>> We are going to be key.
An eye on this committee
hearing. It is right now.
It is 8.37
on Wednesday, March 4th, a
quorum is present and we will
now come to order
today where I'm really excited
for this agenda. We're going to
hear a presentation from the
permanent School fund
distribution group and then
we're going to hear 2 bills
Senate filed. 35 93 and Senate
file 12. 0, 1,
I we have a gun through the
expectations of the audience a
couple of times. But I now see
we have a whole new crew over
here. So I just want to remind
everyone I'm here today that
you have to stay seated when
you're in the hearing room,
there's no standing or sitting
in the walkways are aisles.
If there are any specific
accommodations, please
communicate with a surgeon
staff. Signs are not permitted,
clapping and other disruptions
are not allowed. And if you do
not follow these protocols, you
will be asked to leave.
Remember members to use your on
and off switch that controls
your microphone. And I would
just want to say thank you to
the sergeants for always being
attentive and keeping us safe.
And so we are going to bring
begin with a presentation about
the permanent School fund
distribution working group.
Last year. We created a working
group and asked them to look
into.
>> How and why we are
investing.
>> A permanent school funds and
are we getting the biggest bang
for our buck when when using
these investments as a way to
also support our school kids
and continue to use that
investment into the future.
And so the the group met
a number of times and have come
up with a report and some
recommendations and based on
those reccomendations you're
going to hear appeal.
And so I would like to invite
the working Group report crew
up Andrew Crack, who is the
deputy director, head of active
Strategies with the Minnesota
State Board of Investment.
And Erin van der Linde,
director of the Office of
School Trust Lands and John
Yuill, the director legal and
policy services of the
Minnesota State Board of
Investment. If you'd like to
come up and take a seat,
just reminding you to please
state your name and your
position and then you can begin
and I think we'll start with
Mr. Correct.
>> Thank you. Chair finished my
name is Andrew Correct, as you
mentioned and the deputy
director of the Minnesota State
Board of Investment as a member
of the Permanent School Fund
Task Force. I'd like to thank
the members here for having us
today to give you a summary of
the findings of the task force
and to answer any questions you
might have about the
recommendations of the task
force and the legislation
that's been proposed.
Wait a minute will join us or
presentation of
so we intend to proceed over
the next several minutes is to
give you some background on the
task force and the work that we
engaged in as well as some
background on the permanent
school fund itself and school
trust lands at which point all
turn things over for a few
minutes to Aaron.
And then we will walk through
the research and
would you speak a little bit
closer to the microphone?
Thank you for that problem.
And then we'll spend some time
going through the specific work
research and analysis that the
task force performed before we
review the recommendations that
came out of the task force and
then we'll conclude and take
any questions that you all may
have. But please feel free to
interrupt as we go through with
any questions that come up.
So the task force, the
Permanent School Fund Task
Force was created by the
Legislature in May of 2024,
the membership requirements to
be part of the task force were
to have outstanding
professional experience in one
of the following areas,
institutional asset Management,
Investment Finance Trust
Administration investment fund,
accounting investment, banking,
or the practice of law in
capital markets. Securities
funds trusts, foundations or
endowments.
Ultimately the task force
membership comprised 9 members.
One member who was a designee
of that Department of Education
or the commissioner of
Education, daily linemen,
another member appointed by the
state Board of Investment which
myself,
4 members appointed by the
Governor, Denise District,
Tracy Farak, Tracy lot CA and
Aaron Van der Linde
and 3 members appointed by a
vote of the Legislative
Permanent School Fund
Commission for Terry spent all
Madden Paul Pelletier and Julie
Sandstede.
We were given a legislative
charge and the duties of the
task force were spelled out.
The task force was directed to
examine the historical returns
on the Permanent School Fund
Endowment and to evaluate and
recommend potential changes to
the distribution of earnings.
The task force may examine
school trust endowment policies
and other states. And the task
force recommendations may
include proposed changes to
state statutes and Minnesota's
constitutional provisions
governing the school Trust Fund
Endowment.
The task force met many times
over are close to a year and a
half and ultimately delivered a
report to the Legislature on
January. 15th of this year,
gonna spend a few moments going
over some background, which may
be a preview from for many of
you. But for those who aren't
familiar with the permanent
school fund in the school trust
lands, we're going. We're going
to take a few minutes to
review.
The Minnesota Constitution
established the permanent
school fund in 18 58 to create
a permanent self-sustaining
source of education funding in
the state,
Minnesota law, both statute and
constitution specify how the
fun shall be managed. And the
formula by which the amount
available for distribution is
calculated.
Today. There are 3 state
agencies that are primarily
involved with the ongoing
operations of the fund.
We have the Department of
Natural Resources who's
responsible for land management
decisions on that specific
parcels of land that our school
trip that our school trust
lands.
The revenues that come from
land management are then
transferred to the permanent
School fund.
The State Board of Investment
takes those dollars and invest
them in financial instruments.
Stocks and bonds and the state
State Board of Investment or
SBI is responsible for
investment management decisions
and ensuring that the proper
amounts are distributed from
the fund.
Once those dollars are
distributed from the fund's,
they ultimately end up with the
Department of Education who is
responsible for a portion of
those funds to school districts
around the state.
Madam Chair members, Aaron Van
Dillen School Trust Lands.
Director, a few quick slides on
just the background and
history. A school trust lands.
I recognize that I gave a
similar presentation to a
policy last week, but some of
you are my committee. So
as Andrew said, we received
these lands from the federal
government and 18 58 its
statehood. We ended up with 4
successive federal grants that
total about 8.1 million acres
to cede the fund its statehood.
We sold off the majority of
those lands in southern
Minnesota.
We have 2.5 million or 2.5 of
the 8.1 million acres left of
those 2.0. 5, 2, 0.2 are in 10
northern counties.
You can see on this map where
they are. We do have a Landen,
some reservation boundaries.
We recognize that.
But most of those lands
generate revenue from and you
can switch.
Thanks, John
Revenue from minerals,
royalties, and rents timber
sales. And then real estate
transactions likely says sales
easements and things of that
nature. So if you look at the
permanent school fund right
now, the value of that funding
and really get into this a
little bit later is 2.3 billion
dollars. That value has come
mainly from mineral resources.
About 80% of our historic
revenue has come from our
middle rents and royalties.
There's this small breakdown
between real estate and timber
receipts,
roughly 9, 7%, of that balance
and then 4% for some of the
investment income from not to
work at SBI does. But some of
the investments that we have
internally with some of the
funds that are managed by DNR.
So
the next slide, please just
real quick. What happens when
those funds are deposited into
the state board investments and
are set? They spin off that
revenue. This is the revenue
that's Pence distributed to the
school district. So it's the
beneficiaries of this trust are
the 380 plus school districts
and all of the charter schools
in the state.
That's who we see our
beneficiaries. As and so over
the last 10 years, we've
distributed over what it's over
300, something like that.
And it's 58 million last year.
The work of this task force
really looked at how we make
these changes. And Andrew,
we'll get into that here
shortly. We're trying to do is
more or less provide of 30 to
40% increase to the annual
distributions with these
changes. So I'll turn it back
over to Andrew. Thank you.
Thank you, Aaron.
So chair Commissioner, I'd like
to proceed now and talk a
little bit about the work of
the task force over the months
that we were together
early on in the task force
meetings, we started to
coalesce and reach consensus
around some guiding principles
and these guiding principles we
determined should be aligned
with whatever recommendation
comes out of the task force and
therefore principles that we
identified early on. The first
is that the permanent school
fund must be maintained as a
perpetual financial resource.
And what that means is that
distributions from the fund
must not and often duly draw
down the funds, balance or
otherwise impair its ability to
serve its purpose as a lasting
source of educational funding.
The task force determined that
our objective should be to
establish a distribution policy
that balances the needs of
current and future
beneficiaries.
That means that the fund must
grow in a way that preserves
its purchasing power for the
benefit of future generations
while also providing consistent
support to current
beneficiaries. Today,
we also sought to ensure
consistent annual
distributions.
Our recommendations sought to
minimize significant year to
year variability in
distributions in an effort to
support stability and the
ability of school districts to
plan their budgets, which we
know is very important.
And lastly,
we sought to allow for
adaptability and investment
management
so that our recommendations
would provide the state Board
of investment with the
necessary flexibility to manage
the fund, according to
industry, best practices so
that we can seek to manage to
maximize the long-term value of
the fund without taking undue
risk.
The task force also spent a lot
of time discussing debating
thinking about the scope of our
activities. The task force was
specifically mandated to review
the fund's current legal
framework and investment in
distribution practices. And
over the course of that work,
we identified several issues
which I believe all 9 of us
felt very important and they,
in fact, are deserve additional
consideration and discussion.
But that were out of the scope
that the legislature provided
to the Permanent School Fund
task force.
And those other issues include
but are not limited to some of
the following questions having
to do with the management of
school trust lands.
Those are decisions that are
made under the purview of the
DNR. And we're outside the
scope of the Permanent School
Fund Task Force
Review. Our analysis of
apportionment of distributions
from the fund put another way,
the questions about which
districts received, how much
money and why we also felt that
those discussions were outside
the purview of the task force.
Apportionment is separately
addressed in Minnesota
statutes, one, 27 8.33,
if you review the
constitutional language,
you'll see that the
Constitution makes reference to
the school districts of the
state.
We felt that the task force it
was outside the scope of the
task force to attempt to define
or redefine what is or is not a
school district in the state of
Minnesota.
We also determined it was
outside the scope of the task
force to address any
restrictions on the use of
funds that were distributed for
the use of dollars distributed
from the fund's 2 school
districts.
And then finally, the fund's
investment policy and asset
allocation decisions. The court
investment questions are the
purview of the state Board of
Investment. And that's where
outside of the scope of the
Permanent School Fund task
force.
So consistent with our
legislative charge of the task
force and proceeded to review
the current legal framework,
both constitutional and
statutory that governs the
permanent school fund.
And we identified that the
current constitutional
framework imposes to
significant constraints on
distributions from the
permanent school front. First
distributions from the fund are
limited to net interest and
dividend income and excludes
capital gains from asset
appreciation. So what that
means is if the fund owns a
stock or a bond that increases
in value over time, there is no
mechanism for that value to be
realized and monetized and the
proceeds from that gain in
value to be distributed to
students.
Secondly,
capital gains and if necessary,
interest and dividend income
must be used for the
Constitution to offset losses
prior losses,
this could have the effect of
reducing or eliminating
distributions from the fund in
Los recovery years.
It was the conclusion of the
task force that there are.
There are several issues with
this constitutional framework.
First,
we concluded that this
framework unduly restricts
distributions from the fund.
The fund grows at of substance
to grow significantly, which
we're going to dress in a few
moments. But only a small
portion of that growth can be
distributed to districts due to
the restriction 2 net interest
and dividend income.
We also identified that these
restrictions create an
imbalance between the interests
of current and future
beneficiaries, because the
front grows at a healthy rate.
But only a small portion of
that growth can be distributed
to students.
Imbalances created that favors
thought the students of future
generations at the expense of
students. Today,
these restrictions can result
in inconsistent nearly
distribution amounts to
districts.
And lastly, because these
restrictions, art specified in
the state constitution, it is
very difficult to adapt to
changing circumstances or the
current best practices.
Next consistent with the
legislative mandate, the task
force to examine the historical
returns of the fund. And what
we found was good news, which
is that the performance of the
fund has been very strong
overtime on both an absolute
basis and on a relative basis,
the average annual investment
return of the fund over the
last decade has been 8% and
it's been even higher than that
and more recent periods as
you'll see in the chart on the
right side of your page, the
fund has performed well,
again, an absolute sense.
It's also outperformed its
benchmark overall. Those
measure time periods
for those who are not familiar
with how the permanent school
fund is invested, it is
invested according to an asset
allocation. That is 50% common
stocks. 48 1% bonds and 2%
cash. And from the perspective
of the SBI, we would call that
a very vanilla down the fairway
asset allocation that is
implemented with institutional
quality external investment
managers investing in broadly
diversified portfolios of
stocks and bonds. And the SBI
is able to use our scale to
drive the cost of that
investment management as low as
we possibly can.
The result of that strong
performance has been that the
fund has grown substantially
strong investment returns in
addition to revenues coming
into the fund through land
management have resulted in the
fund doubling in value over the
last 10 years and more than
tripling in value over the last
15 years
because the Constitution limits
distributions to interest and
dividends. Distributions from
the fund have averaged only 2
and a half percent of the
fund's value over that period.
So again,
the vast majority of the growth
of the fund is constantly
compounding accruing for the
benefit of future generations
and doesn't serve the purposes
of the generations in the here.
And now
next to the task force began
its the process of engaging in
some research and analysis
looking at best practices in
common practices at other
similar institutions and
interests around the country.
Broadly speaking, we examined
distribution policies from 3
different groups of trust in
down its first is in Dallas and
higher education and
institutions. So think college
and university endowments.
These are different from the
permanent school fund and that
these are typically not
government-sponsored to trust
that are typically not funded
by natural resource revenue.
But we would observe that they
do serve a very similar purpose
to the permanent school fund
that educational endowments
exist to provide permanent
funding, to serve the
educational mission of the
institution, that they're
associated with it in that way.
They're very similar to the
permanent school fund.
We also looked at similar
educational trust in other
states. Other states have
permanent school funds that are
quite similar to Minnesota's
Permanent School fund, although
that is a much smaller sample,
which we'll discuss in a
moment. And we we observed best
practices amongst that cohort.
And then finally we looked at
policies about related to other
trust funds in the state of
Minnesota. These are trust
funds that do not have an
explicitly educational mandate,
but they do have some
commonalities with the
permanent school fund.
We were assisted in our
research by information and
data that was provided to us by
Nikita Investment Group,
which is a nationally
recognized independent
investment consultant that
works regularly with the State
Board of Investment. They
helped us fight with the study
evaluated that first group
endowments and higher education
institutions around the country
with a very broad sample size
of institutions to help us
identify best practices.
We also then started to
evaluate the suitability of
different potential
distribution policies for this
fund for the Minnesota's
Permanent School Fund. The task
force worked with both SBI
staff, not just myself, but
that but a broader set of the
SBI staff to help create models
based on historical data and
the FBI's forwardlooking market
expectations. We also built on
work from an investments which
is another nationally
recognized independent
investment consultant that
works regularly with the state
Board of Investment.
As we looked at the broad
sample of other institutional
other educational trust around
the country, we were able to
observe several commonalities.
There were there were a wide
variety of distribution
policies across these
institutions. And you can see
some of those different
distribution policies in the
box on the right side of this
page. I'm not gonna go through
everyone. But what you'll
observe is that almost all of
these distribution methods that
we use on all the ones that you
see on the page here are based
on a calculation related to the
market value of their
respective fund,
most commonly institutions
distribute some percentage of
their market value over a
rolling over a rolling average
of prior years. These
distribution policies typically
apply a fixed percentage to the
average market value over over
a a sample of prior years,
sometimes adjusting for
inflation. Sometime some sort
of hybrid between a fixed
percentage and an inflation
adjustment. But what we
observed is that the a
percentage of market value
calculated on a rolling average
was the most common practice.
Further research indicated that
when most endowments just in
this sample distribute between
4 and 5% of their average value
annually and in fact, the
single most common and
percentage that these
institutions are right, that is
4 and a half percent. It's the
midpoint of that range.
Those institutions which again
have a similar purpose to the
permanent school fund and in up
to help supporting their
educational mission in
perpetuity, considered
distribution amounts in this
range to be sustainable for
their institutions needs
balancing current funding needs
with the long-term preservation
of their funds purchasing
power.
We reviewed a range of options
for calculating annual
distributions to Minnesota
school districts. And the task
force concluded that
distributing 4 and a half
percent of the average market
value of the fund over the
previous 3 years aligns with
common practices among
educational trust funds and
endowments and is also
consistent with our funds
objectives. 4 and a half
percent and three-year rolling
average were the most common
solutions that other similar
trust funds had arrived at
independently.
We evaluated distribution
policies of similar school
funds in other states. This is
admittedly a much smaller
sample size than the prior
cohort of which there are many
hundreds of educational
endowments to look at and
assess best practices. There
are fewer permanent school
funds around the country.
There are only 50 states.
Many of them do not have
permanent school funds. So
while the sample was not large,
are robust enough to
necessarily kindest to that,
the quote, right answer.
We were able to observe some
common practices that we think
are applicable to our research.
What we observed is that
most of these similar school
funds around the country also
similar to educational
endowments based their annual
distributions on a rolling
average calculation. And they
do this to moderate the impact
of market volatility and none
of them limited distributions
to interest and dividend income
as the state of Minnesota
debts.
We also observed that Minnesota
is unusual in having the
distribution policy for its
permanent school fund spelled
out explicitly in the
Constitution
other permanent school funds.
Typically we observe that their
distribution policy is
articulated in statute foreign
policy.
Finally, we looked at other
state trusts in Minnesota.
It's an example of this would
be the Environmental Trust Fund
which is managed by the state
Board of Investment. Again,
these do not these trust funds
do not have an educational
mandate per se, but there are
some similarities that we could
observe. What we saw is that
distributions from these funds
once again, typically do not
have their distribution policy,
spelled out restrictions on
distributions, articulated in
the state constitution.
And they also commonly
determine distributions based
on some concept of a percentage
of the fund's value not tied to
interest and dividend income.
The task force members worked
with SBI staff to start a model
out some different scenarios
and assess whether the
implementation of this type of
distribution policy would be
appropriate for the Minnesota
Permanent School Fund.
We put together a variety of
different scenarios and models
guided by an evaluation of
historical returns and revenue
patterns forwardlooking return
expectations that are
consistent with the way that
the SBI assesses asset
allocation decisions and thinks
about forward looking return
expectations across all of the
funds that we manage.
We modeled scenarios that
included periods of higher
returns than history with it
would suggest some that
included negatives returns.
Some highly volatile
conditions, a wide variety of
scenarios. We look at scenarios
where the funds would
distribute 3% of assets,
4% of assets, 5% of assets.
We looked at scenarios where
think calculation was based on
a point in time for its based
on a rolling three-year average
of the prior periods market
value on a rolling five-year
average. So we look to put a
matrix of different potential
scenarios. Not all of those
appear on the screen in front
of you. What we're attempting
to show you here as it is a
simplified representation of
that analysis.
What you'll see in the chart on
the bottom left of your page
out is a couple different
scenarios, assuming that the
permanent school fund did, in
fact to distribute 4 and a half
percent of the prior 3 years
average market value. The
middle line of those 3
represents are kind of base
case representing our best
guess at forwardlooking return
expectations in the market.
And what you'll see is that the
value of the permanent school
fund after distributing 4 and a
half percent per year to
districts continues to increase
over time. In that base case,
the higher line indicates what
could happen if returns are
more favorable than our current
expectations. So if the market,
the roof, if the market is
favorable, that obviously the
the value of the trust fund
would would increase even more
over time. But more
importantly, what we observe is
that even in scenarios where
returns are not as robust as
our current expectations of the
market works against us,
we see that the value of the
permanent school fund
more lest stays stable. It does
not decline over time.
The right charge. Second, go
back inside the chart on the
right side is attempting to
show what is happening to
distributions coming out of the
fund.
So the first 2 sets a bar
charts that you see there for
years, 2020 for 2025. Those
reflect the reality. Those are
the actual dollars that were
distributed from the permanent
School fund in those years.
Starting in 2026, were modeling
out what the distributions
would look like in dollar
terms. If the the fund adopted
of 4 and a half percent
distribution rate calculated
over rolling 3 years and you'll
see that immediately. The
distribution distributions from
the fund Trump significantly,
they nearly double and in our
base case, which would
represent the middle bar in
each of those 2 in each of
those years. The distributions
grow moderately over time as
the value of the fund increases
in more favorable scenarios
where the markets work in our
favor than the value of those
distributions increases even
more so. But again,
importantly, in the scenarios
where returns in the market are
less favorable and are negative
scenario.
We would observe the
distributions while they what a
moderate and in some cases can
decline moderate somewhat over
time. They're all higher than
the distribution amount that's
coming out of the funds today
under the current legal
framework
as we evaluated these potential
changes. The task force had
several observations that we
want to communicate first is
that choosing a distribution
rate does represent a tradeoff
between current payouts to the
students in here and districts
in the here and now and
long-term growth of the fund.
We observed that it a potential
distribution rate of 4 and a
half percent can be expected to
nearly double distributions
from the fund in the near term
while also achieving our
objective of allowing the fund
to grow over the long term and
preserve its purchasing power.
The fun value can certainly
decline. That is the case today
and would continue to be the
case and in the adopting a new
distribution policy. But we
deserve the fun value will
decline. Only women. The
distribution rate exceeds the
combined value of investment
returns. Coming from the
invest, the funds investment
portfolio
and revenues entering the fun
from land management.
We observed that using a
three-year rolling average
reduces the year to year
volatility of distributions,
which is consistent with one of
the principles that the task
force identified early on
while also remaining responsive
to prolonged market downturns.
So in a scenario where the
stock market goes down
substantially
this year, next year or the
year after that many years in a
row, the average market value
of the fund on a rolling
three-year basis decrease.
And that's the funds
distributed from the fund would
also decrease. And that's a
mechanism that protects on
dueling drawing down the
balance of the fund over time.
Finally, we observed that the 4
and a half percent distribution
rate and a three-year rolling
average period are aligned with
industry best practices.
And the task force feels that
they that this proposal
achieves an effective balance
between providing stable
distributions and preserving
the purchasing power of the
fund for future generations.
So now we come to the specific
recommendations that the task
force has in our report.
And there are 3 components to
this recommendation. First,
the task force recommends
amending the state constitution
and statutes to manage the
funds in accordance with the
guiding principles that we
articulated and identified
early on our work.
The task force recommends that
the Constitution should state
the enduring principles and
objectives of the fund. But
that specific operating
details, including the
distribution policy,
governance and investment
management policies should be
established in statute and not
in the state constitution to
allow for adaptability in the
future.
The task force recommends
adopting the 4 and a half
percent distribution rate
calculated using a three-year
rolling average of the fund's
value.
>> Chair Kunesh. I'd like to
talk for a moment just about
the changes in how we
translated those to the to the
bill in front of the committee.
>> Thank you, Israel. If you
introduce yourself for the
committee and then you can
begin.
>> Thank you, chair and good
morning members. My name is
John. The last time the general
counsel of the Minnesota State
Board of Investment. And I'm
going take a minute just to
talk about how we take all
those concepts that Mr.
Correct. Just reporting on as
part of the task force work and
translated that to the language
in the bill that you see in
front of you so has Mr. Craig
noted there were several
principles that the task force
offered very important that
should be captured in the
Constitution.
One of those and perhaps the
most important is that the fund
remainder perpetual resource.
That is how it is envisioned
right now in the Constitution.
We thought that concept should
be captured in the Constitution
going forward. So you will see
that in the language proposed
for the constitutional
amendment.
Another principle is that the
sole purpose of the fund should
be to make distributions to
school districts for the
benefit of students and should
not be used for any other
purpose. And so that concept is
also captured in the language
in the bill, noting that the
sole purpose of the fund is to
make those annual
distributions.
The next concept that the task
force that was very important
is that you need to balance the
interests of current and future
generations. And you talked
about the current distribution
formula occurring potential
benefits to future generations
more than current generations.
And so what we captured the
concept of balancing those
interest in the language that
also includes preserving the
purchase power. So how you
invest the dollars needs to be
done in a way that preserves
the purchasing power, keep the
fund a perpetual resource and
balance those interests.
And finally going back to the
original issue of how how funds
are distributed to the school
districts in the amount that
goes out, which you will note
in the constitutional language
is that there is not a specific
distribution formula in that
language and that the
Constitution notes that that
should be established by law.
So we're removing that
restriction right on
distributions to only interest
and dividends to allow for the
4.5% distribution rate on an
annual basis. And you will know
in the statutory language on
the distributions from the
fund, you will see that the
4.5% distribution rate rolling
average ending on the end of
the fiscal year is captured in
the statutory amendment and
could be addressed in the
future more easily if the
legislature determines that
this formula needs to be
changed.
So that is the basic overview
of how the task force meeting
specific recommendation for
changes to the constitution and
statutes noting that in order
to solve the initial problem of
the Constitution's restriction,
a constitutional amendment is
necessary for that. I'll turn
it back over to Andrew to wrap
things up
before the next slide.
>> But to conclude
the task force identified that
the fund has grown
significantly due to a
combination of investment
returns and land management
revenues.
But that outdated
constitutional and statutory
restrictions have limited the
ability of the funds to serve
its purpose of balancing the
needs of current and future
beneficiaries.
Our recommendations identified
that a modern market value
based distribution model would
better align the fund with best
practices used by Pierre States
and other educational
endowments.
We recommend that of 4 and a
half percent distribution rate
based on a three-year rolling
average can provide more stable
and predictable funding for
schools to current and current
beneficiaries, while preserving
the fund's long-term purchasing
power for the benefit of future
generations.
And finally, I'll just point
out that the 9 members of the
Permanent School Fund Task
Force spent close to a year and
a half together it in and over
the course of our work engaged
in a lot of conversation,
research, analysis and careful
consideration and all 9 members
unanimously endorsed the
recommendations of that report.
With that, we'll conclude and
taking questions that you on.
Thank you.
>> Thank you all for this.
Extremely interesting and
informative review of the task
force and members.
I know it's a lot to take in
some going to give you a second
to think about it. But I just
want to welcome some of the
folks in the audience. I know
that today is full service
community school day. So thank
you for all of you who are
coming here to the Capitol to
talk about your programs and
help us understand your needs
and your success is a little
bit better. And also it is
Minnesota's administrator for
Special Education Day. So we
really want to acknowledge the
hard work that our special ed
folks too, and administrating
anything is is not an easy job.
So thank you for being here.
And I think Senator Clark had
something to say.
>> Thank you, chair. And as
long as we're acknowledging
people, I want to be in this
litany of acknowledgements.
Yeah. Plus public schools, the
citywide student leadership
group is in the house. So
welcome. Glad you're here and
keep doing the good work and
represent the students. Why
you're here.
>> All right. We will move on
to member questions or comments
and Senator, find sort.
Thank you. Madam Chair,
Mr. Van One knows where I'm
going with this because I love
talking about mining. Every
time that permanent school
trust fund comes up.
This is one of the things I'm
most proud of. 90 1% of the
funds in the permanent School
Trust fund came from my
district from the man tapped
mine, which is the largest mine
in North America,
which which means that with the
distribution of about 72 and a
half dollars per student,
the people of mountain Iron
Fuel, which is about 2000,
people have contributed $65 per
student to every student in the
state of Minnesota.
And so I love to talk about
that. I you know, I'm the son
of a minor
and I but Mr. Van, what I am
wondering, we're talking about
trying to get more money to our
students and this is one
mechanism and I'm a coauthor of
the bill. Thank you. Chair
commissioner allowing me to
sign on
but other ways to possibly girl
the fund that could get more
money to our schools. And so my
question is on school, trust
land, are there other minerals
that could be used?
That would grow the school
trust fund? And what's the
estimate on how much that could
increase the school trust fund,
Mr. Van Dillen.
>> Madam Chair, Senator
Farnsworth members. Yes,
there are Minnesota has
considerable mineral wealth and
not just from our our hard-rock
minerals, like iron ore.
But we do have
deposits of non ferrous
minerals,
copper nickel, gold, platinum,
palladium.
And as you know, senator and
other senators, we also have a
helium deposit in Minnesota.
Now that has the potential to
produce a significant amount of
revenue for not only tax
working at Land's but school
cross as well.
I can't speak to the value of
oil and gas
reserves, if you will. I don't
know what our interests are.
I
from a non ferrous standpoint,
the known deposits have the
potential of
increasing the school trust by
3 billion dollars if we could
mind those bundles.
Yes, thank you, Madam Chair.
So
>> it would more than double
the size of the permanent
school fund. And even with this
increased distribution coming
from the fund, that would
pretty much guarantee
that the fund would never fall
back. And so I think that's
another good way that we should
look at
growing this pond. We have the
minerals. We can. We can do it
cleanly so we should we should
do it to help all of the
students in Minnesota. Thank
you, Madam Chair.
>> Thank you. And we do have to
acknowledge the
the legacy of mining in
Minnesota and the investment
that that has created for our
students
into perpetuity. And so I think
it was a good mention to
acknowledge that that
investment continues to this
day. It's interesting to note
that we have never amended this
part of the Constitution around
school, trust lands. And so I'm
really excited that we took the
time to do that and use the
brains out there. And the the
experience to, you know,
begin to look at how we can
best use those those dollars in
this time and in the near
future. So I think what it will
do is also open up with the
idea of how we can perhaps look
to the future and and use these
dollars in the best way
possible. And so I would
imagine that down the road
there would be some other
conversations are adjustments
to this. This school trust
land, whether it's a
constitutional amendment or
not.
So thank you, Senator Le Cerro.
You had something to say.
>> Thank you, Madam Chair.
I do have a comment but a
question first and I appreciate
the test fires and this this
very thorough presentation
in the presentation there will
serve. There was several
references to the SBI. Some
wonder if you could briefly
describe the relationship
between the trust fund and the
SBI.
Yes, Madam Chair, Senator
Cerro.
If you buy me, refer back
to our slide for hopefully this
helps illustrative. The SBI is
responsible for investment
management decisions
regarding the assets of the
permanent school fund. Once
dollars have been deposited in
the fund
from land management
activities. So the FBI has no
involvement with really any of
the things that aren't just
describing our decisions having
to do with how the lands are
managed, how revenues are
generated asset sales, mining
leases, that all lives within
the school trust lands and
within the DNR, those
activities generate revenues.
And so those revenues net of
the expenses of administering
and managing the land or
transferred to the permanent
school fund where we invest it
according to asset allocation,
that is determined by the SBI
be in it in a way to be
consistent with the objectives
of the fund. And so we manage
the fund the same way that we
would manage basically any
other trust fund that's under
our administration, most of the
assets that the SBI manages
have to do with the fairies
pension systems. But we also
manage many non retirement
assets, including other state
trust funds and the permanent
school fund that we take a
similar investment approach to
the permanent school fund as we
went to other state trust
funds. So the FBI is
responsible for
overseeing managing the
investments of the fund in
financial instruments during
the period of time that the
those dollars live within the
fund,
according to the current legal
framework meeting
calculating net interest and
dividends, the SBI is
responsible for determining
which dollars need to be
distributed from the fund to be
in accordance with the current
legal framework.
And then we then have those
dollars off and ultimately they
end up with the Department of
Education
who's responsible for making
sure those dollars and up with
school districts around the
state.
Does that answer your question?
Go ahead. Give it the question.
Thank you, Madam Chair, and
thank you for that.
The concern I have with the SBI
is one that I've had for many
years and for those who may not
be familiar just and over there
and I couldn't hear FBI's
answer State Board of
Investments, the and the 4
people the for individuals that
make up the SBI are the 4
constitutional officers here in
the state of Minnesota, the
governor, attorney general,
secretary of state and state
auditor. And over the years,
there have been multiple
attempts to to leverage the
state assets in the SBI for
purposes that I think many will
find alarming. So just this
morning, I want to confirm it
was still there express
purpose. And for those
listening to this conversation,
this is right from the Web site
this morning, SBI investment
staff with the external
investment managers work with
external and doesn't managers
to addressed.
>> Esg related risks within the
managers, investment portfolios
and within the managers
organizations themselves.
Most managers have documented
esg integration approach with
dei policy and then go on to
and I can recall back multiple
times. One of those actors is
the state auditor, as I
mentioned, and she is expressly
stated that she uses her
position on the SBI to further
advance these causes here.
She says through actions like
proxy vote at these companies,
more meetings importing with
other institutional investors,
weekend influence corporate
decisions.
I'm very concerned.
Esg clearly has an anti mine
philosophy in many aspects and
with assets that are in the
control or decisions made by
the SBI. They may be working
against some of the very things
that we're trying to do in
terms of maximizing revenue are
why, which which returns to our
students just throwing that out
there as part of the
consideration? Not necessarily
for this group at all, but the
reality that any influence or
involvement by SBI can have a
counterproductive outcome with
what's trying to be chief of
Maxim Mising the dollars from
the resources in some of the
great parts of our state.
So thank you, Madam Chair.
>> And I see that the director
of SBI has joined us miss
shirts. If you'd like to
state your name for the record
and if you'd like to respond.
>> Thank you, Madam Chair.
My name is Joe Shirts. It's my
honor and privilege to serve as
the executive director and the
chief investment officer of the
Minnesota State Board of
Investment. Sarah, Sarah, I I
appreciate your question.
It's an important one. And
frankly, we don't have many
opportunities to address your
question head-on. So thank you.
First of all, I appreciate all
of you. Your service public
service is an incredibly
important thing. Personally.
I've been very lucky to observe
public service through most of
my professional career,
starting with the military and
now over the last 14 years in
service, both in a local level.
And now at a state level.
I want to assure you that
although our governance
structure certainly
interesting, as you look across
the country, there are not that
many that have a
constitutionally mandated
approach for elected official
serving as the port
that's been enshrined in the
Constitution since 18. 85
also want to assure you that as
I thought about taking this
role, I thought about that
governance structure. I can
tell you. And I think there is
a fair body of evidence to
support crew about to say
that throughout many
administrations, the for
members of the State Board of
Investment have been unified in
placing their fiduciary duty
front and center
notwithstanding any political
believes they may or may not
have. And that includes the
issues you've identified.
Our fiduciary duty is our first
and foremost responsibility,
followed closely with respect
to particularly the combined
funds, the public pension plans
that we make sure that our only
focus
Britt generating a sufficient
return to support the
retirement. And I would say the
same is absolutely true with
respect to the permanent school
fund.
The issue you've identified has
been in our national ones for
quite a while. It's the object
of significant political focus
at the state Board of
Investment. We spent an
enormous amount of time making
sure that we communicate anyone
who wishes to hear us that we
are distinctly a political and
that profoundly impacts how we
think about every portfolio we
manage
and we're very fortunate.
Sarah Board has exhibited that
exact approach.
To that end. They were actually
willing to enshrine that in
policy. Recently
at the October board meeting,
we made a presentation, I would
say as detailed as the one you
see now about best practices
across the country when it
comes to large institutional
investors such as ourselves.
And again, we manage around
160 billion dollars of assets
across many pools capital.
In that presentation, we poured
put forth the premise that
delegated authority,
in other words, placing
investment authority in the
hands of the staff of the state
board. And I'm very lucky to
have a deep pool of incredibly
dedicated and talented people
that investment decision should
reside with us.
That doesn't mean that they're
trying to in my seat only we
have extensive internal
policies practices. I'm very
senior internal policy group
to make sure that we are always
balancing our approach.
We do not place any one
particular approach above any
other.
What we have said and I I think
given his on this body would
resonate, I would help
is that we maintain the
absolute importance of
considering all material risks
and opportunities when make
investment decisions.
We have been very proactive and
stated publicly on a number of
occasions, for example, we do
not support divestment
initiatives. We don't think
that's in the best interest of
our portfolio. We've been vocal
about that.
If you look at our portfolio,
it's representative of the
broader market.
So I do understand and
appreciate your concern.
But I want to assure you that
our focus is very clear when we
are fiduciaries first
middle and last.
>> Thank you so much. Any other
questions where we would really
like to narrow our focus here
on the school trust lands and
if you have broader questions
for the the department, maybe
you could take that offline.
I recognize we. Yes, thank you.
>> I I appreciate those those
words and I have the upmost
respect for or the staff.
My concern is the 4th, the top
and obviously the staff are
following the directives of
those that are the 4
constitutional officers.
But again, I appreciate your
words and I appreciate your
professionalism. What I am
concerned about against those
directors at the top. I'm
looking at the website here.
There's 6 press desire and
purpose from resolutions that
have been passed by the 4
members
with the intent of a directive.
How those are being carried out
by the staff will be determined
opportunity by day basis.
But it's very clear the
direction that the for members
are attempting to to leverage
the incredible assets. But
again, I appreciate that.
Thank you, Madam Chair.
>> Thank you. And thank you
executive director for stepping
up.
Senator, make I think that
chair I the first I want to say
that anyone of this is like the
largest audience they've had
all year. And committee
hearings are usually not this
dense.
But my question is really
specific on slide 9. You just
identified things that were
outside of the scope of the
legislative mandate. And one of
them is defining what is and is
not a school district
can use a little bit more.
I might have missed it, but
it's a little bit more about
that. And do does the
legislature have some work to
do to define that?
Madam Chair? Yes.
>> Senator, make weight.
I respond to that may be asked
John to chime in as well.
So we identified that in
in the scope of the legislative
framework, constitutional and
statutory that directly
addresses the permanent school
fund.
The word district is is used a
few times and it's not clearly
defined in that specific set
legal framework. I think is we
engaged with John in our legal
counsel to say what what what
does that what does that word
intended to mean? As we look
across a broader legal
framework in across statutes in
the state, what we observed is
that it it's it's perhaps
somewhat ambiguous where and
how and exactly what that were
district means. And we
determined that the the best
folks to us to really clearly
defined that term, probably not
the 9 members of the Permanent
School Fund task force. So
that's why we reached the
conclusion that it's outside of
our scope trying to do if you
have any additional come.
>> Thank thank you for that
explanation. And I think there
was a reason for that
conversation. And I'm just
going to ask our
non-partisan to be on to talk
about that, Mr. Innocent.
>> Madam Chair,
prior to
change made by the Legislature
in in the 2011 session, the
permanent school fund
distribution was apportioned
among
school districts, only
independent and special school
districts
in the last 2011. And that
previous apartment was on the
basis of resident ATM or
average daily membership.
Select a count of the number of
students living in that school
district
under laws. 2011, the
Legislature
made to charter schools
eligible also for the
apportionment
and in that act switch the
apportionment basis from
resident ATM to adjust adiam
court or pupils actually
enrolled in in those schools.
And those consider because
because definition of the
charter schools don't have
residents students.
More recently, there have been
conversations about whether to
include
students enrolled at trouble,
contract schools and the
apportionment from the fund.
But under current law, the and
it is eligible for receipt of a
portion dating include school
districts and charter schools.
Any follow-up?
>> Senator helped post you had
a question or comment for.
Thank you, Madam Chair.
>> So on slide number 17, you
guys have these really helpful
a graph showing what your
projected that the projected
growth of the fund would be
if we took the 4 and a half
percent, if we kept that the 2
and a half of work, if we fail
to changes at all, what is a
fun look like stretching out
over 10 years? What is the
growth like?
>> Yes, Madam Chair, Senator
Dole's from
if you imagine that chart and
distributions remains limited
to net interest and dividend
income, which over the last,
you know, 10 or so years has
been about 2 and a half percent
of fund assets. I would point
out it's
there's no particular reason to
believe that it would be
exactly that percentage of fund
assets going forward. It could
change, according to all kinds
of things, including prevailing
interest rate environment,
corporate decisions that
corporations make about how
much of their earnings to
distribute and dividends, so
that so that I want to be clear
that we don't we don't assume
that the state is the status
quo remaining in place would
somehow guarantee a 2 and a
half percent distribution about
that could be variable. But for
the sake of argument, if it did
remain the same, but you'd
likely see is that the growth
of the left side of that chart,
the value of the fund would
increase at a rate that's
higher. That's that's a steeper
than the highest wind that you
see on that chart today
and that you would likely see
on the right side of that chart
that the distribution profile,
those bars would be much more
similar to what you see for the
years 2024 2025 which reflect
the reality of the current
legal framework.
>> Any other questions or
comments? Senator Clark,
thank you, chair condition and
thank you all as someone who
manages a much, much smaller
endowment. I'm
really impressed with the
consistent returns that you you
have have on the permanent
school fund. One piece that I
needed just a little bit more
information on and I'm glad
Senator Farnsworth is back
because not just great folks of
honor in Buhl of contribute
this. What else has country?
I know it's 90% from that.
I or that
the the mine in which my great
uncle Clayton worked in the
60's.
What what were the other pieces
that fall under the land
management in revenues
understand enforced and such.
But if you could just to remind
me on that.
>> Okay. We will invite
director the office of the
School Trust Lands. Erin Van
Dillen back and if you'd like
to respond.
>> Thank you, Madam Chair
members, senator clerk,
the breakdown. And
so just want to back up a
little bit. We we've talked
about the fund its value right
now is 2.3 billion dollars.
When I talk about land
management revenue,
the cash basis that that's
generated is 1.1 billion
dollars. So the value of the
fund it 2.3,
half investment about that.
But that 1.1 cash basis to 80%
minerals,
7% real estate, 9%. Amber,
4% investment returns on the
land management. So
investment on land management.
So we sold the land under
contract for deed.
Got interest payments on that
things of that nature. So
it's the foreperson investment
that I talk about has nothing
to do with SBA. They they do
entirely sure credibly better
than that.
Any follow-up question.
>> Thank You, Chair Commission
and thank you for that to the
obviously you want to grow both
the base and so the so the
income as well as the return.
So thank you on that. My
general comment is I know what
they said on
on Page 12 following the best
practices
that that matches my
understanding that Page 18,
sorry, the 8, 4, and a half
distribution rate and
three-year-old rolling average
that matches what what I do.
So
you must be wonderful.
Thank you.
>> I think we've had we've had
good people looking out for.
Well, it has to say, but I
think I think the the school
chess signs have been in good
hands and they've done their
due diligence. And now we just
need to let them do a little
bit better. Any other questions
or comments?
Well, we're gonna move along
because we have a couple of
bills to be heard in the next
one is going to be my bill on
making the changes of the
Reccomendation. So thank you,
gentlemen, for joining us
today. And thank you, executive
director for stepping in and
maybe just stick around in case
there's a question or 2.
Thank you.
>> All right, Senator C****,
when you're ready, you can make
a motion to move SF 3, 6, 2, 5,
be recommended to
certainly the wrong tree.
Stand by.
Let's try that again. Senator,
could this will hear a SF 3,
5, 9, threes when you're ready.
>> Thank you so much, Madam
chair and members. This next
part is is the proposal for a
constitutional amendment to
make the recommended changes
that we just discussed in order
to make those chains. We do
have to go through the
Constitution,
a constitutional amendment
process, which means that we
would take those
recommendations to the voters.
And I'm just going to read what
that might sound like on on the
ballot in November. The
submission to of the voters and
you'll see this on Page 2 of
the bill. Section 2. The
proposed amendment must be
submitted to the people at the
2026 state general election.
And the questions submitted
must be shell. The Minnesota
Constitution be amended to
modify the permanent school
fund to calculate the
distributable amount and to
maintain the fund has a
perpetual financial resource
for Minnesota schools and that
would go into effect July Force
first excuse me of 2027.
I think at this time I will ask
our legislative analysis of the
are innocent to maybe walk
through the bill. It's not a
big bill, but I think it would
be helpful for him to just go
through. And if you have any
questions, happy to answer
those Senator, Chris, to want
to move your a one amendment
for your side.
>> All those in favor of
adopting a one amendment say
aye.
Any opposed
amendment adopted. You can
begin. Thank you, Mr. Innocent
if you are ready to.
>> Madam Chair members, all all
walk through the one delete
everything amendment
as
Sir Commission to to the the
amendment is
implements the recommendations
from the task force itself
because this is the the first
bill proposing a constitutional
amendment. Some of the
committee this year just note
that under the joint rules cost
Bill proposing Constitution
amendment must include the
amendment language itself and
anything
relevant. Statutory changes
required by the amendment.
So the Constitution Amendment
is an article.
One of the
of the bill and the structural
changes are contained in
Article 2 of the bill.
The previous presentation
described it to some degree the
proposed constitutional
language change the new
language. This list of the 1.1,
9 through 1.0, 2, 5, of the a
one Amendment.
It includes
describing the principles
overarching principles for the
permanent school fund. It
strikes language that Mr.
Kirk and others describe
limited in limiting the amounts
available for apportionment
from the fund.
It requires that the fund
it designs to provide annual
distributions and preserve the
purchasing power and further
bet balance needs of current
and future
and the fish areas.
It requires that administrative
spending from the fund,
the item in the manner
prescribed by law
and continues the current
practice. The distributions
must be a portion in the in the
manner described prescribed by
law,
sir, could just describe the
the way that the question would
be submitted to the voters.
The task force itself to make
recommendations about this belt
language. But it's presented
here for
further consideration by the
Legislature
beginning at 2.0, 6 would begin
article 2 of the bill which
features the statutory changes.
Section one is the section
requiring that 4.5% of the
Rolling 3 year average.
That's the value of the fund to
be the available for
distribution.
And the stricken language in
Section one
is stricken because it would be
obsolete of this under this new
distribution method
paragraph. The beginning of
2.0, 2, 3, requires the
director of SPI to any other
report. This to strip it along
to the Legislator Permanent
School Fund Commission and to
the Commissioner of Education.
Section 2
is modified to such a conform
with the requirements of
section one. There's some
language their stricken that
would be again made obsolete by
this alternative
calculation of the
distributable amount and
clarifies that it's the
commissioner management and
budget transfers. This district
will mount
2 from the permit school fund
to the school Endowment fund
has needed to make the payments
from the school in a month and
Section 3 upped its a term
to conform with the changes
under Section one, section 4
status as the effective date
for all of Article 2
to align with the effective
date indicated in the in the
Constitutional question.
And so if the if the question
were adopted by the people
at the 2026 election, the the
first impacted apportionment
would be the apportionment in
September of
20 20th.
I think as mentioned earlier,
the apportionment among school
districts happens twice a year
in September and March Beach,
fiscal year.
And so the whole the whole
proposal would be effective,
beginning July 1st, 20.0, 7
for fiscal year, 2028 and
therefore the first impact of
the portion that would be the
September
2027 portion,
Madam Chair. That's
pretty quick overview of them.
>> All right. Senator
commissioners, any of the
testifier?
Yes, we have Kirk.
She when the wing, the
executive director of the men
in both Minnesota School Boards
Association.
>> Welcome to the committee.
If you could say your name for
the record of the begin when
you're ready. Yes, Madam Chair,
my name is Kirk Snyder when
executive director for the
Minnesota School Boards
Association first.
>> I want to thank you. And the
chair coup niche on the and the
permanent task force for their
serious bipartisan work on this
proposal.
The recommendations are
thoughtful, data-driven,
and grounded in long-term
fiduciary responsibility.
As I shared my name, I
represent the school Boards
Association, but I'm also
speaking on behalf of the MSD
school districts, the Minnesota
Rural Education Association and
that secondary and Alamo
Elementary principals as well
as the Superintendents
Association.
The Permanent School Fund is
Minnesota Students Trust Fund.
It was created to support
public education in perpetuity,
but the constitutional
framework governing
distribution limits our ability
to modernize how earnings are
calculated and distribute it.
Today. The fun distributes only
what it earns an annual
interest and dividends in most
years. The rich, that results
in distributions below what a
professionally managed
endowment of this size could
sustainably provide
in practical terms? We are
managing a modern investment
portfolio under an outdated
formula.
After extensive study, the task
force recommends moving to a
percentage of market value or P
O and B
model. Under that approach, the
state would distribute a fixed
percentage typically between 4
and 5% based on a multi year
average of the fund's market
value.
That rings reflects best
practice for large endowment
funds.
It is designed to balance 2
responsibilities as shared by
the Testifiers earler meeting.
Current needs while preserving
long term purchasing power
at 4 and a half percent
calculated on a three-year
rolling average as outlined in
the bill.
It strikes the right balance.
It would provide more stable
and predictable funding for
schools while predicting law
protecting the integrity of the
fund for future generations.
Predictability matters to our
school district. Right now.
School districts across
Minnesota are making difficult
budget adjustments, boards
right-sizing programs,
adjusting staff and delaying
investment in that environment,
stable and reliable revenue is
critical.
School boards adopt annual
budget and with an eye on the
future negotiate contract to
make long-term commitments.
Volatility makes that work
harder. Stability strengthens
our governance, moving from the
interest and dividends only
model to a modern peel and the
framework is responsible
endowment management. It aligns
Minnesota with the net, the
national best practice and
improves distribution
reliability without raising
taxes or creating new ongoing
spending
on behalf of the school boards
in our urban suburban in
greater Minnesota. We strongly
support House and we strongly
support the center found
respectfully, ask for your
support.
Thank you, Madam Chair
members, any questions.
>> Senator Le Cerro.
Yes, thank you, Madam Chair and
a question. But I'd like to
offer the a 2 amendment to the
a one Amendment.
Those are being distributed.
>> If you want to speak a
little bit about your amendment
center Lou, Sarah, before,
well, world getting copies.
>> So the thank you, Madam
Chair. So the this amendment
would modify if you look at the
amendment on the one that was
already offered, if you look on
my 1.2 6,
it says that the funds, if the
const, the propose constitute a
constitutional amendment were
to be adopted,
the funds would be distributed
in a manner prescribed by law.
I am seeking to modify that the
funds will be distributed in an
equal amount per pupil.
And the reason I am seeking to
do that as we know, we've been
having a conversation in this
committee on equity, in
education funding.
And there is a an incredible
inequity right now with the
current
funding formula seeks to
provide some fairness and
certainty
in the Constitution
that our students
don't have different
opportunities based on their
zip code but instead makes it
equal across the board. So I
would encourage support for
those with a yes vote. Thank
you.
>> Madam Chair, Start will
Madam Chair and Senator Kurdish
any response the a one
Amendment.
>> Thank you so much. You know,
I I first want to just say that
this amendment are this
legislation was very
painstakingly looked at.
I mean, literally every word
and every reference in this in
this legislation to ensure that
there aren't any real
complications. But I'm
wondering if perhaps
or a square foot would be able
to
help us better understand how
this language
might make a difference or
might change the bill in a way
that
I'm not quite sure up
because if I'm not mistaken, we
we do distribute that amount
per pupil
at this time. And is that what
the law actually is stating?
>> Madam Chair, the a 2
amendment would
require constitutionally, but
the
the apportionment be in an
equal per pupil amount under
current statutory law. The
apportionment is unequal per
pupil amount. And as I
indicated earlier, that that
that per pupil measure is the
adjusted average daily
membership. So so the
constitutional that the
amendment would would not
wouldn't change in practice how
the
amount is a portion now, it
would it would
in trying to the Constitution
that that portion of method or
the the apportionment amount.
>> Senator Commission.
So based on the fact that we
did go through this and looked
at all of the different
elements and I'm very
comfortable that our present
constitution and the present
language that we have will
ensure that those students
continue to receive equal per
pupil amount. I am going to
respectfully not accept this
amendment.
>> All those in favor of the so
sorry. Senator Mike Lee,
thank you after and I would
also respectfully ask for a no
vote for for 2 reasons. One,
even though we currently
distributed on equal per people
out, there might be a time and
this is the diversity
inequality inequity, right
qualities. Everyone gets the
same thing equity is that
everybody gets what they need,
even if it's different amounts.
And so I could see it maybe in
a time in the future where we
want to send more money to
schools because the CA fixed
costs of running a school
doesn't go down regardless of
how many students you have in
that. And so if we wanted to
say we want to keep this small
district from losing an
elementary school were going
up, the amount we're going to
give to the school or these
types of school districts
instead of having it be a, you
know, people amount we wouldn't
be able to do that without
changing the Constitution
instead. Right now, what we can
do is we can change in line.
So I think reserving the
ability to make those decisions
in law for the legislature to
debate instead of having to put
it in the constitution and then
being bound by not being able
to change it based on our
changing state in our student
needs. That is why I think we'd
be better off just leaving it
and law and not in the
constitution.
Senator Eric, thank you, Madam
Chair.
>> I'm gonna speak in favor of
the amendment. I think.
>> As was just talked about the
needs that would come a rise or
come up. We have that ability
through the general fund and
what we deal with in this
committee all the time. But
this is the permanent
trust fund for all of
Minnesota.
And so this piece is a small
piece should be equal to every
student throughout the state
for this particular fund.
And that's what this amendment
is getting at for this fund,
which comes from
around the state. Although most
of it comes from one particular
area of the state, this should
be distributed equally to every
student in the state. Again, we
have that ability for special
needs that arise. We have that
through the funding formulas to
address those other needs.
But for this particular fund,
we should absolutely be
treating every student around
the state the same and keep
this and not allow for a future
legislature to change that and
put this money into a funding
formula. We should put this
language in this. This money
will always go
per pupil. Exactly the same
around the state. So I would
ask people to vote. Yes.
>> Senator home certain.
>> Thank you. Madam Chair.
I would speak in favor of this
amendment as well. The people
of Minnesota have supported
this this constitutionally
required fund for 150 plus
years specifically because we
believe that that that
investing in education is
important for all students.
The idea that we may choose to
insert politics into that and
favor some students over of or
others on this particular
program makes no sense to me.
I think that we need to be true
and honest with the people of
Minnesota, but what our plans
are and this does that it makes
clear what our intentions are
with this fund. Thank you.
>> Thank you. Anyone else,
Senator West London.
I have a quick question either
for Senator Le Cerro or perhaps
the task force members. And I'm
wondering if if this particular
issue
was brought up with the task
force
members in their consideration
of recommendations made because
I would prefer to have
a little more vetting
before putting something into
the Constitution that I think
has not been fully vetted
and the challenge with putting
things into the Constitution
and Senate,
if there is a problem with its
going to be much, much harder
to change. So I guess maybe my
question is to Senator Cerro
Hat. Did you run your amendment
passed
the Working Group Task Force.
>> Senator the Sarah, thank
you. Madam Chair. I was not
part of the task force. I was
involved in it at all.
This amendment is the result of
a conversation I had yesterday
in preparing for this bill that
would be in committee today.
So we're as a task force of
Glee provides recommendations
to the legislature. It's this
committee that starts the
vetting process for the policy
for the education of our
students. So that's why I think
it is most appropriate now for
us to have this conversation
and make a decision. Thank you.
>> Senator was a Madam Chairman
Sen. I don't think this is the
last stop for this bill, but
I'm wondering if you are
willing to have that
conversation with the members
of the task force,
I maybe we don't have a sight
line into where an issue might
arise here. I certainly don't
necessarily. And I
I don't feel comfortable
accepting this kind of on the
fly. Know you said you just
kind of came up yesterday and
that's fine. That's how things
work or is sometimes things
come up the last minute.
But my question to you is, are
you willing to
actually have conversations
with the task force
to walk through this or even
with
nonpartisan staff? But I'm not
comfortable voting for this
today. And I do understand that
this will have other stops.
So I'm a no vote. But again,
I'm just curious to know if
you'd be willing to has some
additional conversations.
>> Thank you, Senator. Wasn't.
We do have another question
from a member, but we are
deciding that it might be
helpful to bring up the task
force. Whether members choose
to ask them questions or not.
It might be helpful to come to
the table,
Mr. Craig should help him
saying it correctly
and Mr. Mule and yes, all of
you and Senator Eric.
>> Thank you, Madam Chair.
And I think in response to
Senator West Linn is question.
You know, I believe that
happened. They me answer this
better. The task force was put
in place, talk about how we're
going to distribute the moneys
based on
the investments themselves.
This is talking about in
particular how it will go out.
That was not what the task
force was looking into. That is
something for this committee to
talk about. And, yes, it just
kind of came up yesterday
because in our discussion we
were saying, hey, this is this
is a fund that small, but it's
not something that should be
limited are open to formulas.
This is something that should
be equally distributed to all
schools. But I think the task
force can probably answer, but
that was not part of what they
were asked to look at. That
would be a conversation for the
legislature.
>> Senator Wilson, Madam Chair,
I have to pull my papers back
out again. But I thought that
the recommendations included
recommended changes to the
Constitution, recommended
statutory changes. And so
I just curious to know of they
have any opinion about this and
any potential implications and
maybe they don't. But I'd at
least like to get some input
from them.
>> Ok, don't know if we have
any other members who want to
talk if the task force enter
commish. If you want to invite
that has forced to answer bres
any of those before we go to
Senator Le Cerro to close out
the amendment.
>> And do you have a is there a
response that you'd like to
share? Okay. Yes, we have
executive director here.
>> Thank you. Madam Chair,
executive directors say Joe
Shirts. Thank you for the
question. I appreciated the
task force actually did
consider questions very similar
to this. I would answer this
into parts of the night as my
colleagues to provide
additional information.
First and foremost, we thought
one of the most important
things consistent as we discuss
our fiduciary duty was to
really dig into the scope of
the task force mission.
And to be very clear about
those questions that are within
the scope of the task force and
those that are better left to
the legislator Legislature,
these particular policy
questions I we believe the task
force, but a lot of time
talking about this in voting on
it
was that these particular
questions were more appropriate
for statute as their policy
driven decisions for the
legislature
and that they were specifically
outside of the scope of the
statute. The second part of the
answer that question an
enormous amount of time and
energy, one into the research.
What do other similarly
situated institutional
educational focused funds do?
And that research was very
clear that these types of
issues are answered in statute,
not in the constitution.
And that also guided the
approach of the task force.
I would stop and defer to my
colleagues percent.
>> Thank you. Madam Chair, Erin
Ban on School trust lands
director getting Senator Le
Cerro. If you do bring up the
next one point, the history of
school trust lands and I've
gone back and read the debates.
Its statement when we were
becoming a state on these
lands,
the debates were were
link me to say the least and a
hard to read. But
what they be,
what they determined at the
time was that these lands as
they are across the state
aren't going to be held for a
specific community. They're
going to be held for the entire
state.
That was the decision in 18,
58. We have maintained that
throughout
to your point about equal
receipts or payments to the
pupils, that's
the task force is the executive
director said we felt that
those decisions were policy
better situated to be held in
dealt with in statute.
And just to give us a specific
example of why we did that,
Utah, the state of Utah
has a permanent school fund.
It's managed by the U.S.
institutional investment in
Utah.
They passed
3, 4, years ago and
constitutional amendment very
similar to this. They put their
amounts their distribution
amounts in the Constitution.
2 years later, they are going
back and amending their
constitution
because they couldn't
distribute as much as they
could because they limited it
in the Constitution.
So they limited the
constitution at 4 and a half
percent in,
you know, for 5 years ago,
they have the ability because
of the oil and gas revenues to
distribute over 7 and a half
percent of their permanent
fund. And they had to leave
that 3% in their funded,
not distributed because it was
in the Constitution.
So we took that
to heart when we were making
our recommendations of what
should be in the Constitution
and what should be in statute.
And that was
months of discussion and our
task force.
>> Madam Chair members not just
add in and directly respond to
the question of was this a
topic that the task force
discussed? The answer is yes.
I think we ultimately reached a
conclusion that chill
articulated that this was
outside the scope of what we
were tasked with and that our
focus should be on the
investment areas of the caught
the legal framework that
addresses the investments of
the permanent school fund to
not apportionment.
However, in reaching that
conclusion, we did discuss
amongst each other,
what is the basis for
apportionment and there?
And just amongst the 9 of us,
there were differing opinions.
There were some folks who felt
very strongly that people
apportionment policy was the
correct policy.
There are some folks who
pointed out that I think
Senator equated that the fixed
costs of running schools are
not dependent on the number of
students in that school.
And so perhaps apportionment
should be thought about in that
context. There are members that
observed that most of the
revenues coming into the
permanent school fund stem from
certain areas of the state and
not others. And so I just point
that out to say just within
this group of 9 people who
spent a lot of time discussing
and thinking about this,
we did not reach a conclusion.
We did not all reached the same
conclusion on this question.
That's part of what got us to
think that this is best left
with the Legislature.
>> Thank you, Senator Cruz.
Thank you. Madam Chair, just
chiming in on a couple of
comments on this amendment
isn't
related to what happened in
Utah. That totally makes sense
to not have a distribution
about in the Constitution.
But that's not what this is.
This is and you said it
yourself. The intent of the
legislators back to the state's
founding
was for this trust to be held
for the entire state. And
that's exactly what this
amendment seeks to do.
I don't think the founders of
this state, those legislators
that were voting on this
back in the 18 50's could have
possibly imagine the
complicated funding formula
that the state would end up
with
for its general fund, but of
when even be within their
comprehension
and so or or the legislature's
willingness
to come up with all of these
different compensatory funds
and all of these different ways
that we fund our schools.
This fund is different.
This fund is in the
Constitution and should benefit
the entire state. Senator, the
Sarah's Amendment does exactly
that.
I personally don't trust future
legislatures to not take her
with this.
Once they they have this pot of
money. It's just prescribed by
law. It's not in the
constitution. Then it just
becomes another fun that they
can
take and make a complicated
formula out of. I think the
people of Minnesota deserve
simplicity
on this particular farm.
There are plenty of other funds
from the general Fund for
compensatory funding to address
particular needs about
declining enrollment for other
compensatory funding factors.
But this fund is different.
This fund should have the
confidence of the people
when they're voting on this
constitutional amendment that
it is going to be distributed
on a per pupil basis. Thank
you.
>> Senator homes from.
>> Madam Chair. I will add to
that that the executive
director of the Middle School
Board Association just
testified to us that the school
board's need to have stability.
They need to know long term
what to expect. This amendment
does just that. It tells them
exactly what to expect where
these dollars are going to be
spent long into the future.
Thank you.
>> Senator commissioning
closing thoughts will go to
Senator the Cerro. Okay.
>> Yeah. I mean, this has been
a really good discussion.
And I wish even though you kind
of came up with this yesterday,
had to given the a little heads
up so that I could kind of wrap
my head around it and ask a lot
of other questions. I wasn't
surely have appreciated that.
But again, at this time because
I feel like I now need to
talk about it. Think about it,
perhaps meet with any of you
around this before we make a
decision on this. I think I I
need to think a little bit more
as senator said, this has other
stops and perhaps on one of
those other stops, having done
better review and reflection on
this and having more
information about what the
cause and effect of something
like this might be, how it
might make the fund more
vulnerable. And as we're
talking about future
legislators being able to tap
into this, we want to make sure
that we are being very
protective and what those kind
of consequences would be.
So I'm willing to work with you
on this. I just need more time
and I need a better
understanding before I could
accept a an amendment such as
this.
>> Senator Louis, Errol, thank
you. Madam Chair members,
the Minnesota Constitution,
states
general and uniform system of
public schools,
that is the objective.
The school trust lands were to
benefit all students. So in the
spirit of benefiting all
students
and his spirit of having a
uniform system,
I encourage members to vote in
support of this to ensure that
those funds are distributed
uniformly for the benefit of
all students equally. That's
what our Constitution should
reflect.
A green vote is too support
that philosophy and support all
students equally.
If you don't agree with that
vote. No. Thank you, Madam
Chair.
>> Thank you. Senator Le Cerro.
We will vote on the B 2 on the
to all those in favor say Aye,
aye. All those opposed say no,
no
to does not pass
any other discussion.
>> Closing remarks, Senator
could inch. Thank you. This has
been a really good discussion
and I appreciate everybody
bringing their perspective to
this conversation as a
constitutional amendment.
It's really vital that we get
this. You know, right before we
take it to the voters and at
the end of the day, it will be
the voters that are going to
make that decision for our
students. And so with that,
I would ask you all to on vote
Green to move this bill on its
way.
>> All right. As amended will
vote now to move this to state
local governor. All those in
favor say aye on all those
opposed say no
motion carries
next. We'll hear some file.
1, 2, 0, 1, Senator commish,
you are up again. I believe
it's your attention to Saint
SF. 1, 2, 0, 1, to the
committee on commerce. Yes,
it is.
Would you like to make that
motion? Yes, I make so moved
perfect. All right. You've been
a 3 amendment. Would you like
to move the a 3 amendment and
introduce it?
>> Yes, the a 3 Amendment is is
an amendment to delete all and
then add the language that you
will find on in Bill 12.
0, 1,
>> All right. All those in
favor of adopting the a 3
amendments. I I all those
opposed. All right. Seeing it
here. Bill, thank you so much
members. This is a.
>> This is another really
curious bill. And it is a bill
that would require school
health insurance annual
reports. The goal with this
report is to give the state a
clear picture of what districts
are paying for health insurance
under the current system and
how many potential employees
would be eligible to be an and
eg IP, which is a statewide
health insurance pool for
educators.
And as we know, one of the
probably the largest budgetary
issue is health care for not
only our teachers but
administrators and parents and
those sort of things. And so we
are this report is tasked with
getting the did the district's
to share with us what the
insurance is so that they have
a really important. They have a
very clear picture of how and
what we are paying for in the
insurance world. And it also is
requiring a each student just
or each district and charter
school to complete an annual
survey survey by September 4,
excuse me, first, using data
from the most recent fiscal
year so that we can kind of
wrap our head around what
really is the cost of this
health insurance and how we
might be able to create a
better system for that.
And with that, I have a few a
few test fires.
>> Thank you, Senator Kunesh.
If we could bring the
testifiers to the table and
just want to remind you that we
are sort of limited on time.
So if both of you
testifiers who come to the
table,
I'm gonna let you all decide
who goes first and just
identify yourself for the
record and you can begin when
you're ready.
>> Hello Committee members.
My name is John Wachter.
And I'm the president of know,
kind of an education,
Minnesota, the union
representing the teachers and
license staff and, you know,
kind of in school district.
I'm here to to speak in favor
of Senate file 12. 0, 1,
a bill that would direct the
state to study the health
insurance plans. School
districts offer to employees.
2 months ago. We were on the
precipice of a strike,
a crisis largely driven by the
struggle to address a crushing
increases in health care costs
for the 2025 26 school year.
The self insured premiums for
our health plans increased an
average of 22%.
This resulted in 400 to $700
increases per month in premiums
for family coverage this year.
Given that 82% salary increase
equates to between 1002 $1000
for educators for the entire
year, you can see the problem.
I know get up and is currently
in the process of setting rates
for next year. And we have been
told to, again expect
double-digit percentage
increases
during bargaining educators.
Find ourselves trying to put
money, shaped Band-Aid on a
gaping flesh wound.
It has been implied publicly
that we have actively chosen
our current trade off between
salary and benefits
rather than it being the result
of insurance costs rapidly
outpacing inflation.
We have often raised the idea
of making our district's
contributions towards our
health insurance, a percentage
of premiums and have been
rebuffed every time
this continues to put the onus
of cost increase is largely an
educators.
Due to this many question,
whether a career serving the
students of an account of bin
is one that will allow them to
continue to support their own
families.
Already, the cost increases
this year caused at least 900
individuals and dependents to
leave our district health and
insurance plans and moved to
other coverage.
Right now. Hundreds of
districts across the state are
replicating the same work
requesting in analyzing bids
for health insurance.
Each one of those districts is
one bad claims year from their
carefully constructed plans
falling apart.
This bill does not represent a
burden to districts as 95% of
the information being requested
is already being gathered for
bargaining and insurance
bidding processes.
Important aspect of this bill
is too,
is the opportunity to gather
vital information about how
much districts are spending on
health insurance across the
entire state to help inform a
statewide solution as
envisioned in Senate file 29.
0, 9,
We cannot solve this problem
until you have a true sense of
the scope of the issue. I urge
you to support Senate file 12
on.
Thank you, Miss Goff.
>> Thank you, chair and
members. My name is Lori Goff
and I'm a special education
para for the Saint. Michael,
a Purple School district.
I provide academic support in
general education, classrooms
and Iran are resource room
where students can come and get
extra help.
There was a time when education
support professional jobs were
side after because of the good
paying great benefits. But
after 25 years of underfunding
by the state of Minnesota are
wages and benefits have not
kept up and positions like mine
are hard to fill
when bargaining the district
comes to the table says this is
your budget
wages, our health health
insurance, not everyone takes
the insurance, but everyone
takes the wages. So the
insurance gets more expensive.
And the plans get worse.
After decades of disinvestment,
my insurance is well bat.
I'd like to tell you about my
son. One day he woke up in can
see out his right eye
after many appointments with
many doctors and specialists
and patiently also known as a
gun eyes only waiting for test
results. And numerous summarize
we found out he has a rare eye
disease.
It took a year, but the doctors
found a way to stabilize it.
Unfortunately, our insurance
will not cover the medication
the doctor prescribed.
Instead, we're forced to use
the medication that is for
children with cancer who are
waiting to have a bone marrow
transplant.
It suppresses the immune system
and has possibly devastating
and irreversible longtime
certify side effects. Some of
this part makes me emotional.
He needs to be on this for at
least 3 years and possibly
forever.
This medication isn't covered
by insurance either, but it's
$168 a month out of pocket
rather than 7,000.
I worked 3 jobs to pay for
medical expenses and mice and
we still lose his sight.
Imagine telling your child that
you can't afford to keep them
healthy.
I don't want to be just one was
that story.
But I do want to put a face to
a statewide problem.
Eu's peas and every district in
our state are struggling to
care for families.
This is a statewide problem and
it needs a statewide solution.
>> This report will help us
understand the full scope of
the problem and what it would
take to provide us with the
kind of health insurance that
would allow us to care for our
kids at school and their
families at home.
I encourage you to support this
Bill. Thank you so much for
your time.
>> Thank you, members. Any
questions or comments,
senator condition to closing
thoughts words?
>> No, but thank you for
listening. And I hope that that
we get some really good
information out of this report.
Should it pass into law this
year so that we do have a
better and fuller understanding
of the costs of insurance,
not only in, you know, the
individual districts but across
the state and perhaps provide
an opportunity for us to really
address this in a real way.
So appreciate a green vote on
this bill.
>> Thank you, Senator. With
that. Senator Cruz renews her
motion that SF 1, 2, 0, 1, as
amended be recommended to pass
and referred to the committee
on Commerce. All those in favor
say Aye. Aye. Any opposed
seeing none. This bill as
amended has moved to the
committee and state local
government,
commerce, commerce. This thing
members, we will not have
education finance hearing on
Thursday this week. It is 10,
20 and we are adjourned