In coal we trust
Montana’s sovereign fund was established in 1975. The Coal Trust is funded by extensive deposits of coal in southeast Montana and the Bull Mountains outside of Roundup. This was about the time when acid rain was becoming a familiar phrase in the American lexicon. Perhaps the visionary Trust was a pragmatic response to the environmental movement of the 1960s and the newly minted Montana Constitution of 1972. If you are able, put aside the deleterious effects of warming attributed to coal and consider the future of the fund.
Surface mined coal is taxed at 10% and 15% depending on its BTU value, underground mined coal at 3% and 4% depending upon its BTU value, and coal mined with auger technology, a method of boring into horizontal seams, at 3.75%. Fifty percent of the severance or tax proceeds enter a trust that can only be used (referred to as busting the trust), with a 75% vote by the legislature. The trust is divided into six sub-trusts and the interest of those sub-trusts fund essential needs such as regional water projects, school facilities, local infrastructure such as the new Whitefish Wastewater Treatment Plant and the Big Sky Economic Development Trust which is appropriated to the Department of Commerce for grants made to local government for economic development purposes. The other 50% of the severance is distributed directly to a wide range of programs including conservation districts, long-range building (replacing and improving state-owned buildings), park acquisition, cultural and aesthetic projects, library services and the general fund.
What will happen to the fund when coal loses favor in the market? Presently, because of the world in conflict, the price and demands are high. My interest in the topic is to assure future generations of Montanans will continue to benefit from the trust, currently valued at abbot 1.2 billion dollars. The Trust remains untouched and will earn interest. Unfortunately, the constitution restricts investments from shares of stock. This reflects the times (the 1970s), when no-risk, high-yield returns were commonplace. There are a dozen states with sovereign funds and Montana is unique. Many states have allowed a portion of the proceeds to be invested in the stock market. New Mexico’s fund is diversified in natural resources with a severance that earns 2% more. This may seem inconsequential but in the case of a billion dollars (more than 25 billion in New Mexico by way of age of the fund and multiple sources), this percentage could result in many millions of dollars in the Trust and programs that benefit all Montanans.
Montana’s Trust also needs diversification. If the future is green energy production then we should consider the possibilities of a KW severance that includes the renewables, generation at the source and perhaps retail electricity at the charging station (we will look at legislation in Transportation to resell and tax the kW’s to maintain a road system.)
The legislature presents opportunities and subject matter I had not considered before entering in 2017. I’ll be running a bill similar to HB16 from 2019, borrowing an additional 15 million dollars from the Trust (ok to borrow), for affordable housing work around the state. With most of the money lent under the State Board of Housing, these dollars often fill the gaps in new and remodeled multi-family homes. I’ll also consider a change in the constitution (needs permission by the people), to allow The Board of investments, to responsibly manage the Trust Fund with additional flexibility.
Could we have pulled off the formation of a sovereign fund from scratch in today’s political climate? Seems unlikely so. Vision and political cooperation go a long way in improving our lives. Let’s keep the Trust healthy, wealthy and diverse for the next hundred years.
HD 5, Whitefish