Louisiana voters will vote on a state constitutional amendment in November that would create a sovereign wealth fund called the Revenue Stabilization Trust Fund.
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When Louisiana voters go to the polls next month, they will consider a state constitutional amendment—Amendment 5—that would create a sovereign wealth fund called the Revenue Stabilization Trust Fund. If it passes, a portion of the revenue that the state collects through severance taxes on oil and gas production will be set aside for this stable, long-term investment fund.
The creation of a sovereign wealth fund, as Pew examined in From Volatile Severance Taxes to Sustained Revenue, would give Louisiana a way to transform its limited natural resources into a lasting source of income. The amendment would enable the state to:
- Share wealth with future generations: Louisiana’s oil and natural gas reserves are a finite resource. The trust fund would ensure that the money the state receives from these fossil fuels is shared with generations to come. It could be used to help maintain roads and bridges, support education, and fulfill obligations to Louisiana's public servants.
- Provide budget stability in good times and bad: For generations, spikes in oil and gas prices have inflated Louisiana budgets, creating significant deficits when prices drop and tax collections fall short. The trust fund would provide more budget stability by investing—rather than spending—a portion of the money generated from oil price booms, creating a more reliable source of funding.
- Replicate the success of other states: Seven other states with significant natural resources have created sovereign wealth funds. Alaska and Wyoming, for example, have permanent funds that generate money for state coffers every year and ensure that today’s resource wealth is protected for the benefit of future generations.
- Ensure that lawmaker promises are kept: By enshrining this trust fund in the state constitution, current and future lawmakers would be legally bound to follow the fund’s rules. These rules include restrictions to ensure that the fund is used for its intended purpose.
- Create a new way to save in Louisiana: Louisiana’s Budget Stabilization Fund was created to bridge short-term budget gaps caused by economic slumps or natural disasters. The Revenue Stabilization Trust Fund would serve a different purpose: providing for the state’s long-term savings needs.
To learn more about severance-tax-based sovereign wealth funds in U.S. states, please see Pew’s new brief, From Volatile Severance Taxes to Sustained Revenue.