Sovereign wealth funds in the United States

By Richard E. Caroll

Sovereign Wealth Funds (SWFs) are rapidly becoming the largest source of investment and funding in international finance.  The Norwegian Government Pension Fund is the richest with current assets of over $1 trillion. The Sovereign Wealth Fund Institute has a listing of the 83 largest SWFs at this link.

Included in this list are 21 SWFs in the United States of America at the associate state level.  These SWFs are used by these states to fund the basic education needs of their population, as well as to fund certain functions of state government.  While 20 states have SWFs, there are 21 SWFs in the US as Texas has two SWFs.

Listed below are the sovereign wealth funds in the United States where information is available.  Other funds are opaque and information on them is not readily available.

The Alaskan Permanent Fund

The largest and best known of SWF funds in the United States is the Alaskan Permanent Fund (APF).  The Fund is managed by the Alaskan Permanent Fund Corporation (APFC).  The fund was founded in 1976 by Governor Jay Hammond and from February 1976 to April 1980, the Fund was managed by the Department of Revenue Treasury Division.  In April of 1980 the Alaskan Legislature created the APFC to manage the Permanent Fund.  The fund itself is divided into two distinct funds.  The Principal Fund is non-spendable and must be allocated funds on an annual basis to maintain its value after inflation proofing.  The Earnings Reserve Account is the amount of funds available for consumption and for the issuance of the Permanent Fund Dividend (PFD).   The fund has grown from $734,000 in 1977 to a valuation of $65.8 billion as of August 2020.  The PFD for 2018 was $1,600 and the PFD for 2019 is $1,606.  The dividend is distributed to every eligible Alaskan citizen, regardless of age, on a yearly basis.

On October 3, 2019 it was announced that the APFC had created the Alaska Future Fund (AFF).  The AFF has been capitalized at $100 million from the APFC Earnings Reserve.  Barings, one of the world’s leading financial services firm, has been tapped by the APFC to head the AFF investments.  The mission statement of the AFF is:

…seeks to identify and support private funds and private market businesses/projects that are either based in Alaska, have investment operations in Alaska or have a current bona fide plan to operate in Alaska. The Alaska Future Fund will invest in businesses and projects that support core sectors of the Alaskan economy, including, but not limited to, real assets, natural resources, transportation and infrastructure, to grow the Alaskan economy and foster the next generation of private market opportunities in the state of Alaska… 

The Alaskan Permanent Fund is ranked number 20 on the Sovereign Wealth Fund Institute Index.

The Texas Permanent School Fund

The Texas Permanent School Fund (TPS), the first SWF in the world, was created in 1854 by an act of the Texas State legislature.  First called the “Special School Fund”, the fund was created to fund the state’s public-school system.  The fund was principally endowed with $2 million that the state government of Texas had received from the US federal government in return for Texas claimed territory in what are now parts of New Mexico, Colorado and Oklahoma.  The fund was augmented by an additional land grant of millions of acres of land that were then sold, and the proceeds deposited into the Fund.  Only earnings from investments of the Fund can be spent.

The fund is managed by the elected State Board of Education and administered by the Texas Education Agency (TEA).

As of August 31, 2018, the TPS has a valuation of $44 billion.  While one of the largest SWFs in the United States, the contributions to the Texas school system has slipped, and the money invested in the education of the children of Texas has declined.  At the same time of this decline, the amount of consulting fees and investment commissions have soared.   With the change in how the fund can be invested, private fund managers have contributed over $1.4 million in political donations to the current board members in return for the opportunity to be able to invest $3.7 billion.  The great majority of these “outside” investors are friends and family members of the board.  The Fund has only recently been making the investment costs transparent, mostly as a result of tireless investigations by the Houston Chronicle.  The Chronicle’s report can be accessed at this link.   The TPS is ranked number 24 on the Sovereign Wealth Fund Institute Index.

The Texas Permanent University Fund

The Texas Public University Fund (PUF) was founded in 1876 by the Texas state legislature and was originally funded with land grants authorized by the state legislature.  The PUF had a valuation of $21.8 billion as of July 31, 2018.  Dividends from the PUF only go to the Texas A&M University System and the University of Texas System.

In 1883, the Texas and Pacific Railroad returned 1 million acres of land to the Texas state government under the belief that the land was practically worthless.  This land was then deeded over to the PUF.  Initially what little revenue that the PUF gained from its land grants came from grazing fees.  Prior to 1923, the PUF was underfunded but that all changed in May of 1923 when the first oil well on PUF land in Regan county became a major source of income for the PUF.  The PUF has since become one of the best funded education fund in the United States.  There have been numerous lawsuits ever since on how to share the bounty of these funds, and the Texas State Supreme Court has at times had to step in to maintain order between the Austin portion of the PUF and the University of Texas System.  Unlike the Texas Permanent Fund, the charter for the PUF forbids the sale of any lands contained in the PUF charter, so the ongoing dispute in the TPF and the management of the TPF funds has not affected the management of the PUF.  The PUF is ranked 26th in the Sovereign Wealth Institute index.

New Mexico State Investment Council Permanent Funds

The New Mexico Permanent Fund (commonly known as the State Investment Council) began with the entry of New Mexico as a territory of the United States.  After the entry of New Mexico into the union as a territory, the  Land Grant Permanent Fund (LGPF) was established in accordance with the Ferguson Act of 1893.  The initial land grant for the Fund was from the public lands given to New Mexico in 1893.  Additional lands were given to the Fund in 1912 when New Mexico became a state.  It was in 1957 that the LGPF became the State Investment Council (SIC).  The creation of the SIC was accompanied by a constitutional amendment to the state constitution that gave added protection to the Fund from interference from the state legislature.  The SIC has been the object of several different changes to allow it to evolve with the change of economics nationally and world-wide.  Besides the SIC, there are three other

Permanent Funds in the state of New Mexico.  They are:  The Severance Tax Fund, The Tobacco Settlement Permanent Fund, and the Water Trust Fund.

All told, the New Mexico State Investment Council Permanent Funds as of 2018 had a valuation of $26.9 billion.  75% of the funds go to the funding of the school system of New Mexico.  The other 25% goes to other state obligations.  This SWF is ranked 32 on the Sovereign Wealth Fund Institute index.

The Permanent Wyoming Mineral Trust Fund

The Permanent Wyoming Mineral Trust Fund (PWMTF) began life as a severance tax in 1969 after the balance of the state’s treasury had only $80 in it.   Passed by Wyoming’s state legislature by a narrow margin, the tax was set at a 1% severance tax.  In 1974 the Wyoming legislature wanted to increase the tax, but the state’s governor Stan Hathaway threatened to veto the tax unless a provision was put in place that part of the money was set aside in a permanent mineral fund through a constitutional amendment.  It was through the governor’s hard work along with Senator Dick Jones that the question was put to the citizens of Wyoming on November 5, 1974.  The ballot initiative passed by a wide margin and the constitutional amendment became effective on January 1, 1975.  The severance tax was fixed initially at 2% and was kept at that level from 1975 until 1988.  In 1988 the tax was lowered to 1.5% with .05% being diverted to the state’s savings account.  Later on, the tax amount was raised to 2.5% in 2005.  In 2016, 1% of the Fund’s revenue was diverted to Wyoming’s operating budget to address a short fall in state government operations.  The Fund has been recognized by the Peterson Institute for International Economics as one of the most transparent Sovereign Wealth Funds in the world.  The valuation of the PWMTF as of April 2018 was $8.1 billion.  The PWMTF is ranked at number 42in the Sovereign Wealth Institute index.

North Dakota Legacy Fund

In 2009 by House Concurrent Resolution No 3054 was passed by the North Dakota Legislature putting the question to the people of North Dakota on the 2010 ballot on whether to create the North Dakota Legacy Fund.  The ballot measure known as Constitutional Measure One was passed by the voting public on November 2, 2010.  As a result of the vote, thirty percent of the oil and gas tax collected by the state of North Dakota was to be placed into a special fund known as the “Legacy Fund.”  Included in the constitutional amendment was the proviso that neither the principal or the earnings of the fund could be expended until 2017.  This was done to allow the balance to grow.  The charter for the Fund states that any interest earned up to 2017 would become a permanent part of the Legacy Fund and could not be spent.  Earnings after 2017 are transferred to the North Dakota’s General fund for assisting the state’s governmental operations.  Under the constitutional amendment passed in order for the state to use the principal of the fund a vote of two thirds is necessary.  If such a vote passes, only 15% of the principal may be used in any fiscal year.  The State Investment Board of North Dakota is responsible for the investment of funds.  As of June, 2020, the fund was worth $6.9 billion.

An article in Grand Forks Herald has the Republican Party of North Dakota proposing that the state’s already low state income tax be abolished and that the state government operations would be funded by sales and property taxes and the Legacy Fund.  The North Dakota Legacy Fund is ranked at number 45 in the Sovereign Wealth Institute index.

The Alabama Trust Fund

In 1978 a major offshore natural gas field in Mobile Bay, Alabama was discovered, and the state government received bids of $449 million for the right to develop this gas find.  This $449 million was used to fund the establishment of the Alabama Heritage Trust Fund (AHTF) in 1982.  The AHFT income was used to finance a $520 million bond issue for capital state outlays. In 1984, the state of Alabama received an additional $347 million for additional leases.  The Alabama Trust Fund (ATF) which was established in 1985 by Amendment 450, grew out of the AHTF.  This amendment also terminated the AHTF, and the funds from the AHTF were transferred to the ATF.

Ninety-nine percent of the royalties paid to the state of Alabama goes to the ATF, with one percent goes to the Department of Conservation-Lands Division.  Amendment 450 also directed that beginning in fiscal year 1989 – 1990 that one percent of the trust income received by the state of Alabama be placed into the principal portion of the ATF until a maximum of 10 percent is placed into the ATF on an annual basis.  The remaining trust fund income is then paid into Alabama’s general fund for expenditure by the state government.  The fund and disbursements of the fund have been changed several times.

The ATF is managed by a board of trustees which are comprised of the Governor, the State Treasurer, the Director of Finance, three trustees appointed by the Governor, two trustees appointed by the Lieutenant Governor, and one trustee appointed by the Speaker of the House of Representatives.  The Governor, the State Treasurer and the Director of Finance each serve as a trustee ex officio and as an officer of the board of trustee’s

The investment portfolio of the Trust is spread between domestic fixed income, large and international equity markets, real estate and other investment instruments.  As of May 16, 2019 the fund had a value of $3.17 billion.   The Alabama Trust Fund is ranked 52 on the SWFI list.

Utah School Trust Fund

The Utah State School Trust Fund was established with the Enabling Act upon the admission of Utah as an associate state in the union of the United States of America in 1894.  Under Section 10, of the Enabling Act a Permanent School Fund was established.  Under the School Land Trust Program, investment earnings from the Fund are distributed to every school in Utah in the state based on a per pupil formula.  Investments for this fund are handled by the Utah School and Identification Trust Funds Office (SITFO)

In 2019, the Fund was valued at $2.4 billion.  In 2019, Utah schools received over $82 million.  This fund is ranked 55th by the SWFI.

Oregon Common School Fund

The Common School Fund began life upon the entrance of Oregon into the association of states of the Union of the United States.  The act of Congress admitting Oregon into the Union in 1859 granted sections 16 and 36 of every township for the use of schools.  Nearly 3.4 million acres of land came under the ownership of the state.  Distributions from the Common School Fund came to $100 per student in 2018.

Due to poor management, the sale of the lands granted to the Common School Fund has left only 750,000 acres of the original 3.4 million acres under the control of the Common State Fund.  To increase funding for the Common School Fund, those who die intestate in Oregon with no known heirs have their wealth seized and transferred to the Common School Fund.  All unclaimed money the state receives is transferred to the Common School Fund until the owner of these funds apply to have these funds returned.

The State Treasurer and Oregon Investment Council invest the Common School funds.  The council members, 4 of them, are appointed by the governor of the state of Oregon with the State Treasurer and the director of the separate agency that administers the Public Employees Retirement System as ex officio members.  The mission statement for the Oregon Investment Council can be found here.  For 2018 the valuation of the Oregon Common School Fund is $1.6 billion.  The return on investment for the Oregon Common School Fund was 7.71% from 2015 to 2018.    The Oregon Common School Fund is not ranked by the SWFI.

Louisiana Education Quality Trust Fund

The Louisiana Education Quality Trust Fund (LEQTF) was established in 1986 by popular vote to improve the quality of education in Louisiana.  The LEQTF receives its funding through the Federal Outer Continental Shelf Lands Act.  The funds from the LEQTF is deposited into the “Permanent Fund.”  Once the money has been transferred to the Permanent fund, 75% of the income generated from investments as well as royalty income along with 25% of the earnings from net capital gains/losses is transferred to a different fund known as the Support Fund/(8)g fund.  The Permanent Fund retains 25% of the investment funds, and royalty income.  75% of the earnings from net capital gains/losses are also retained by the Permanent Fund.  The Support Fund makes annual monetary allocations to two state agencies:  The BESE for pre-kindergarten to 12th grades, and Regents for all public higher education.   The LEQTF at the end of fiscal year 2018 had a valuation of $2.2 billion.  The LEQTF is ranked 60th by the SWFI.

Montana’s Coal Severance Tax Trust & Public-School Trust

Montana’s Coal Severance Tax Trust and Public School Fund was established in 1975 by the Montana state legislature.  The Fund receives 50% of all tax revenue generated by royalties from companies that extract coal and oil from the Montana state lands.  After the monies have been deposited into the Fund, the money is then channeled to five sub-trust funds.  The other 50% of the tax revenues are funneled into eight different sub funds outside of the Coal Severance Tax Trust.  Montana has taken a hybrid approach to the management of its SWF as opposed to other SWFs.

The principal value of the trust fund is never withdrawn and is added to on a regular basis to grow the fund and its investment power.  That investment income that is not placed into the trust fund is disbursed to the general fund of Montana’s state budget.  The funds assets are managed by the Montana Board of Investments, which manages all of the funds generated as tax revenue for the state of Montana.  The valuation of the Fund as of the end of fiscal year 2017 was slightly over $1 billion.  This fund is not ranked by the SWFI.

The West Virginia Future Fund

West Virginia’s sovereign wealth fund is known as the West Virginia Future Fund.  Founded in June of 2014.  The mission of the fund is to obtain revenue from a non-renewable source of funding and create a renewable source of funding which the state can draw on once the non-renewable funds have dried up.

Each year, 3% of revenue derived from the extraction of non-renewable energy such as coal, limestone, natural gas and oil is deposited into the fund.  No disbursement of the fund is allowed until 2020.

The fund is managed by the West Virginia Investment Management Board.  The value of the Fund is $52.2 million.

Richard E. Caroll is a retired economist and soldier.

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