Permanent Trust Funds: Funding Economic Change with Fracking Revenues (Brookings Institution)

The boom-bust cycle of unconventional oil and gas development highlights the need for strategic management by state governments of fracking-related revenues, not only to minimize the less desirable aspects of the boom-bust cycle but also to enhance long-term prosperity. This paper by the Metropolitan Policy Programme at the Brookings Institution argues that states can address these challenges by imposing a reasonable severance (extraction) tax on their oil and gas industry and channeling a portion of the revenue into permanent trust funds, thus converting volatile near-term revenues from unconventional oil and gas development into a longer-term and continuous source of investment funds for building sustainable and dynamic economies. The paper also sets out five elements of good fund governance and management that states should consider in the design and implementation of permanent trust funds.