What Is the Permanent Wyoming Mineral Trust Fund (PWMTF)?
The Permanent Wyoming Mineral Trust Fund (PWMTF) is an investment fund owned and managed by the state of Wyoming. Established in 1975, It is the oldest and largest government fund in the state, with assets of nearly $8 billion as of June 30, 2020.
- The Permanent Wyoming Mineral Trust Fund (PWMTF) is an investment fund owned and managed by the state of Wyoming.
- The PWMTF is the state's biggest sovereign wealth fund, with a market value of around $8 billion.
- Funded largely by severance taxes on minerals and other natural revenues, the PWMTF acts as an endowment for Wyoming, covering the costs of running the state.
- The PWMTF invests in both bonds and stocks, but only its earnings, from capital gains, interest income, and dividends, can actually be spent.
Understanding the Permanent Wyoming Mineral Trust Fund (PWMTF)
The Permanent Wyoming Mineral Trust Fund is a type of permanent fund called a sovereign wealth fund (SWF). SWFs are typical government funding tools. They consist of investments and assets that the government is not allowed to cash out or deplete. However, while it can't touch the principal, the government normally has the right to spend any revenue these investments generate on appropriate functions and expenses.
The Permanent Wyoming Mineral Trust Fund (PWMTF) is one of nine non-pension funds managed by the State Treasurer's Office. It covers part of the costs of running Wyoming and acts as an endowment for the state. It cushions the impact of the state's economic cycles. As Wyoming is richly endowed with natural resources, its economy depends on commodity prices, and hence is prone to boom and bust cycles. By conserving its wealth, the PWMTF ensures future generations share in the gains generated by these finite resources.
The PWMTF is funded by a portion of severance taxes on mineral revenues and occasional direct legislative appropriations, while income from the fund goes to the state general fund. The largest mineral severance tax contributors to the PWMTF since its inception have been natural gas, coal, and crude oil.
Originally, the PWMTF only invested in bonds; in fact, the fixed-income requirement was enshrined in the state constitution. However, in 1996, Wyoming voters approved an amendment to allow the fund to invest in stocks as well. Up to 70% of the PWMTF may be invested in equities.
The percentage of the total market value of Wyoming's investment portfolio that the PWMTF represents. In other words, more than one-third of the state's wealth is generated by the Permanent Wyoming Mineral Trust Fund.
The PMTF has a 5% spending policy, which means that the maximum amount available to the state legislature to spend is 5% of a five-year average of the fund’s market value. However, only income, dividends, and capital gains can be spent.
Performance of the PWMTF
The value of the PWMTF increased steadily from its inception, earning double-digit annual returns for its first 11 fiscal years through 1986. The fund eclipsed $1 billion in assets in 1989 and has earned a positive return in every fiscal year of its existence. Through the fiscal year 2015, the PWMTF had generated $4.5 billion in interest income for the state’s general fund.
As of the fiscal year 2020 (ending in June), the PWMTF had a market value of $7,961,095,743 on a cost basis of $7,561,927,587. It earned $243 million in income, dividends, and capital gains.
For the decade 2010-2020, the PMTF returned 7.15%.
History of the PWMTF
The origin of the Permanent Wyoming Mineral Trust Fund dates back to 1968 when Wyoming Governor Stan Hathaway introduced a bill in the state legislature to institute a severance tax on minerals in the state. Hathaway took this action after the balance in the state’s bank account had fallen to about $80. The bill passed in the 1969 legislative session, establishing a 1% severance tax.
Wyoming legislators sought to raise the tax in 1974 but Hathaway vowed to veto the increase unless part of the tax revenues were set aside in a permanent mineral trust fund, paving the way for the passage of the PWMTF. It was officially created by an amendment to the state constitution in November 1974.
For its first 13 years, 2% of severance tax revenues were used to grow the account. Later, the requirement was lowered to 1.5%, and 0.5% was diverted into the state’s savings account. In 2005, an additional statutory 1% was added to the constitutional requirement, bringing the total to 2.5% of severance taxes which were deposited in the PWMTF.
Example of the PWMTF
In 2016, a sharp decline in coal production combined with low oil and natural gas prices led to a revenue shortfall for the state. The Wyoming State Legislature, during the 2016 budget session, provided for a diversion of the 1% statutory severance tax from the PWMTF to the general fund to address the shortage.