Senate committee advances constitutional amendment to change Permanent School Fund distributions, SBI urges 4.5% approach

The Senate Finance Committee on April 14 voted to send a constitutional amendment (Senate File 3593) to the Rules Committee that would change how Minnesota’s Permanent School Fund (PSF) computes distributions to school districts.

Sponsor Senator Kunish said the proposal would modernize an 1858-era constitutional rule that currently limits distributions to interest and dividends. Under the bill’s proposed language, the distributable amount would be a percentage of the fund’s market value; Kunish said the bill envisions a 4.5 percent distribution that would raise per‑pupil distributions from roughly $72.55 (current) to about $122.15 per pupil in the example cited by the sponsor.

The committee heard extended testimony from Jill Shirts, Executive Director and Chief Investment Officer of the Minnesota State Board of Investment (SBI), and Andrew Kress, deputy director and member of the permanent school fund task force. Shirts and Kress said the task force reviewed peer institutions and concluded a fixed 4.5 percent percentage-of-market-value distribution calculated on a trailing three‑year average would better balance current student needs and the long‑term purchasing power of the fund.

Kress explained a key legal constraint under current law: distributions are constitutionally limited to interest and dividends, which prevents monetizing capital gains. The task force concluded that a percentage-of-market-value model that includes capital gains — smoothed over a trailing period — produces more consistent, sustainable distributions for districts while preserving the fund.

Senators pressed SBI staff on downside scenarios, inclusion of land and mineral values, and safeguards to avoid depleting the corpus. SBI and the School Trust Lands director clarified that the $2.3 billion figure discussed in testimony refers to investable financial assets (stocks, bonds, cash) in the investment pool; trust lands and minerals are not held in that investment pool but historically have funded the trust. Kress said task‑force modeling suggests the fund would continue to grow modestly in a base‑case scenario under a 4.5 percent policy.

Senator Pratt proposed an A7 amendment to make the distributable amount a 'must not exceed 5 percent' standard intended to preserve principal; Pratt later withdrew A7 after discussion and asked for continued engagement with SBI. Pratt then moved to lay the bill on the table; that motion failed 5–6. Senator Pappas moved to recommend the bill, and the committee approved the recommendation by roll call, 11–0, referring Senate File 3593, as amended, to the Rules Committee.

The amendment would take effect July 1, 2027 if enacted and approved by voters as a constitutional amendment on the ballot.

Key next steps include referral to the Rules Committee and continued conversations between SBI, the sponsor and interested members on implemention details and statutory follow-ups should the amendment advance.