Eight states have permanent funds primarily funded by oil, coal or natural gas tax revenues, according to the US Energy Information Administration (EIA). These funds are set aside by national, state and local governments for strategic or long-term use.
Similar to an endowment, states typically only spend the earnings and investment gains from these funds, as expenditure of principal is usually prohibited unless authorized by legislative approval or constitutional amendment.
Many of the funds collected also include royalties from leases on public lands granted to a state by the federal government at the time of statehood. For example, the Texas Permanent School Fund was established in 1854 to provide funding for public education. Today, the $37.2 billion fund is predominantly dependent on revenue received from oil and natural gas development on state lands, EIA reports.
Constitutional amendments in the 1970s created permanent funds in New Mexico and Wyoming. Wyoming’s Permanent Mineral Trust Fund consists of all severance tax revenue derived from coal, oil, natural gas and other minerals. The fund’s income is annually distributed to support the state’s general fund. New Mexico’s Severance Tax Permanent Fund sets aside a portion of severance tax revenue to support the general fund, public education and infrastructure development.
The discovery of significant natural gas reserves in 1978 prompted the creation of the Alabama Trust Fund. Initially capitalized by a legal settlement over oil and gas royalties, the Louisiana Education Quality Trust Fund was created in 1986 to support primary, secondary and higher education programs across the state.
In 2010, North Dakota voters authorized the North Dakota Legacy Fund to reserve 30 percent of total revenue collected from taxes on oil and gas production. In March 2014, the West Virginia Future Fund was created to reserve a portion of shale gas revenue from activity in the Marcellus Region, as well as from other production in the state, for strategic purposes.
The Alaska Permanent Fund, created in 1976, has a $52 billion fund balance that exceeds the balance of national funds of major oil and natural gas producers such as Venezuela, Mexico and Angola. Among the eight states, Alaska is the only state that annually distributes its permanent fund dividend to qualified state residents.