SF3593

Purpose

• To change how Minnesota’s Permanent School Fund (PSF) is governed and how its earnings are used, with the goal of providing ongoing annual distributions to support public schools while preserving the fund’s long-term value and purchasing power.

Key Provisions

• Constitutional amendment to Article XI, Section 8, redefining the permanent school fund and how it is invested and distributed.
• The PSF must include proceeds from lands granted for schools, swamp lands, cash and investments in the fund, and related lands. The fund’s principal is meant to be perpetual and inviolate.
• Net interest and dividends from the PSF would be distributed as a perpetual financial resource to support different school districts, with a distribution policy to be set by law.
• A Board of Investment (consisting of the governor, state auditor, secretary of state, and attorney general) would administer and direct the investment of all state funds, with a prohibition on underwriting or directly purchasing municipal securities from issuers or their agents.
• The amendment would be submitted to voters at the 2026 state general election.

Changes to Statutes

• Section 11A.16, subdivision 5 (calculation of income distributable earnings)
  • The state board would calculate the investment income earned by the PSF’s distributable earnings each fiscal year.
  • The earnings would include interest on debt securities, dividends on equity securities, and interest earned on certified monthly earnings before transfer to the Department of Education.
  • Gains and losses from security sales would be allocated using a specific framework (including a set percentage of the fund’s average net asset value) to offset losses over a 10-year period; gains would be spread over ten years, and any excess could be added back to the fund’s principal.
  • If a net loss occurs, it would first be recovered from gains allocated to that year, then from interest and dividend income in the following ten years.
  • At year’s end, the director would report total distributable earnings to the Legislative Permanent School Fund Commission and the Department of Education.
• Section 11A.16, subdivision 6 (disposition of income distributable earnings)
  • Distributable earnings would be credited to the PSF and transferred to the School Endowment Fund as needed to support payments authorized under section 127A.32 (relating to school funding programs).

Governance and Administration

• The Board of Investment would oversee the investment of state funds under the new framework and would not permit the use of state funds for underwriting or direct purchase of municipal securities from issuers or their agents.
• The plan emphasizes preserving the fund’s purchasing power and ensuring a steady, long-term distribution to school districts.

Timeline and Process

• The constitutional amendment would be put before Minnesota voters at the 2026 state general election.
• If approved, the statutory changes would take effect as part of implementing the constitutional amendment, guiding how distributable earnings are calculated and how funds are transferred to school programs.

Significant Changes Compared to Existing Law

• Reframes the PSF as a perpetual, inviolate principal with a defined mechanism to distribute net earnings as ongoing support for school districts.
• Establishes a formal, law-driven approach to calculating distributable earnings and to offset losses over a multi-year horizon.
• Creates a School Endowment Fund as a vehicle for distributing PSF earnings to support specific payments authorized under existing education funding statutes.
• Sets up a dedicated Board of Investment with specified members and investment restrictions to manage the PSF and related state funds.
• Moves potential funding decisions from ad hoc earnings to a codified, annual methodology tied to legally defined accounts and programs.

Relevant Terms - permanent school fund - distributable earnings - investment income - gains and losses from sale of securities - average net asset value - endowment fund / school endowment fund - 127A.32 (payments under education funding provisions) - Legislative Permanent School Fund Commission - Department of Education - Board of Investment - purchasing power - perpetuity / inviolate principal - municipal securities - 127A.30 (commission reference) - 2026 state general election - constitutional amendment (Article XI, Section 8)