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Friday, December 30, 2005

A Lasting Return For Our Natural Resources

By Lyle Hillyard
State Senator, Cache and Rich Counties

I am going to propose an amendment to the Utah constitution this session and I would like your input.

When Utah became a state, it adopted in its constitution a trust fund to support public education called the State School Fund. Certain property and investments are held in that trust fund with the annual income being used only for public education. The principal cannot be invaded or spent. The fund has now grown to $553.8 M. In fiscal year 2005, the fund paid over $13 M in investment income to the Uniform School Fund.

When the Utah Legislature learned of the tobacco settlement, we decided that it was essentially one-time money (meaning that it could end at any time). We decided it should be invested - with the interest allocated in a variety of ways to help solve some of the medical and social problems created by the use of tobacco. That avoids the problem of devoting all the principal money to ongoing programs and finding ourselves in a bind if and when the payments end.

The legislature proposed and the voters approved an amendment to the Utah Constitution that created a new Permanent State Trust Fund. The principal payments from the tobacco settlement are deposited into this fund and the ongoing interest goes into the general fund from which these tobacco-related programs are funded. The principal may only be spent with the approval of three-fourths of the legislature and the concurrence of the governor.

In a recent Utah Tax Review Commission meeting, we decided that the severance taxes we are collecting from the removal of oil and natural gas should also be put into a constitutional trust fund. These are non-renewable resources. If they are used up and the income they generated is spent we will have nothing left for future generations. The Permanent State Trust fund is currently limited to only tobacco settlement money. My proposed amendment would allow other moneys to be put into this Trust Fund.

I will also file a bill to route the excess money we are now collecting from our severance tax - i.e. the amount above what we have usually spent - into this Trust Fund. The past level is about $35M and this year we have collected about double that. The State Treasurer assures me that he can separate the interest generated from various funding sources so we can still use income from the tobacco settlement money for tobacco-related problems and have a lasting return to benefit our children from the rich natural resources of this state as they are consumed.

This proposed constitutional amendment has been unanimously approved by the Constitution Revision Commission and the Tax Review Commission.

As always, I would appreciate your insight and suggestions.

4 Comments:

Blogger Kevin said...

I agree 100% that putting windfall from the current oil boom in a trust fund is a wise long term strategy.

A little polemic ... Looking at the surging worldwide demand for oil, I think the current prices for oil are probably still low. I think it is in the best interest of Utah for the state to develop its reserves slowly. I hope the Utah Legislature resists the call to rapid development of state reserves as values of these reserves are likely to increase in value faster than any trust fund investment.

In other words, accelerating the production of oil then putting the money in a trust fund short changes future generations. The first challenge of the state is to encourage a healthy sustainable development of the resources, and to use the trust fund simply to catch spikes in market prices.

12/31/2005 11:02 PM  
Anonymous Anonymous said...

With all due respect I do support the proposal with one caveat, the treasurer's word of separating the funds, is not worthy of consideration, knowing how government works. I would ask that it be inserted that he be directed to separate those funds and they be specifically isolated for tobacco problems. I suggest and ask this based on the fact that my wife of 53 years died in November as a direct result of tobacco addiction...thank you for your consideration.
James W. Platt, member 38th Session, Utah State House of Representatives....
jimplatt@hotmail.com

1/03/2006 8:26 AM  
Anonymous Citizen 451 said...

That sounds like a good investment.

Although I don't always agree with the Legislature's appropriation decisions, I really appreciate its fiscal conservatism. Thank you.

1/03/2006 2:20 PM  
Anonymous David James said...

The idea is basically good on the input side. My question would be on the output. Can you seperate out the various goals from different sources and manage them effectively. For example, if a percent of the tobacco money is to be given to anti smoking ads, does this percentage stay constant? I have mixed feelings on constant change in allocation of funds. Flexibility is good but too often interest groups or short term whims cause more problems than they solve.

1/04/2006 8:44 AM  

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