Tulsa World reports that “the roughly $170 million endowment of Oklahoma’s EDGE (Economic Development Generating Excellence) is being emptied to meet some of the state’s obligation to match contributions to the Oklahoma State Regents for Higher Education’s endowed positions program.”
I don’t take this as a bad result because states have often been ineffective at development investing. As my colleague Dale Oesterle has written, development funding and subsidies are often a siren’s trap for state and local governments because they rarely provide enough return to justify the expenditures (although Oklahoma’s EDGE apparently did well). The issue that stood out to me in the article, however, was the fact that the Oklahoma government had the ability to drain the fund whenever it chose to do so. This contrasts with the legal status of most state permanent funds and endowment funds, which are constitutionally protected. Here, for example, is the language from Wyoming’s constitution:
Article 15, Section 19. Mineral excise tax; distribution.
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. . . . 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. . ..
Inviolate, as in you can spend the interest, but you can’t touch the principal without a change in the Constitution of the State of Wyoming. As I discuss in a white paper on state permanent funds, voters have shown a surprising resilience to the temptations to draw down on permanent funds even if their legislators would have liked to do so. The issue came up in 2005 in Wyoming when the Wyoming Attorney General issued an informal opinion that only the severance tax portion of the Permanent Wyoming Mineral Tax Fund was untouchable. Subsequently, a House Joint Resolution called for a constitutional amendment specifying that “all monies deposited in the Permanent Wyoming Mineral Trust Fund are inviolate permanent funds of the state.” The original language of the Wyoming constitutional provision creating the PWMTF was vague, stating only that the “fund shall remain inviolate.” The proposed amendment (eventually set in the Constitution as shown above) sought to clarify that “[t]he fund, including all monies deposited in the fund from whatever source, shall remain inviolate.” In the 2006 general election, voters overwhelmingly—by a 3-1 margin—approved the proposed amendment.
If states want to protect funds for future uses, constitutional provisions are the way to do it.