Board of Educational Lands warns proposed withdrawals from school land trust would breach constitution

Kelly Sutbeck, executive secretary of the Nebraska Board of Educational Lands and Funds (the School Land Trust), told the Appropriations Committee that the state’s constitution and statutory scheme protect the permanent school fund’s principal and limit annual distributions to income.

Sutbeck walked senators through Article VII of the Nebraska Constitution and an Attorney General opinion that treats premiums and capital gains as principal rather than distributable income. She said language in LB 10 72 that would transfer $40,000,000 from the permanent fund or otherwise reclassify capital gains as distributable income would be "clearly unconstitutional," in her view, because the constitution and trust law pledge the principal to the perpetual support of common schools.

The board official also described how the board currently manages distributed income so every child receives an equitable share and warned that diverting income into an Education Future Fund or altering management would jeopardize the board’s fiduciary duty and the uniform per‑pupil distribution required by past court rulings. She recommended that the committee avoid amendments that withdraw principal or alter constitutional protections without explicit constitutional change.

Sutbeck provided historical context (the trust was created when Nebraska entered the Union and consists of proceeds from sections 16 and 36 in townships) and offered the committee technical and legal references, including citations to the state constitution and the 2007 Attorney General opinion.

Next steps: Senators pressed technical clarifications about capital gains, yield and payout rates; the board urged careful statutory drafting and, if policymakers want to change distribution rules, to pursue a constitutional amendment rather than attempting to reclassify principal in statute.