Senate panel hears SB152 to allow equities in coal severance trust; board warns of short-term spending drop

Senator Fern introduced Senate Bill 152, a proposed constitutional amendment to allow a portion of the coal severance tax trust to be invested in equities, and presented an amendment limiting that authority to funds distributed after the initiative’s passage. "This bill seeks to amend the Montana Constitution, allowing a portion of the coal trust severance fund to be invested in equities," Fern said during opening remarks.

The Board of Investments’ executive director, speaking in opposition, cautioned the committee that moving existing trust assets into equities could create an "asset-liability mismatch." He told senators that equities typically deliver lower current dividend income than the trust’s bond and short-term pools. "You get 1.29% dividend, not 5," he said, summarizing the fiscal-note math and warning that replacing higher-yielding allocations with equities could shrink money available each year to Section F programs until capital appreciation outpaced the shortfall, a process he estimated could take more than a decade under optimistic assumptions.

Sam Schafer of the legislative fiscal division provided a primer on how coal severance receipts flow in Montana. He said FY24 collections were about $77 million and that, under the constitution, "at least 50% of total coal severance tax allocations must be deposited into the trust," an amount that equaled roughly $38.6 million last year. Schafer reviewed how the trust’s half is then split among subfunds — including the Montana Coal Endowment Fund, the Big Sky Economic Development Fund, the school facilities fund, and the conservation districts fund — and how interest is later appropriated by the legislature.

Committee members pressed witnesses on an amendment (SB152.1.1) the sponsor offered to confine equity purchases to new proceeds rather than commingling them with existing holdings. Director Villa of the Board of Investments said fiduciary and "prudent expert" standards are already in place but reiterated that because the trust’s corpus is constitutionally inviolate and capital gains cannot be used for distributions, introducing equities into the current distributable structure does not eliminate short-term reductions in annual payout. He recommended alternatives, including creating a separate, equity-heavy trust designed to accrue capital appreciation and later support distributions in a structured way.

Sponsor Fern closed by saying the discussion highlighted long-term risks to coal receipts and the potential value of a strategic plan or separate trust to capture other severance revenues. The committee did not take executive action or vote; the hearing was closed by the chair.

What’s next: No committee vote was recorded; the task force and members signaled interest in further study, fiscal modeling and potentially drafting additional measures to create a new real-return trust.