protected.

Over the years there have been several raids on the fund. The worst was for clean coal technology, the so called Char-Fuels fiasco. The legislature gave sweetheart low-interest loans to several companies which then went broke. The result was that we had to make provisions to make the body of the fund whole, an experience that educated the legislature not to do that again. This legislator is happy to report I voted against the offending bill on the theory that any company that had to come to the legislature rather than the commercial market for funding had to have something wrong with it.

A second raid was legal because of the provision that the fund could be loaned to local governments. We have used the body of the fund for low-interest loans to municipal water projects. The largest was the Cheyenne Stage II municipal water project which brings drinking water to Cheyenne by diverting water from the west side of the Sierra Madre Mountains in Carbon County to the North Platte to replace water Cheyenne pipes from the Snowy Range over Sherman Hill. The legislature has since developed the Water Development program with its own revenue sources to avoid this demand on the Permanent Fund.

The corpus of the Permanent Wyoming Mineral Trust Fund was also the source of funds for a state agriculture loan program in the 1980’s and early 1990’s. The Farm Loan Board (Wyoming’s top five elected officials) was conservative, keeping the loans from being too high in relation to the value of the lands on which they took a mortgage, and thus avoided most of the losses other agriculture lenders had. At 8 percent, the interest rates were not especially low, and this program has now been eliminated by cheaper commercial competition.

The fund was an important source of revenue for the state in the mineral industry bust that started in 1982 and lasted until the mid 1990’s. The fund was smaller then and could only be invested in fixed income securities (bonds and the like), but interest rates were high so earnings were high.

In 1996 the voters approved a constitutional amendment that allowed the corpus of our permanent funds to be invested in common stocks. This was fortunate because since then stocks have been more profitable investments than bonds. In the great stock market crash in 2008 and 2009 the state did not panic and continued to buy stocks, much to our subsequent profit.

“In some of the years in the first decade of this century, you could make a good statistical argument that the State of Wyoming was the best professional large money manager in the country.”

The state has become a very sophisticated investor with widely diversified holdings and multiple professional investment managers. In the nature of the world we will suffer an occasional loss in our investments, but these will be offset by our successes. We are protected against disaster by our investment diversity. In general, we should expect the performance of our Permanent Fund investments to mirror the stock market as a whole, but to be a bit better than the market average. In some of the years in the first decade of this century, you could make a good statistical argument that the State of Wyoming was the best professional large money manager in the country.

Partly in response to our experience with the dot-com market crash, the legislature has established a spending policy with a reserve account. We set a percentage of the fund we expect to earn long-term (since 2004, 5 percent per year). We put anything over the 5 percent in the reserve account so we have a source of money if, due to a market crash, we don’t have the needed income for a year or two. There is a cap on the reserve account of 75 percent of the expected annual spending and any earnings over the cap get put back into the fund to protect it against inflation. In 2013 this resulted in a deposit into the Fund of $102.1 million.

In addition to the inflation-proofing using the excess earnings, the legislature has taken several other steps to improve the Permanent Mineral Trust Fund. Soon after the fund was established, the legislature passed a law raising the mineral tax rate deposited in the fund from the constitutional 1 1/2 percent to 2 percent. This law was repealed in the mineral bust after 1982 when we needed the tax revenue, but was reinstated when the current boom was getting started, and the 2 percent rate remains. In good years we have also appropriated money directly into the fund.

The legislature expects our mineral tax revenues to stabilize over the next decade or so. Revenue from oil production is likely to grow, coal to decline, trona to be steady, and natural gas to fluctuate. We think our governmental expenses will slowly grow due to inflation and population growth. To deal with this without a tax increase, we have built a “rainy-day” account with a balance equal to about one year’s General Fund budget, and we are trying to build up the Permanent Mineral Trust Fund so income from it will increase.

The market value of the Permanent Mineral Trust Fund was $6.1 billion on July 1, 2013, and is projected to grow to about $8 billion by July 2018. In addition, the July 1, 2013, market value of the Common School Permanent Land Fund (income dedicated to the public schools) was $2.6 billion. The Excellence in Higher Education Endowment was $113 million and the constitutionally-protected Hathaway Scholarship fund is over $500 million. (These last two are due to legislation this legislator sponsored.) The total of our constitutionally-protected funds is currently over $9 billion and rapidly approaching $10 billion. In addition, the University of Wyoming and Wyoming’s community colleges are developing significant endowments with their fund raising helped by state matching funds. The Workers’ Compensation fund and the retirement funds are protected from being spent, but are legally limited to their specific purposes.

Read the companion piece for this Pete Simpson Forum Essay: “Take A Risk: How to create a society that matches its scenery” by Samuel Western.

The net result of this long-term financial policy is that for the foreseeable future you can expect Wyoming to continue to be a low tax, high government service state. We should avoid the financial problems and high taxes many of the other 49 states will have. In our spending we have set priorities — we spend heavily on education (both K-12 and higher education), water development, highways and corrections. We spend relatively less on medical assistance (mostly Medicaid including nursing homes and Developmental Disability programs) and welfare programs.

We have avoided debt. The Wyoming Permanent Mineral Trust Fund is the centerpiece of our financial strategy.

— Harvard-educated Charles Scott is a rancher who first served in the Wyoming House of Representatives from 1979 to 1982. He has served in the Wyoming Senate since 1983, representing Senate District 30 (Natrona County)..

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  1. I am just curious about why RBD keeps using the word “liberal” as the proof that Dewey’s arguments are incorrect. It isn’t very effective hyperbole. I would like to see that kind of debating tactic replaced with logic, reason and evidence. Would you try to do that, please?

  2. Dustin, I appreciate your comments and I think you will find I am overall more moderate than what it appears. A couple of months ago you challenged me on something factual in my comments – yet Dewey gets a free pass to spout off anything he wants – facts or not facts. That is the basis for some of my previous comment.

    While I am more moderate than what it may appears, at the same time, our society in general is becoming more and more dependent, less and less self sufficient and looking to blame somebody else for their woes. Nothing is apolitical anymore, everything is democratic or republican. If you do not want to spend money, you are some old fogey GOP white guy. If you believe in the environmental movement, then you are some out of touch liberal democrat. It’s not about what is right anymore, it’s about your political positions, voting the party line – democrat or republican.

    Everybody feels like they are “entitled” to something – a job, an education, a salary, a home with a three car garage, two weeks of vacation, etc. Whatever happened to earning your way in life? This country is full of opportunity – there is no excuse for not being successful in this country. But if you are, then be prepared to give what is yours to those who feel entitled to it. Rodger McDaniel has an interesting editorial in the WTE a several weeks ago – people are “entitled” to a job that pays a decent wage. That is the problem, we are all “entitled” so why bother getting the skills to participate in the economy when I am “entitled” to a decent paying job.

    Government certainly has it’s place – health, welfare and safety. It does not include Obama phones, EBT cards to pay for flat screens, tattoos, beer, cigarettes, etc. Why do we have 47 million people on welfare yet good paying jobs go unfilled? We are certainly wealthy enough in this country to provide for the sick, the poor, the elderly. No question about that, I will be and can be one of the first line to provide that helping hand up. We have a responsibility in this country to our fellow citizens. But, there is no reason to have 47 million people on food-stamps other than they are enabled. We have created a society where everybody gets a medal, everybody wins. Unfortunately, reality is there winners and losers.

    Somebody, we will look back on all of the money we have accumulated in the PMTF and be thankful. Think of it as saving for retirement. Coal, natural gas, oil are all finite resources. The tax subsidy every individual in this states relies on will be gone. The rainy day is coming. I remember when this state was so broke the Governor was approving individual invoices for payment – and the state balanced it’s budget because Ms Tappen passed away in Jackson.

    If you want economic growth in this state such that we can continue to save money in the PMTF, we need government to get out of the way. Not unfettered unregulated growth, but reasonable regulation put forth in a cost effective manner. Not more impact fees, more UDC, more things put in place to make things “pretty.” Government continues to impose unnecessary regulations not to protect health, safety and welfare, but to promote government’s own political agenda, public be damned. Democrat, republican, tea party…….I really do not care.

    In closing, if we all would step back and do the right thing for the State as a whole, ignore the politics, the talking heads, we would be just fine. It will never happen, but we can always dream. As somebody told me a few months ago, progress happens in this state with the death of one legislator at a time………

  3. The among-the-lowest-in-the-nation utility rates we pay in Wyoming are not necessarily a point of some secret sauce success in Wyoming. They’re a product of externalizing the true costs of fossil fuel emissions, which are paid the form of shorter lives and expensive illnesses, among other costs. These externalized costs devastate families who have to choose between doctor bills and sending a child to college. They result in shorter hunting seasons in Wyoming, less snow, warming streams that threaten our Blue Ribbon fisheries, etc. These facts are neither liberal nor conservative.

    I think what some people are saying is that Wyoming is not entitled to — nor should it expect — a 400-450 million tons per year coal production scenario for decades to come, nor a 20,000 new oil and gas well-depended business model for our state’s budget. The nation and the world isn’t taking into consideration Wyoming’s reliance on full-throttle fossil fuel development in their decisions that also affect us. They have more pressing concerns that include mass migration from coastal populations, for example. Speaking of which, I’m surprised Wyoming isolationists are not getting behind carbon reductions for the fact that our state may very well become a migratory destination in advanced global warming. Here come the Californians that some Wyomingites bemoan. If it weren’t for those danged Californians, we could shut off the Kern River and Ruby natural gas pipelines that help feed our coffers.

    I’m disheartened to see the continued misuse of “entitlement” — which is often a dog whistle word for those opposed to all things federal government. Dare I mention the word “progress” (which is not abandoning tried and true values, but adapting to change)? Nobody is advocating for the vocation of neardowell-ism. But there sure are families and individuals in need of services that can help bring them back to some level of self sufficiency. If there are abuses, let’s address them.

    rbd, I suspect you’re in support of efforts in your neighborhood to pool resources and take on needed tasks that commercial enterprise just isn’t cut out to do in their day-to-day operations, isn’t cut out to do in the name of investor returns. We take care of our own, right? That’s also why we have city councils — to take on these same community needs on a larger scale. It’s why we have county commissions, a state government, and — gasp! — a federal government.

    These bodies of governments all have their faults. They may even be pigs — but they’re OUR’S, and they’re made up of our friends, family and neighbors who have skills that we need. Instead of decrying these institutions outright, let’s take some ownership and figure out how we can make these processes and institutions better.

    I think it’s entirely appropriate to rethink the way we spend and save in Wyoming. Would a strategy that’s more aggressive in investing have a bigger payoff than our coffee-can savings strategy? Maybe. The idea — or the question — deserves some thoughtful discussion.
    — Dustin Bleizeffer, WyoFile editor-in-chief

  4. Dewey, do you do any research or have any facts to support your liberal positions? You might want to do a little homework before worrying about the word put in your mouth.

    Wyoming electricity rates are lower than CT rates – as well as rates in other nearby states. Why do you think Microsoft, NCAR and others are coming to Wyoming?

    You might also get off the entitlement band wagon. Typical liberal with your hand out. I hope the state keeps tucking money way instead of blowing it on some wasteful government project. If you want government spending, I encourage you to head to the People’s Republic of California or one of the many other liberal spending areas of the country. Look how well liberal spending worked for Detroit.

    Most small communities in this state do not want to grow. The money is there for those communities willing to innovate and invest in themselves, not sit around waiting for the next handout. In my many years in this state, the vibrant communities are the communities that are dynamic, willing to invest in themselves and leveraging that investment with state funds. Those communities that do not grow or develop can look at themselves in the mirror – and for many of them, they are happy just where they are at. Growing old, decaying, living in their sheltered little world.

  5. The question that the two commenters here might consider addressing is how this money is invested. This is opaque in Scott’s column, but makes a great deal of difference. Another is how the minerals are valued for the purposes of this tax and the fund that is its purpose. The devil is in the details here and much is left unsaid.

    Just out of curiosity, on what planet would anyone consider Wyoming to be a “high government service state”? Did Scott think he could slip that one in without anyone noticing? From the perspective of its residents, Wyoming is perhaps the lowest government service state in the Union. Scott has personally seen to ensuring that this remains the case.

  6. RBD- please don’t put words in my mouth. I said nothing about spending it ” all ” How about just investing ” some ” instead of stuffing it all in the mattress or drawing a whopping 2 percent interest from our fabulous commercial banking system? Oh by the way …are not the residents of all of Wyoming entitled to some of that money if the have no paying minerals under their feet ? Closest coal mine to me is 250 miles away, but I’m paying full retail Connecticut-commodity brokered price for my electricity…

    What do YOU suggest we do with those 13 other non-PMTF coffee can accounts ? Last I heard it was around $ 16 Billion . It’s only money if you spend it , by the way.

    If the sum of all the liquid savings accounts is intended to operate Wyoming during a time of economic despair or financial crash or whatever, it would run state government maybe all of 2-3 years , max. Then what ? Can we retool in that short period of time, or just raise taxes thru the roof instead ? We really do need a broader tax base not based on energy and mineral around here. Where is that , and how do we get there from here ?

    Invest it, not rat hole it.

  7. In other words Dewey, let’s just spend it all and at the end of the day, what are we left with? Detroit?

    Typical liberal, spend, spend, spend, worry about the future later……..

  8. Wyoming government has a lot of those so-called ” Rainy Day ” accounts…virtual coffee cans stuffed with cash , in fear of the proverbial rainy day bearing down on us.

    I have to ask: Will we require the State Climatologist to decree when that rainy day is actually upon us? Given how much our state governmental leadership hates anything to do with ” climate” , how will we know when we should start opening the coffee cans and spending the stashed loot ?

    While the principal in the PMTF cannot be touched, the interest can . and there are about 14 other coffee can funds for the inevitable economic downturn in Wyoming when the outside world no longer wants our fossil fuels. The key word is ” inevitable” , but how long does it have to rain and how deep must the drowning flood get before we start buying lifeboats of safe passage to higher drier terrain ?

    My concern is that the Legislature is so hellbent on keeping taxes low first and foremost that they have walled themselves off from any hopeful progressive thinking and investing in a future for Wyoming without hydrocarbon largesse. For all the lip service given to economic development and diversification , I’m not really seeing it on the ground much. The Wyoming of the 2q1stc entury ha snot come into view. We’re still using 20th and even 19th century thinking around here.

    Senator Scott, it is well past the time the Legislature shook off the yokes of old school thinking and root cellar conservatism and began really , truly , actually creating a New Wyoming that stands a chance in this rapidly changing century. No more lip service and rhetoric : we need to see edifices instead. A handful of small data centers do not qualify as flagships of New Wyoming economics. Those are barely above barge status. We need real business infrastructure in this state not beholden in the least to oil, gas, and dirty coal.