Elected officials in West Virginia are considering establishing an oil and gas trust fund similar to one enacted in other states, in hopes of providing future generations in the state with a source of revenue.

After leading a bipartisan group of 17 lawmakers to North Dakota last month, Senate President Jeffrey Kessler (D-Marshall) is reportedly planning to introduce a bill — possibly in the form of a constitutional amendment — during the 2014 legislative session to create a Future Fund, which would be funded through a portion of the state’s oil and gas severance taxes.

“The concept of such a future fund holds tremendous potential, as well as other successes that North Dakota has experienced in managing their energy resources,” Kessler said before embarking on the trip. “I am very interested in what the state’s experience can teach us.”

According to the Sovereign Wealth Fund Institute, the North Dakota Legacy Fund is valued at about $1.3 billion. Established in 2011, the fund receives 30% of the state’s oil and gas severance taxes, and is managed by a state investment board. The principal and earnings may not be expended until after June 30, 2017.

Ted Boettner, executive director of the West Virginia Center on Budget and Policy, told NGI’s Shale Daily that data from the U.S. Energy Information Administration suggests a similar trust fund in the Mountain State could yield $2 billion by 2040, assuming the state didn’t withdraw any of the funds before that year. But oil and gas well projections indicate the Future Fund could be worth $4 billion by 2040.

“During the 1970s energy boom, many Western states began to establish these permanent mineral trust funds because of this huge influx of severance tax revenue,” Boettner said Monday. “That was the last energy boom this country had. Now we’re experiencing another energy boom with shale, so this offers another window of opportunity for states that previously didn’t have an energy boom, in this century at least, to look at this opportunity to establish a permanent fund.”

Boettner said energy trust funds are a method for states to ensure their fiscal health in the long run.

“West Virginia and Pennsylvania both understand that once their anthracite coal is gone, it’s gone,” Boettner said. “They know that if they don’t have a plan for the future, they’re going to end up very insecure economically. They’ll have ghost towns. It’s a huge problem with the boom-and-bust cycle of the industry. This is a way to dedicate a portion of that revenue into a fund and ensure that future generations always benefit from the state’s rich natural resources. It’s a very fiscally prudent thing to do.”

Boettner added that it was “unique” for an East Coast state to consider an energy trust fund. “There’s a different dynamic when you’re dealing with private versus public land,” he said. “On the East Coast, the states have never thought about it because they’re talking about mostly private land.”

West Virginia Oil and Natural Gas Association Executive Director Corky DeMarco told NGI’s Shale Daily that legislators should be cautious when creating an energy trust fund.

“It probably should have been done 50 years ago, to be truthful with you,” DeMarco said Monday. “Conceptually, it’s a good thing to do. We have to see what the legislation actually says. I don’t think we would be in favor of anything that would increase severance in as much as we pay the highest severance of anybody in the basin. We don’t want to lose economic opportunities because our taxation gets too high for people to consider us first.”

DeMarco said he couldn’t comment on the state’s current finances, but he did say that he had heard there was “some pretty bad news out there until 2018, because coal revenues are down.

“I think it’s always a good thing to be able to leave something for your children and grandchildren to benefit from. I’m not against the concept. Is it the right time for the concept? People from the [state] revenue department will have to make that determination. I think it is philosophically the right thing to do. It’s too bad we didn’t do it a long time ago.”

According to the Washington, DC-based Resources for the Future’s Center for Energy Economics and Policy, West Virginia charges a severance tax of 12.3 cents/Mcf, which equates to a 5% severance tax.

“Our tax burden is pretty high,” DeMarco said, adding that despite this the state’s rig count has been steady since 2009. “All of the public companies that are in the basin now, the ones that are doing all of this work, have an obligation to their stockholders to maximize their return. If the return in West Virginia is not as high as it is across the border [in Pennsylvania and Ohio], we will lose those companies that are targeting the Marcellus and Utica shales.”