Fiscal Analysis Department - Minnesota House of Representatives

To: Representative Wagenius 

From: Brad Hagemeier, Fiscal Analyst 

Date: September 22, 2017 

Subject: Environment and Natural Resources Trust Fund Revenue 
 
This memo is in response to your question concerning the amount of revenue the environment and 
natural resources trust fund would have received over the past ten years if the provisions regarding 
making loans for water infrastructure in Minnesota Laws 2017, Chapter 96, Section 2, Subdivision 19, 
Paragraph (a) and the Minnesota Constitution Article 11, Section 14, were implemented ten years ago. 

Using the ten year time frame with the most recent information available (FY 2008-FY2017), the corpus 
of the fund has grown from $493.9 million to $1,028.4 million. The amount of income provided by 
lottery proceeds was $335.4 million, expenditures totaled $308.3 million and investment gains totaled 
$507.4 million (including FY 2008 and FY 2009 which had negative investment returns). 

In order to estimate the effect of using five percent of the corpus of the fund for loans, a number of 
assumptions needed to be made; a list of assumptions appears on the next page. The figures used in the 
following paragraphs and in Table 2 are only estimates to give an approximation to the potential impact 
loans would have on the fund and any changes to the assumptions could change these estimates. Given 
these assumptions the original amount of loans that would have been made over the last ten years would 
be approximately $60.5 million. Over the ten year period; $18.0 million in loan principle would have 
been repaid and $3.2 million in loan interest would have been paid. 

The net result of this scenario would be total investment gains of $485.2 million and an ending balance 
of the corpus being $1,006.2 million. The corpus would include $45.4 million in outstanding loan 
principle at the end of FY 2017. This balance is $22.2 million less than what was actually achieved 
during the time period with the environment and natural resources trust fund. The estimated reduction of 
investment income is a result of the $60.5 million used for loans over the ten year period only receiving 
a 1% rate of return compared to the actual average rate of return on the fund of 6.9% over the same time 
period. 

The lower balance in the corpus would have also reduced the amount of the fund available to 
appropriate annually. The "Out-flow" represented in Table 2 is the amount available to appropriate each 
year and was not altered for this estimate but would have been different had the loans been made since 
these amounts would exceed the Constitutional limit of 5.5% of the corpus of the fund. The reduction to 
the amount available to appropriate would vary by year but would be in the range of $3-4 million in total 
over the ten year period and would exceed $1 million annually by FY 2017. 

Assumptions: 

. Five percent of the corpus is used for loans and held as an asset within the corpus, adjusting the 
current asset allocation proportionally. Investment gains from the SBI provided chart are reduced 
five percent to account for the reduced assets in the current asset allocation. 
. The full five percent maximum available for loans was used in FY 2008. The amount of loans 
and amount available for loans was recalculated each fiscal year. If the amount of outstanding 
loans exceeded five percent of the corpus no additional loans were made that year. If the amount 
of outstanding loans was less than five percent of the corpus, additional loans were made in the 
amount necessary for the loans to meet the five percent maximum. 
. All loans are made on July 1st of the fiscal year. 
. All loan payments are made once annually on June 30th of the fiscal year, including the first 
fiscal year in which the loan was distributed. 
. All loans are amortized over 20 years with equal payments (once annually) being made in each 
of the 20 years. 
. All loans earn a 1% annual interest rate. 
. Returns are not adjusted for inflation. 
. All loans are repaid on time without any defaults. 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

FY 17FY 16FY 15FY 14FY 13FY 12FY 11FY 10FY 09FY 08TOTALSBeg. Balance924,152,298892,958,705842,499,260714,087,086614,736,995574,884,921460,515,847401,513,139465,855,096493,939,833Contributions35,349,77937,641,60734,542,43332,189,66534,734,48831,316,55437,461,00031,561,02129,909,00030,645,000335,350,547Out-flow46,397,66846,400,50633,858,32633,858,91625,361,98025,359,54125,653,61925,651,77322,889,84322,875,134308,307,306Investment Gain or (loss)115,266,00339,952,49249,775,337130,081,42489,977,58433,895,061102,561,69253,093,460-71,361,114-35,854,603507,387,336End Balance1,028,370,411924,152,298892,958,705842,499,260714,087,086614,736,995574,884,921460,515,847401,513,139465,855,096Net Change104,218,11431,193,59350,459,445128,412,17499,350,09139,852,074114,369,07459,002,708-64,341,957-28,084,737534,430,579FY 17FY 16FY 15FY 14FY 13FY 12FY 11FY 10FY 09FY 08TOTALSNEW Beginning Bal907,284,926877,650,133829,264,823707,003,220611,846,084573,402,062463,929,109407,356,648467,894,796Contributions35,349,77937,641,60734,542,43332,189,66534,734,48831,316,55437,461,00031,561,02129,909,00030,645,000335,350,547Out-flow46,397,66846,400,50633,858,32633,858,91625,361,98025,359,54125,653,61925,651,77322,889,84322,875,134308,307,30695% Investment Gain109,502,70337,954,86747,286,570123,577,35385,478,70532,200,30897,433,60750,438,787-67,793,058-34,061,873482,017,969Loan Amt Maximum45,364,24643,882,50741,463,24135,350,16130,592,30428,670,10323,196,45520,367,83223,394,74024,696,992Outstanding Loans41,201,66739,027,26433,305,13728,859,39027,110,89021,954,64521,298,36622,442,53223,575,370Available For Loans4,162,5794,855,2438,158,1046,490,7713,481,4146,715,4581,898,090-2,074,700-180,63024,696,99260,458,651Loan Income453,642438,825414,632353,502305,923286,701231,965224,425235,754246,9703,192,339Total Income109,956,34538,393,69247,701,203123,930,85485,784,62832,487,00997,665,57250,663,212-67,557,305-33,814,903485,210,308Loan Principal Payment2,896,6932,680,8392,435,9772,045,0241,732,9151,559,2131,241,8101,144,1661,132,8381,121,62217,991,097NEW Ending Balance1,006,193,382907,284,926877,650,133829,264,823707,003,220611,846,084573,402,062463,929,109407,356,648467,894,796TABLE 1source: Minnesota State Board of Investment (SBI)
Environment and Natural Resources Trust Fund Estimated Performance Had Loans Been Made: FY 2008-FY2017TABLE 2Environment and Natural Resources Trust Fund Actual Performance: FY 2008-FY 2017