Permanent school fund investment, management, and distribution policy modified; and constitutional amendment proposed.

A bill for an act

relating to state government; proposing an amendment to the Minnesota

Constitution, article XI, section 8; modifying the investment, management, and

distribution policy for the permanent school fund; amending Minnesota Statutes

2024, sections 11A.16, subdivisions 5, 6; 127A.32.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MINNESOTA:

Section 1.
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CONSTITUTIONAL AMENDMENT PROPOSED.
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An amendment to the Minnesota Constitution is proposed to the people. If the amendment

is adopted, article XI, section 8, will read:

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Sec. 8.

The permanent school fund of the state consists of (a) the proceeds of lands

granted by the United States for the use of schools within each township, (b) the proceeds

derived from swamp lands granted to the state, (c) all cash and investments credited to the

permanent school fund and to the swamp land fund, and (d) all cash and investments credited

to the internal improvement land fund and the lands therein. No portion of these lands shall

be sold otherwise than at public sale, and in the manner provided by law. All funds arising

from the sale or other disposition of the lands, or income accruing in any way before the

sale or disposition thereof, shall be credited to the permanent school fund. Within limitations

prescribed by law, the fund shall be invested
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to secure the maximum return consistent with

the maintenance of the perpetuity of the fund. The principal of the permanent school fund

shall be perpetual and inviolate forever. This does not prevent the sale of investments at

less than the cost to the fund; however, all losses not offset by gains shall be repaid to the

fund from the interest and dividends earned thereafter. The net interest and dividends arising

from the fund shall be distributed
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and managed as a perpetual financial resource for the sole

purpose of apportioning money to the different school districts of the state. Management

of the fund shall be designed to provide annual distributions, minus necessary administrative

spending, while preserving the purchasing power of the fund over time and balancing the

needs of current and future beneficiaries. Administrative spending shall be in the manner

prescribed by law. The distribution policy shall be prescribed by law and consistent with

the aforementioned principles. Distributions from the fund shall be apportioned
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to the

different school districts of the state in a manner prescribed by law.

A board of investment consisting of the governor, the state auditor, the secretary of state,

and the attorney general is constituted for the purpose of administering and directing the

investment of all state funds. The board shall not permit state funds to be used for the

underwriting or direct purchase of municipal securities from the issuer or the issuer's agent.

Sec. 2.
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SUBMISSION TO VOTERS.
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(a) The proposed amendment must be submitted to the people at the 2026 state general

election. The question submitted must be:

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"Shall the Minnesota Constitution be amended to increase the funding going to all school

districts from the permanent school fund, which is a fund that supports school districts

without raising individual income or property taxes, effective July 1, 2027?

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Yes

.

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No

.

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"

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(b) The title required under Minnesota Statutes, section 204D.15, subdivision 1, for the

question submitted to the people under paragraph (a) shall be: "Increasing funding to school

districts."

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Sec. 3.

Minnesota Statutes 2024, section 11A.16, subdivision 5, is amended to read:

Subd. 5.

Calculation of
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income
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distributable amount
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.

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As of the end of each fiscal

year,
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(a)
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The state board shall calculate the
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investment income earned by
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distributable

amount of
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the permanent school fund. The
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investment income earned by the fund
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distributable

amount
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shall equal
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the amount of interest on debt securities, dividends on equity securities,

and interest earned on certified monthly earnings prior to the transfer to the Department of

Education. Gains and losses arising from the sale of securities shall be apportioned as

follows:
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4.5 percent of the average net asset value of the permanent school fund as of the

end of the preceding three fiscal years.
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(a) If the sale of securities results in a net gain during a fiscal year, the gain shall be

apportioned in equal installments over the next ten fiscal years to offset net losses in those

years. If any portion of an installment is not needed to recover subsequent losses identified

in paragraph (b) it shall be added to the principal of the fund.

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(b) If the sale of securities results in a net loss during a fiscal year, the net loss shall be

recovered first from the gains in paragraph (a) apportioned to that fiscal year. If these gains

are insufficient, any remaining net loss shall be recovered from interest and dividend income

in equal installments over the following ten fiscal years.

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(b) The director shall report by August 15 the distributable amount to the Legislative

Permanent School Fund Commission established in section 127A.30 and the commissioner

of education.

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Sec. 4.

Minnesota Statutes 2024, section 11A.16, subdivision 6, is amended to read:

Subd. 6.

Disposition of
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income
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distributable amount
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.

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Notwithstanding provisions of

section
11A.12
,
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The
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income
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commissioner of management and budget shall transfer the

distributable amount
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of the permanent school fund as calculated pursuant to subdivision 5
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,

shall be credited to the permanent school fund, and transferred
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to the school endowment

fund as needed for payments made pursuant to section
127A.32
.

Sec. 5.

Minnesota Statutes 2024, section 127A.32, is amended to read:

127A.32 SCHOOL ENDOWMENT FUND; DESIGNATION.

For the purpose of aid to public schools, a school endowment fund is established.

The school endowment fund shall consist of the
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income
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distributable amounts
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from the

permanent school fund. The commissioner may accept for and on behalf of the permanent

school fund a donation of cash, marketable securities, or other personal property. A noncash

donation, other than a donation of marketable securities, must be disposed of for cash as

soon as the commissioner can obtain fair market value for the donation. Marketable securities

may be disposed of at the discretion of the State Board of Investment consistent with sections

11A.16
and
11A.24
. A cash donation and the cash receipts from a donation disposed of for

cash must be credited immediately to the permanent school fund. Earnings from marketable

securities are earnings of the permanent school fund.

Sec. 6.
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EFFECTIVE DATE.
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Sections 1 to 5 are effective July 1, 2027, for aid payable in fiscal year 2028 if the

constitutional amendment proposed in section 1 is adopted by the voters.

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