[0:05] >> We are going to be key.
[0:07] An eye on this committee
[0:08] hearing. It is right now.
[0:11] It is 8.37
[0:13] on Wednesday, March 4th, a
[0:15] quorum is present and we will
[0:18] now come to order
[0:21] today where I'm really excited
[0:23] for this agenda. We're going to
[0:24] hear a presentation from the
[0:25] permanent School fund
[0:26] distribution group and then
[0:28] we're going to hear 2 bills
[0:30] Senate filed. 35 93 and Senate
[0:33] file 12. 0, 1,
[0:36] I we have a gun through the
[0:38] expectations of the audience a
[0:42] couple of times. But I now see
[0:44] we have a whole new crew over
[0:45] here. So I just want to remind
[0:47] everyone I'm here today that
[0:49] you have to stay seated when
[0:51] you're in the hearing room,
[0:52] there's no standing or sitting
[0:54] in the walkways are aisles.
[0:56] If there are any specific
[0:58] accommodations, please
[1:00] communicate with a surgeon
[1:01] staff. Signs are not permitted,
[1:04] clapping and other disruptions
[1:06] are not allowed. And if you do
[1:08] not follow these protocols, you
[1:10] will be asked to leave.
[1:12] Remember members to use your on
[1:14] and off switch that controls
[1:16] your microphone. And I would
[1:19] just want to say thank you to
[1:20] the sergeants for always being
[1:22] attentive and keeping us safe.
[1:25] And so we are going to bring
[1:26] begin with a presentation about
[1:28] the permanent School fund
[1:30] distribution working group.
[1:32] Last year. We created a working
[1:36] group and asked them to look
[1:38] into.
[1:39] >> How and why we are
[1:42] investing.
[1:43] >> A permanent school funds and
[1:46] are we getting the biggest bang
[1:47] for our buck when when using
[1:51] these investments as a way to
[1:54] also support our school kids
[1:56] and continue to use that
[2:00] investment into the future.
[2:03] And so the the group met
[2:07] a number of times and have come
[2:11] up with a report and some
[2:13] recommendations and based on
[2:15] those reccomendations you're
[2:16] going to hear appeal.
[2:18] And so I would like to invite
[2:21] the working Group report crew
[2:23] up Andrew Crack, who is the
[2:26] deputy director, head of active
[2:28] Strategies with the Minnesota
[2:30] State Board of Investment.
[2:32] And Erin van der Linde,
[2:34] director of the Office of
[2:36] School Trust Lands and John
[2:38] Yuill, the director legal and
[2:40] policy services of the
[2:42] Minnesota State Board of
[2:43] Investment. If you'd like to
[2:44] come up and take a seat,
[2:50] just reminding you to please
[2:54] state your name and your
[2:56] position and then you can begin
[2:59] and I think we'll start with
[3:00] Mr. Correct.
[3:02] >> Thank you. Chair finished my
[3:04] name is Andrew Correct, as you
[3:05] mentioned and the deputy
[3:06] director of the Minnesota State
[3:07] Board of Investment as a member
[3:08] of the Permanent School Fund
[3:10] Task Force. I'd like to thank
[3:12] the members here for having us
[3:13] today to give you a summary of
[3:15] the findings of the task force
[3:17] and to answer any questions you
[3:18] might have about the
[3:19] recommendations of the task
[3:21] force and the legislation
[3:22] that's been proposed.
[3:25] Wait a minute will join us or
[3:27] presentation of
[3:31] so we intend to proceed over
[3:33] the next several minutes is to
[3:34] give you some background on the
[3:36] task force and the work that we
[3:38] engaged in as well as some
[3:39] background on the permanent
[3:41] school fund itself and school
[3:43] trust lands at which point all
[3:45] turn things over for a few
[3:46] minutes to Aaron.
[3:47] And then we will walk through
[3:48] the research and
[3:51] would you speak a little bit
[3:52] closer to the microphone?
[3:53] Thank you for that problem.
[3:56] And then we'll spend some time
[3:57] going through the specific work
[3:58] research and analysis that the
[4:00] task force performed before we
[4:02] review the recommendations that
[4:03] came out of the task force and
[4:05] then we'll conclude and take
[4:06] any questions that you all may
[4:07] have. But please feel free to
[4:09] interrupt as we go through with
[4:10] any questions that come up.
[4:14] So the task force, the
[4:16] Permanent School Fund Task
[4:16] Force was created by the
[4:18] Legislature in May of 2024,
[4:21] the membership requirements to
[4:23] be part of the task force were
[4:24] to have outstanding
[4:25] professional experience in one
[4:27] of the following areas,
[4:28] institutional asset Management,
[4:30] Investment Finance Trust
[4:31] Administration investment fund,
[4:33] accounting investment, banking,
[4:35] or the practice of law in
[4:36] capital markets. Securities
[4:38] funds trusts, foundations or
[4:39] endowments.
[4:41] Ultimately the task force
[4:42] membership comprised 9 members.
[4:44] One member who was a designee
[4:46] of that Department of Education
[4:47] or the commissioner of
[4:47] Education, daily linemen,
[4:49] another member appointed by the
[4:50] state Board of Investment which
[4:52] myself,
[4:53] 4 members appointed by the
[4:54] Governor, Denise District,
[4:56] Tracy Farak, Tracy lot CA and
[4:58] Aaron Van der Linde
[4:59] and 3 members appointed by a
[5:01] vote of the Legislative
[5:02] Permanent School Fund
[5:03] Commission for Terry spent all
[5:04] Madden Paul Pelletier and Julie
[5:06] Sandstede.
[5:11] We were given a legislative
[5:12] charge and the duties of the
[5:14] task force were spelled out.
[5:18] The task force was directed to
[5:20] examine the historical returns
[5:22] on the Permanent School Fund
[5:23] Endowment and to evaluate and
[5:25] recommend potential changes to
[5:26] the distribution of earnings.
[5:29] The task force may examine
[5:30] school trust endowment policies
[5:31] and other states. And the task
[5:33] force recommendations may
[5:34] include proposed changes to
[5:36] state statutes and Minnesota's
[5:38] constitutional provisions
[5:39] governing the school Trust Fund
[5:40] Endowment.
[5:42] The task force met many times
[5:43] over are close to a year and a
[5:45] half and ultimately delivered a
[5:46] report to the Legislature on
[5:48] January. 15th of this year,
[5:53] gonna spend a few moments going
[5:55] over some background, which may
[5:56] be a preview from for many of
[5:58] you. But for those who aren't
[5:59] familiar with the permanent
[6:00] school fund in the school trust
[6:02] lands, we're going. We're going
[6:02] to take a few minutes to
[6:03] review.
[6:05] The Minnesota Constitution
[6:06] established the permanent
[6:07] school fund in 18 58 to create
[6:10] a permanent self-sustaining
[6:12] source of education funding in
[6:13] the state,
[6:15] Minnesota law, both statute and
[6:17] constitution specify how the
[6:19] fun shall be managed. And the
[6:20] formula by which the amount
[6:22] available for distribution is
[6:23] calculated.
[6:25] Today. There are 3 state
[6:26] agencies that are primarily
[6:28] involved with the ongoing
[6:29] operations of the fund.
[6:31] We have the Department of
[6:32] Natural Resources who's
[6:34] responsible for land management
[6:36] decisions on that specific
[6:38] parcels of land that our school
[6:40] trip that our school trust
[6:41] lands.
[6:44] The revenues that come from
[6:45] land management are then
[6:47] transferred to the permanent
[6:48] School fund.
[6:50] The State Board of Investment
[6:51] takes those dollars and invest
[6:53] them in financial instruments.
[6:54] Stocks and bonds and the state
[6:56] State Board of Investment or
[6:57] SBI is responsible for
[6:59] investment management decisions
[7:01] and ensuring that the proper
[7:02] amounts are distributed from
[7:03] the fund.
[7:05] Once those dollars are
[7:06] distributed from the fund's,
[7:07] they ultimately end up with the
[7:09] Department of Education who is
[7:11] responsible for a portion of
[7:12] those funds to school districts
[7:13] around the state.
[7:20] Madam Chair members, Aaron Van
[7:21] Dillen School Trust Lands.
[7:22] Director, a few quick slides on
[7:25] just the background and
[7:26] history. A school trust lands.
[7:27] I recognize that I gave a
[7:29] similar presentation to a
[7:30] policy last week, but some of
[7:31] you are my committee. So
[7:33] as Andrew said, we received
[7:35] these lands from the federal
[7:36] government and 18 58 its
[7:38] statehood. We ended up with 4
[7:41] successive federal grants that
[7:43] total about 8.1 million acres
[7:46] to cede the fund its statehood.
[7:49] We sold off the majority of
[7:50] those lands in southern
[7:51] Minnesota.
[7:53] We have 2.5 million or 2.5 of
[7:56] the 8.1 million acres left of
[7:58] those 2.0. 5, 2, 0.2 are in 10
[8:01] northern counties.
[8:03] You can see on this map where
[8:05] they are. We do have a Landen,
[8:08] some reservation boundaries.
[8:09] We recognize that.
[8:11] But most of those lands
[8:13] generate revenue from and you
[8:15] can switch.
[8:16] Thanks, John
[8:19] Revenue from minerals,
[8:22] royalties, and rents timber
[8:23] sales. And then real estate
[8:25] transactions likely says sales
[8:28] easements and things of that
[8:28] nature. So if you look at the
[8:30] permanent school fund right
[8:31] now, the value of that funding
[8:34] and really get into this a
[8:35] little bit later is 2.3 billion
[8:37] dollars. That value has come
[8:39] mainly from mineral resources.
[8:42] About 80% of our historic
[8:44] revenue has come from our
[8:45] middle rents and royalties.
[8:47] There's this small breakdown
[8:49] between real estate and timber
[8:53] receipts,
[8:54] roughly 9, 7%, of that balance
[8:56] and then 4% for some of the
[8:58] investment income from not to
[9:01] work at SBI does. But some of
[9:03] the investments that we have
[9:05] internally with some of the
[9:07] funds that are managed by DNR.
[9:10] So
[9:12] the next slide, please just
[9:13] real quick. What happens when
[9:15] those funds are deposited into
[9:17] the state board investments and
[9:18] are set? They spin off that
[9:19] revenue. This is the revenue
[9:21] that's Pence distributed to the
[9:24] school district. So it's the
[9:26] beneficiaries of this trust are
[9:27] the 380 plus school districts
[9:29] and all of the charter schools
[9:31] in the state.
[9:32] That's who we see our
[9:33] beneficiaries. As and so over
[9:35] the last 10 years, we've
[9:37] distributed over what it's over
[9:39] 300, something like that.
[9:41] And it's 58 million last year.
[9:44] The work of this task force
[9:46] really looked at how we make
[9:48] these changes. And Andrew,
[9:49] we'll get into that here
[9:50] shortly. We're trying to do is
[9:53] more or less provide of 30 to
[9:55] 40% increase to the annual
[9:57] distributions with these
[9:58] changes. So I'll turn it back
[9:59] over to Andrew. Thank you.
[10:02] Thank you, Aaron.
[10:03] So chair Commissioner, I'd like
[10:04] to proceed now and talk a
[10:06] little bit about the work of
[10:07] the task force over the months
[10:09] that we were together
[10:11] early on in the task force
[10:13] meetings, we started to
[10:14] coalesce and reach consensus
[10:17] around some guiding principles
[10:19] and these guiding principles we
[10:21] determined should be aligned
[10:23] with whatever recommendation
[10:25] comes out of the task force and
[10:26] therefore principles that we
[10:28] identified early on. The first
[10:30] is that the permanent school
[10:31] fund must be maintained as a
[10:32] perpetual financial resource.
[10:35] And what that means is that
[10:36] distributions from the fund
[10:38] must not and often duly draw
[10:39] down the funds, balance or
[10:41] otherwise impair its ability to
[10:43] serve its purpose as a lasting
[10:45] source of educational funding.
[10:49] The task force determined that
[10:51] our objective should be to
[10:52] establish a distribution policy
[10:54] that balances the needs of
[10:56] current and future
[10:58] beneficiaries.
[10:59] That means that the fund must
[11:01] grow in a way that preserves
[11:02] its purchasing power for the
[11:04] benefit of future generations
[11:06] while also providing consistent
[11:08] support to current
[11:09] beneficiaries. Today,
[11:12] we also sought to ensure
[11:14] consistent annual
[11:15] distributions.
[11:17] Our recommendations sought to
[11:18] minimize significant year to
[11:20] year variability in
[11:21] distributions in an effort to
[11:23] support stability and the
[11:25] ability of school districts to
[11:27] plan their budgets, which we
[11:28] know is very important.
[11:30] And lastly,
[11:31] we sought to allow for
[11:32] adaptability and investment
[11:34] management
[11:35] so that our recommendations
[11:36] would provide the state Board
[11:37] of investment with the
[11:39] necessary flexibility to manage
[11:41] the fund, according to
[11:42] industry, best practices so
[11:44] that we can seek to manage to
[11:45] maximize the long-term value of
[11:47] the fund without taking undue
[11:48] risk.
[11:53] The task force also spent a lot
[11:55] of time discussing debating
[11:58] thinking about the scope of our
[12:00] activities. The task force was
[12:02] specifically mandated to review
[12:04] the fund's current legal
[12:05] framework and investment in
[12:06] distribution practices. And
[12:08] over the course of that work,
[12:10] we identified several issues
[12:11] which I believe all 9 of us
[12:12] felt very important and they,
[12:14] in fact, are deserve additional
[12:16] consideration and discussion.
[12:18] But that were out of the scope
[12:20] that the legislature provided
[12:21] to the Permanent School Fund
[12:22] task force.
[12:23] And those other issues include
[12:25] but are not limited to some of
[12:26] the following questions having
[12:28] to do with the management of
[12:29] school trust lands.
[12:31] Those are decisions that are
[12:33] made under the purview of the
[12:35] DNR. And we're outside the
[12:37] scope of the Permanent School
[12:38] Fund Task Force
[12:40] Review. Our analysis of
[12:42] apportionment of distributions
[12:43] from the fund put another way,
[12:46] the questions about which
[12:48] districts received, how much
[12:49] money and why we also felt that
[12:52] those discussions were outside
[12:53] the purview of the task force.
[12:55] Apportionment is separately
[12:56] addressed in Minnesota
[12:57] statutes, one, 27 8.33,
[13:02] if you review the
[13:02] constitutional language,
[13:03] you'll see that the
[13:04] Constitution makes reference to
[13:06] the school districts of the
[13:07] state.
[13:09] We felt that the task force it
[13:11] was outside the scope of the
[13:12] task force to attempt to define
[13:14] or redefine what is or is not a
[13:15] school district in the state of
[13:17] Minnesota.
[13:19] We also determined it was
[13:20] outside the scope of the task
[13:21] force to address any
[13:23] restrictions on the use of
[13:24] funds that were distributed for
[13:26] the use of dollars distributed
[13:28] from the fund's 2 school
[13:29] districts.
[13:30] And then finally, the fund's
[13:31] investment policy and asset
[13:33] allocation decisions. The court
[13:35] investment questions are the
[13:37] purview of the state Board of
[13:38] Investment. And that's where
[13:39] outside of the scope of the
[13:40] Permanent School Fund task
[13:41] force.
[13:47] So consistent with our
[13:48] legislative charge of the task
[13:50] force and proceeded to review
[13:51] the current legal framework,
[13:53] both constitutional and
[13:55] statutory that governs the
[13:56] permanent school fund.
[13:59] And we identified that the
[14:00] current constitutional
[14:01] framework imposes to
[14:03] significant constraints on
[14:04] distributions from the
[14:05] permanent school front. First
[14:08] distributions from the fund are
[14:09] limited to net interest and
[14:11] dividend income and excludes
[14:13] capital gains from asset
[14:14] appreciation. So what that
[14:16] means is if the fund owns a
[14:18] stock or a bond that increases
[14:19] in value over time, there is no
[14:21] mechanism for that value to be
[14:23] realized and monetized and the
[14:24] proceeds from that gain in
[14:26] value to be distributed to
[14:27] students.
[14:29] Secondly,
[14:30] capital gains and if necessary,
[14:32] interest and dividend income
[14:33] must be used for the
[14:35] Constitution to offset losses
[14:37] prior losses,
[14:39] this could have the effect of
[14:40] reducing or eliminating
[14:41] distributions from the fund in
[14:43] Los recovery years.
[14:45] It was the conclusion of the
[14:46] task force that there are.
[14:48] There are several issues with
[14:49] this constitutional framework.
[14:51] First,
[14:52] we concluded that this
[14:53] framework unduly restricts
[14:55] distributions from the fund.
[14:57] The fund grows at of substance
[15:00] to grow significantly, which
[15:01] we're going to dress in a few
[15:02] moments. But only a small
[15:03] portion of that growth can be
[15:05] distributed to districts due to
[15:07] the restriction 2 net interest
[15:10] and dividend income.
[15:12] We also identified that these
[15:13] restrictions create an
[15:14] imbalance between the interests
[15:16] of current and future
[15:17] beneficiaries, because the
[15:19] front grows at a healthy rate.
[15:20] But only a small portion of
[15:21] that growth can be distributed
[15:23] to students.
[15:25] Imbalances created that favors
[15:27] thought the students of future
[15:28] generations at the expense of
[15:30] students. Today,
[15:33] these restrictions can result
[15:34] in inconsistent nearly
[15:36] distribution amounts to
[15:37] districts.
[15:38] And lastly, because these
[15:39] restrictions, art specified in
[15:41] the state constitution, it is
[15:43] very difficult to adapt to
[15:45] changing circumstances or the
[15:46] current best practices.
[15:53] Next consistent with the
[15:54] legislative mandate, the task
[15:56] force to examine the historical
[15:57] returns of the fund. And what
[15:59] we found was good news, which
[16:00] is that the performance of the
[16:02] fund has been very strong
[16:03] overtime on both an absolute
[16:04] basis and on a relative basis,
[16:07] the average annual investment
[16:09] return of the fund over the
[16:09] last decade has been 8% and
[16:11] it's been even higher than that
[16:12] and more recent periods as
[16:14] you'll see in the chart on the
[16:15] right side of your page, the
[16:17] fund has performed well,
[16:18] again, an absolute sense.
[16:19] It's also outperformed its
[16:21] benchmark overall. Those
[16:22] measure time periods
[16:23] for those who are not familiar
[16:25] with how the permanent school
[16:26] fund is invested, it is
[16:28] invested according to an asset
[16:29] allocation. That is 50% common
[16:31] stocks. 48 1% bonds and 2%
[16:34] cash. And from the perspective
[16:36] of the SBI, we would call that
[16:37] a very vanilla down the fairway
[16:39] asset allocation that is
[16:41] implemented with institutional
[16:43] quality external investment
[16:45] managers investing in broadly
[16:46] diversified portfolios of
[16:48] stocks and bonds. And the SBI
[16:50] is able to use our scale to
[16:52] drive the cost of that
[16:53] investment management as low as
[16:54] we possibly can.
[17:01] The result of that strong
[17:02] performance has been that the
[17:03] fund has grown substantially
[17:05] strong investment returns in
[17:06] addition to revenues coming
[17:08] into the fund through land
[17:09] management have resulted in the
[17:10] fund doubling in value over the
[17:12] last 10 years and more than
[17:13] tripling in value over the last
[17:14] 15 years
[17:17] because the Constitution limits
[17:19] distributions to interest and
[17:20] dividends. Distributions from
[17:22] the fund have averaged only 2
[17:23] and a half percent of the
[17:24] fund's value over that period.
[17:26] So again,
[17:28] the vast majority of the growth
[17:29] of the fund is constantly
[17:31] compounding accruing for the
[17:32] benefit of future generations
[17:34] and doesn't serve the purposes
[17:35] of the generations in the here.
[17:37] And now
[17:43] next to the task force began
[17:45] its the process of engaging in
[17:47] some research and analysis
[17:49] looking at best practices in
[17:51] common practices at other
[17:53] similar institutions and
[17:55] interests around the country.
[17:58] Broadly speaking, we examined
[17:59] distribution policies from 3
[18:01] different groups of trust in
[18:02] down its first is in Dallas and
[18:05] higher education and
[18:06] institutions. So think college
[18:08] and university endowments.
[18:09] These are different from the
[18:11] permanent school fund and that
[18:12] these are typically not
[18:13] government-sponsored to trust
[18:15] that are typically not funded
[18:16] by natural resource revenue.
[18:18] But we would observe that they
[18:19] do serve a very similar purpose
[18:21] to the permanent school fund
[18:23] that educational endowments
[18:25] exist to provide permanent
[18:27] funding, to serve the
[18:28] educational mission of the
[18:29] institution, that they're
[18:30] associated with it in that way.
[18:32] They're very similar to the
[18:33] permanent school fund.
[18:35] We also looked at similar
[18:37] educational trust in other
[18:39] states. Other states have
[18:40] permanent school funds that are
[18:41] quite similar to Minnesota's
[18:43] Permanent School fund, although
[18:44] that is a much smaller sample,
[18:45] which we'll discuss in a
[18:46] moment. And we we observed best
[18:48] practices amongst that cohort.
[18:50] And then finally we looked at
[18:51] policies about related to other
[18:53] trust funds in the state of
[18:55] Minnesota. These are trust
[18:56] funds that do not have an
[18:57] explicitly educational mandate,
[19:00] but they do have some
[19:00] commonalities with the
[19:01] permanent school fund.
[19:04] We were assisted in our
[19:05] research by information and
[19:09] data that was provided to us by
[19:10] Nikita Investment Group,
[19:12] which is a nationally
[19:12] recognized independent
[19:14] investment consultant that
[19:16] works regularly with the State
[19:17] Board of Investment. They
[19:19] helped us fight with the study
[19:21] evaluated that first group
[19:22] endowments and higher education
[19:24] institutions around the country
[19:26] with a very broad sample size
[19:27] of institutions to help us
[19:29] identify best practices.
[19:31] We also then started to
[19:33] evaluate the suitability of
[19:35] different potential
[19:35] distribution policies for this
[19:37] fund for the Minnesota's
[19:38] Permanent School Fund. The task
[19:41] force worked with both SBI
[19:43] staff, not just myself, but
[19:44] that but a broader set of the
[19:46] SBI staff to help create models
[19:48] based on historical data and
[19:50] the FBI's forwardlooking market
[19:51] expectations. We also built on
[19:54] work from an investments which
[19:56] is another nationally
[19:57] recognized independent
[19:58] investment consultant that
[19:59] works regularly with the state
[20:01] Board of Investment.
[20:07] As we looked at the broad
[20:11] sample of other institutional
[20:13] other educational trust around
[20:15] the country, we were able to
[20:17] observe several commonalities.
[20:20] There were there were a wide
[20:21] variety of distribution
[20:22] policies across these
[20:23] institutions. And you can see
[20:24] some of those different
[20:26] distribution policies in the
[20:28] box on the right side of this
[20:29] page. I'm not gonna go through
[20:30] everyone. But what you'll
[20:33] observe is that almost all of
[20:35] these distribution methods that
[20:36] we use on all the ones that you
[20:37] see on the page here are based
[20:39] on a calculation related to the
[20:41] market value of their
[20:43] respective fund,
[20:44] most commonly institutions
[20:46] distribute some percentage of
[20:48] their market value over a
[20:49] rolling over a rolling average
[20:52] of prior years. These
[20:54] distribution policies typically
[20:56] apply a fixed percentage to the
[20:57] average market value over over
[20:59] a a sample of prior years,
[21:01] sometimes adjusting for
[21:02] inflation. Sometime some sort
[21:04] of hybrid between a fixed
[21:05] percentage and an inflation
[21:07] adjustment. But what we
[21:08] observed is that the a
[21:10] percentage of market value
[21:12] calculated on a rolling average
[21:13] was the most common practice.
[21:21] Further research indicated that
[21:23] when most endowments just in
[21:25] this sample distribute between
[21:27] 4 and 5% of their average value
[21:30] annually and in fact, the
[21:31] single most common and
[21:33] percentage that these
[21:34] institutions are right, that is
[21:35] 4 and a half percent. It's the
[21:36] midpoint of that range.
[21:38] Those institutions which again
[21:40] have a similar purpose to the
[21:42] permanent school fund and in up
[21:43] to help supporting their
[21:45] educational mission in
[21:46] perpetuity, considered
[21:48] distribution amounts in this
[21:49] range to be sustainable for
[21:51] their institutions needs
[21:52] balancing current funding needs
[21:54] with the long-term preservation
[21:55] of their funds purchasing
[21:57] power.
[21:59] We reviewed a range of options
[22:00] for calculating annual
[22:01] distributions to Minnesota
[22:03] school districts. And the task
[22:04] force concluded that
[22:05] distributing 4 and a half
[22:06] percent of the average market
[22:08] value of the fund over the
[22:09] previous 3 years aligns with
[22:11] common practices among
[22:13] educational trust funds and
[22:14] endowments and is also
[22:15] consistent with our funds
[22:17] objectives. 4 and a half
[22:18] percent and three-year rolling
[22:20] average were the most common
[22:22] solutions that other similar
[22:24] trust funds had arrived at
[22:25] independently.
[22:32] We evaluated distribution
[22:33] policies of similar school
[22:35] funds in other states. This is
[22:37] admittedly a much smaller
[22:38] sample size than the prior
[22:40] cohort of which there are many
[22:41] hundreds of educational
[22:42] endowments to look at and
[22:44] assess best practices. There
[22:46] are fewer permanent school
[22:47] funds around the country.
[22:48] There are only 50 states.
[22:49] Many of them do not have
[22:50] permanent school funds. So
[22:52] while the sample was not large,
[22:54] are robust enough to
[22:55] necessarily kindest to that,
[22:56] the quote, right answer.
[22:58] We were able to observe some
[22:59] common practices that we think
[23:01] are applicable to our research.
[23:03] What we observed is that
[23:06] most of these similar school
[23:07] funds around the country also
[23:09] similar to educational
[23:10] endowments based their annual
[23:12] distributions on a rolling
[23:13] average calculation. And they
[23:15] do this to moderate the impact
[23:16] of market volatility and none
[23:18] of them limited distributions
[23:20] to interest and dividend income
[23:22] as the state of Minnesota
[23:23] debts.
[23:24] We also observed that Minnesota
[23:25] is unusual in having the
[23:27] distribution policy for its
[23:29] permanent school fund spelled
[23:30] out explicitly in the
[23:31] Constitution
[23:33] other permanent school funds.
[23:34] Typically we observe that their
[23:36] distribution policy is
[23:38] articulated in statute foreign
[23:40] policy.
[23:42] Finally, we looked at other
[23:43] state trusts in Minnesota.
[23:45] It's an example of this would
[23:46] be the Environmental Trust Fund
[23:48] which is managed by the state
[23:49] Board of Investment. Again,
[23:50] these do not these trust funds
[23:52] do not have an educational
[23:53] mandate per se, but there are
[23:54] some similarities that we could
[23:56] observe. What we saw is that
[23:59] distributions from these funds
[24:01] once again, typically do not
[24:02] have their distribution policy,
[24:03] spelled out restrictions on
[24:05] distributions, articulated in
[24:06] the state constitution.
[24:08] And they also commonly
[24:10] determine distributions based
[24:11] on some concept of a percentage
[24:13] of the fund's value not tied to
[24:16] interest and dividend income.
[24:25] The task force members worked
[24:26] with SBI staff to start a model
[24:28] out some different scenarios
[24:29] and assess whether the
[24:31] implementation of this type of
[24:33] distribution policy would be
[24:34] appropriate for the Minnesota
[24:35] Permanent School Fund.
[24:37] We put together a variety of
[24:40] different scenarios and models
[24:42] guided by an evaluation of
[24:44] historical returns and revenue
[24:46] patterns forwardlooking return
[24:48] expectations that are
[24:49] consistent with the way that
[24:51] the SBI assesses asset
[24:52] allocation decisions and thinks
[24:54] about forward looking return
[24:55] expectations across all of the
[24:56] funds that we manage.
[24:58] We modeled scenarios that
[25:00] included periods of higher
[25:02] returns than history with it
[25:03] would suggest some that
[25:05] included negatives returns.
[25:06] Some highly volatile
[25:07] conditions, a wide variety of
[25:09] scenarios. We look at scenarios
[25:10] where the funds would
[25:11] distribute 3% of assets,
[25:13] 4% of assets, 5% of assets.
[25:15] We looked at scenarios where
[25:17] think calculation was based on
[25:19] a point in time for its based
[25:21] on a rolling three-year average
[25:22] of the prior periods market
[25:23] value on a rolling five-year
[25:25] average. So we look to put a
[25:27] matrix of different potential
[25:28] scenarios. Not all of those
[25:30] appear on the screen in front
[25:31] of you. What we're attempting
[25:33] to show you here as it is a
[25:34] simplified representation of
[25:35] that analysis.
[25:37] What you'll see in the chart on
[25:38] the bottom left of your page
[25:40] out is a couple different
[25:42] scenarios, assuming that the
[25:44] permanent school fund did, in
[25:45] fact to distribute 4 and a half
[25:47] percent of the prior 3 years
[25:49] average market value. The
[25:51] middle line of those 3
[25:52] represents are kind of base
[25:54] case representing our best
[25:57] guess at forwardlooking return
[25:59] expectations in the market.
[26:00] And what you'll see is that the
[26:02] value of the permanent school
[26:03] fund after distributing 4 and a
[26:05] half percent per year to
[26:07] districts continues to increase
[26:09] over time. In that base case,
[26:11] the higher line indicates what
[26:14] could happen if returns are
[26:15] more favorable than our current
[26:17] expectations. So if the market,
[26:19] the roof, if the market is
[26:20] favorable, that obviously the
[26:22] the value of the trust fund
[26:23] would would increase even more
[26:24] over time. But more
[26:26] importantly, what we observe is
[26:27] that even in scenarios where
[26:29] returns are not as robust as
[26:31] our current expectations of the
[26:32] market works against us,
[26:33] we see that the value of the
[26:35] permanent school fund
[26:37] more lest stays stable. It does
[26:39] not decline over time.
[26:42] The right charge. Second, go
[26:44] back inside the chart on the
[26:45] right side is attempting to
[26:46] show what is happening to
[26:48] distributions coming out of the
[26:49] fund.
[26:51] So the first 2 sets a bar
[26:52] charts that you see there for
[26:54] years, 2020 for 2025. Those
[26:56] reflect the reality. Those are
[26:58] the actual dollars that were
[26:59] distributed from the permanent
[27:00] School fund in those years.
[27:02] Starting in 2026, were modeling
[27:04] out what the distributions
[27:05] would look like in dollar
[27:07] terms. If the the fund adopted
[27:10] of 4 and a half percent
[27:11] distribution rate calculated
[27:12] over rolling 3 years and you'll
[27:13] see that immediately. The
[27:15] distribution distributions from
[27:17] the fund Trump significantly,
[27:18] they nearly double and in our
[27:20] base case, which would
[27:21] represent the middle bar in
[27:23] each of those 2 in each of
[27:24] those years. The distributions
[27:26] grow moderately over time as
[27:28] the value of the fund increases
[27:30] in more favorable scenarios
[27:32] where the markets work in our
[27:33] favor than the value of those
[27:35] distributions increases even
[27:36] more so. But again,
[27:38] importantly, in the scenarios
[27:39] where returns in the market are
[27:41] less favorable and are negative
[27:43] scenario.
[27:44] We would observe the
[27:45] distributions while they what a
[27:47] moderate and in some cases can
[27:49] decline moderate somewhat over
[27:50] time. They're all higher than
[27:52] the distribution amount that's
[27:53] coming out of the funds today
[27:54] under the current legal
[27:56] framework
[28:02] as we evaluated these potential
[28:04] changes. The task force had
[28:05] several observations that we
[28:06] want to communicate first is
[28:09] that choosing a distribution
[28:10] rate does represent a tradeoff
[28:13] between current payouts to the
[28:15] students in here and districts
[28:17] in the here and now and
[28:19] long-term growth of the fund.
[28:23] We observed that it a potential
[28:25] distribution rate of 4 and a
[28:26] half percent can be expected to
[28:28] nearly double distributions
[28:29] from the fund in the near term
[28:31] while also achieving our
[28:32] objective of allowing the fund
[28:34] to grow over the long term and
[28:35] preserve its purchasing power.
[28:39] The fun value can certainly
[28:40] decline. That is the case today
[28:42] and would continue to be the
[28:43] case and in the adopting a new
[28:46] distribution policy. But we
[28:48] deserve the fun value will
[28:49] decline. Only women. The
[28:50] distribution rate exceeds the
[28:52] combined value of investment
[28:54] returns. Coming from the
[28:55] invest, the funds investment
[28:57] portfolio
[28:58] and revenues entering the fun
[29:00] from land management.
[29:03] We observed that using a
[29:04] three-year rolling average
[29:05] reduces the year to year
[29:07] volatility of distributions,
[29:08] which is consistent with one of
[29:10] the principles that the task
[29:11] force identified early on
[29:13] while also remaining responsive
[29:15] to prolonged market downturns.
[29:17] So in a scenario where the
[29:18] stock market goes down
[29:19] substantially
[29:20] this year, next year or the
[29:22] year after that many years in a
[29:23] row, the average market value
[29:25] of the fund on a rolling
[29:26] three-year basis decrease.
[29:28] And that's the funds
[29:29] distributed from the fund would
[29:31] also decrease. And that's a
[29:32] mechanism that protects on
[29:34] dueling drawing down the
[29:35] balance of the fund over time.
[29:38] Finally, we observed that the 4
[29:39] and a half percent distribution
[29:40] rate and a three-year rolling
[29:42] average period are aligned with
[29:44] industry best practices.
[29:46] And the task force feels that
[29:47] they that this proposal
[29:48] achieves an effective balance
[29:50] between providing stable
[29:52] distributions and preserving
[29:53] the purchasing power of the
[29:54] fund for future generations.
[30:00] So now we come to the specific
[30:01] recommendations that the task
[30:03] force has in our report.
[30:05] And there are 3 components to
[30:07] this recommendation. First,
[30:10] the task force recommends
[30:12] amending the state constitution
[30:14] and statutes to manage the
[30:16] funds in accordance with the
[30:17] guiding principles that we
[30:18] articulated and identified
[30:20] early on our work.
[30:23] The task force recommends that
[30:25] the Constitution should state
[30:26] the enduring principles and
[30:28] objectives of the fund. But
[30:30] that specific operating
[30:31] details, including the
[30:33] distribution policy,
[30:35] governance and investment
[30:36] management policies should be
[30:37] established in statute and not
[30:39] in the state constitution to
[30:41] allow for adaptability in the
[30:42] future.
[30:45] The task force recommends
[30:46] adopting the 4 and a half
[30:48] percent distribution rate
[30:49] calculated using a three-year
[30:51] rolling average of the fund's
[30:52] value.
[30:59] >> Chair Kunesh. I'd like to
[31:00] talk for a moment just about
[31:02] the changes in how we
[31:03] translated those to the to the
[31:05] bill in front of the committee.
[31:06] >> Thank you, Israel. If you
[31:08] introduce yourself for the
[31:09] committee and then you can
[31:10] begin.
[31:11] >> Thank you, chair and good
[31:12] morning members. My name is
[31:13] John. The last time the general
[31:14] counsel of the Minnesota State
[31:15] Board of Investment. And I'm
[31:17] going take a minute just to
[31:18] talk about how we take all
[31:20] those concepts that Mr.
[31:22] Correct. Just reporting on as
[31:25] part of the task force work and
[31:26] translated that to the language
[31:29] in the bill that you see in
[31:30] front of you so has Mr. Craig
[31:33] noted there were several
[31:34] principles that the task force
[31:36] offered very important that
[31:37] should be captured in the
[31:38] Constitution.
[31:40] One of those and perhaps the
[31:42] most important is that the fund
[31:44] remainder perpetual resource.
[31:46] That is how it is envisioned
[31:49] right now in the Constitution.
[31:50] We thought that concept should
[31:51] be captured in the Constitution
[31:53] going forward. So you will see
[31:55] that in the language proposed
[31:58] for the constitutional
[31:59] amendment.
[32:00] Another principle is that the
[32:02] sole purpose of the fund should
[32:04] be to make distributions to
[32:06] school districts for the
[32:07] benefit of students and should
[32:08] not be used for any other
[32:10] purpose. And so that concept is
[32:12] also captured in the language
[32:15] in the bill, noting that the
[32:17] sole purpose of the fund is to
[32:18] make those annual
[32:19] distributions.
[32:23] The next concept that the task
[32:24] force that was very important
[32:26] is that you need to balance the
[32:28] interests of current and future
[32:30] generations. And you talked
[32:31] about the current distribution
[32:33] formula occurring potential
[32:35] benefits to future generations
[32:36] more than current generations.
[32:38] And so what we captured the
[32:40] concept of balancing those
[32:43] interest in the language that
[32:45] also includes preserving the
[32:48] purchase power. So how you
[32:49] invest the dollars needs to be
[32:51] done in a way that preserves
[32:52] the purchasing power, keep the
[32:54] fund a perpetual resource and
[32:57] balance those interests.
[32:59] And finally going back to the
[33:01] original issue of how how funds
[33:03] are distributed to the school
[33:04] districts in the amount that
[33:06] goes out, which you will note
[33:07] in the constitutional language
[33:09] is that there is not a specific
[33:11] distribution formula in that
[33:13] language and that the
[33:14] Constitution notes that that
[33:16] should be established by law.
[33:18] So we're removing that
[33:19] restriction right on
[33:20] distributions to only interest
[33:22] and dividends to allow for the
[33:24] 4.5% distribution rate on an
[33:28] annual basis. And you will know
[33:31] in the statutory language on
[33:34] the distributions from the
[33:35] fund, you will see that the
[33:36] 4.5% distribution rate rolling
[33:40] average ending on the end of
[33:42] the fiscal year is captured in
[33:44] the statutory amendment and
[33:46] could be addressed in the
[33:47] future more easily if the
[33:50] legislature determines that
[33:51] this formula needs to be
[33:53] changed.
[33:54] So that is the basic overview
[33:56] of how the task force meeting
[33:59] specific recommendation for
[34:00] changes to the constitution and
[34:03] statutes noting that in order
[34:06] to solve the initial problem of
[34:09] the Constitution's restriction,
[34:10] a constitutional amendment is
[34:12] necessary for that. I'll turn
[34:14] it back over to Andrew to wrap
[34:15] things up
[34:19] before the next slide.
[34:21] >> But to conclude
[34:25] the task force identified that
[34:27] the fund has grown
[34:29] significantly due to a
[34:30] combination of investment
[34:31] returns and land management
[34:32] revenues.
[34:33] But that outdated
[34:34] constitutional and statutory
[34:36] restrictions have limited the
[34:38] ability of the funds to serve
[34:39] its purpose of balancing the
[34:41] needs of current and future
[34:42] beneficiaries.
[34:44] Our recommendations identified
[34:46] that a modern market value
[34:48] based distribution model would
[34:49] better align the fund with best
[34:51] practices used by Pierre States
[34:54] and other educational
[34:55] endowments.
[34:57] We recommend that of 4 and a
[34:58] half percent distribution rate
[34:59] based on a three-year rolling
[35:00] average can provide more stable
[35:02] and predictable funding for
[35:03] schools to current and current
[35:04] beneficiaries, while preserving
[35:06] the fund's long-term purchasing
[35:08] power for the benefit of future
[35:09] generations.
[35:11] And finally, I'll just point
[35:12] out that the 9 members of the
[35:13] Permanent School Fund Task
[35:14] Force spent close to a year and
[35:16] a half together it in and over
[35:20] the course of our work engaged
[35:21] in a lot of conversation,
[35:22] research, analysis and careful
[35:23] consideration and all 9 members
[35:25] unanimously endorsed the
[35:26] recommendations of that report.
[35:30] With that, we'll conclude and
[35:31] taking questions that you on.
[35:33] Thank you.
[35:33] >> Thank you all for this.
[35:36] Extremely interesting and
[35:38] informative review of the task
[35:42] force and members.
[35:46] I know it's a lot to take in
[35:48] some going to give you a second
[35:49] to think about it. But I just
[35:51] want to welcome some of the
[35:53] folks in the audience. I know
[35:55] that today is full service
[35:56] community school day. So thank
[35:58] you for all of you who are
[35:59] coming here to the Capitol to
[36:01] talk about your programs and
[36:04] help us understand your needs
[36:06] and your success is a little
[36:07] bit better. And also it is
[36:10] Minnesota's administrator for
[36:11] Special Education Day. So we
[36:15] really want to acknowledge the
[36:16] hard work that our special ed
[36:18] folks too, and administrating
[36:21] anything is is not an easy job.
[36:23] So thank you for being here.
[36:24] And I think Senator Clark had
[36:26] something to say.
[36:27] >> Thank you, chair. And as
[36:28] long as we're acknowledging
[36:29] people, I want to be in this
[36:30] litany of acknowledgements.
[36:33] Yeah. Plus public schools, the
[36:35] citywide student leadership
[36:36] group is in the house. So
[36:37] welcome. Glad you're here and
[36:40] keep doing the good work and
[36:41] represent the students. Why
[36:43] you're here.
[36:45] >> All right. We will move on
[36:46] to member questions or comments
[36:48] and Senator, find sort.
[36:52] Thank you. Madam Chair,
[36:55] Mr. Van One knows where I'm
[36:56] going with this because I love
[36:57] talking about mining. Every
[36:58] time that permanent school
[37:00] trust fund comes up.
[37:02] This is one of the things I'm
[37:03] most proud of. 90 1% of the
[37:05] funds in the permanent School
[37:07] Trust fund came from my
[37:08] district from the man tapped
[37:10] mine, which is the largest mine
[37:11] in North America,
[37:14] which which means that with the
[37:16] distribution of about 72 and a
[37:18] half dollars per student,
[37:20] the people of mountain Iron
[37:21] Fuel, which is about 2000,
[37:22] people have contributed $65 per
[37:25] student to every student in the
[37:27] state of Minnesota.
[37:29] And so I love to talk about
[37:30] that. I you know, I'm the son
[37:31] of a minor
[37:32] and I but Mr. Van, what I am
[37:35] wondering, we're talking about
[37:37] trying to get more money to our
[37:39] students and this is one
[37:41] mechanism and I'm a coauthor of
[37:42] the bill. Thank you. Chair
[37:44] commissioner allowing me to
[37:45] sign on
[37:47] but other ways to possibly girl
[37:49] the fund that could get more
[37:50] money to our schools. And so my
[37:54] question is on school, trust
[37:56] land, are there other minerals
[37:57] that could be used?
[38:00] That would grow the school
[38:02] trust fund? And what's the
[38:04] estimate on how much that could
[38:07] increase the school trust fund,
[38:10] Mr. Van Dillen.
[38:12] >> Madam Chair, Senator
[38:13] Farnsworth members. Yes,
[38:15] there are Minnesota has
[38:17] considerable mineral wealth and
[38:20] not just from our our hard-rock
[38:22] minerals, like iron ore.
[38:23] But we do have
[38:25] deposits of non ferrous
[38:26] minerals,
[38:28] copper nickel, gold, platinum,
[38:30] palladium.
[38:31] And as you know, senator and
[38:33] other senators, we also have a
[38:36] helium deposit in Minnesota.
[38:38] Now that has the potential to
[38:40] produce a significant amount of
[38:41] revenue for not only tax
[38:44] working at Land's but school
[38:45] cross as well.
[38:48] I can't speak to the value of
[38:51] oil and gas
[38:53] reserves, if you will. I don't
[38:55] know what our interests are.
[38:56] I
[38:57] from a non ferrous standpoint,
[38:59] the known deposits have the
[39:01] potential of
[39:02] increasing the school trust by
[39:04] 3 billion dollars if we could
[39:08] mind those bundles.
[39:12] Yes, thank you, Madam Chair.
[39:13] So
[39:15] >> it would more than double
[39:16] the size of the permanent
[39:18] school fund. And even with this
[39:19] increased distribution coming
[39:21] from the fund, that would
[39:22] pretty much guarantee
[39:23] that the fund would never fall
[39:25] back. And so I think that's
[39:28] another good way that we should
[39:29] look at
[39:31] growing this pond. We have the
[39:34] minerals. We can. We can do it
[39:35] cleanly so we should we should
[39:37] do it to help all of the
[39:38] students in Minnesota. Thank
[39:40] you, Madam Chair.
[39:41] >> Thank you. And we do have to
[39:42] acknowledge the
[39:45] the legacy of mining in
[39:47] Minnesota and the investment
[39:49] that that has created for our
[39:51] students
[39:52] into perpetuity. And so I think
[39:55] it was a good mention to
[39:58] acknowledge that that
[39:59] investment continues to this
[40:01] day. It's interesting to note
[40:04] that we have never amended this
[40:06] part of the Constitution around
[40:09] school, trust lands. And so I'm
[40:11] really excited that we took the
[40:13] time to do that and use the
[40:15] brains out there. And the the
[40:17] experience to, you know,
[40:20] begin to look at how we can
[40:22] best use those those dollars in
[40:24] this time and in the near
[40:27] future. So I think what it will
[40:29] do is also open up with the
[40:31] idea of how we can perhaps look
[40:34] to the future and and use these
[40:36] dollars in the best way
[40:37] possible. And so I would
[40:39] imagine that down the road
[40:40] there would be some other
[40:41] conversations are adjustments
[40:43] to this. This school trust
[40:45] land, whether it's a
[40:46] constitutional amendment or
[40:47] not.
[40:49] So thank you, Senator Le Cerro.
[40:51] You had something to say.
[40:52] >> Thank you, Madam Chair.
[40:54] I do have a comment but a
[40:55] question first and I appreciate
[40:57] the test fires and this this
[40:58] very thorough presentation
[41:00] in the presentation there will
[41:02] serve. There was several
[41:04] references to the SBI. Some
[41:07] wonder if you could briefly
[41:08] describe the relationship
[41:09] between the trust fund and the
[41:11] SBI.
[41:13] Yes, Madam Chair, Senator
[41:14] Cerro.
[41:17] If you buy me, refer back
[41:19] to our slide for hopefully this
[41:23] helps illustrative. The SBI is
[41:26] responsible for investment
[41:28] management decisions
[41:31] regarding the assets of the
[41:32] permanent school fund. Once
[41:34] dollars have been deposited in
[41:36] the fund
[41:37] from land management
[41:39] activities. So the FBI has no
[41:40] involvement with really any of
[41:43] the things that aren't just
[41:44] describing our decisions having
[41:45] to do with how the lands are
[41:46] managed, how revenues are
[41:47] generated asset sales, mining
[41:50] leases, that all lives within
[41:52] the school trust lands and
[41:53] within the DNR, those
[41:54] activities generate revenues.
[41:57] And so those revenues net of
[41:58] the expenses of administering
[41:59] and managing the land or
[42:00] transferred to the permanent
[42:02] school fund where we invest it
[42:05] according to asset allocation,
[42:07] that is determined by the SBI
[42:09] be in it in a way to be
[42:11] consistent with the objectives
[42:12] of the fund. And so we manage
[42:13] the fund the same way that we
[42:14] would manage basically any
[42:16] other trust fund that's under
[42:17] our administration, most of the
[42:19] assets that the SBI manages
[42:21] have to do with the fairies
[42:22] pension systems. But we also
[42:23] manage many non retirement
[42:25] assets, including other state
[42:27] trust funds and the permanent
[42:28] school fund that we take a
[42:30] similar investment approach to
[42:31] the permanent school fund as we
[42:33] went to other state trust
[42:34] funds. So the FBI is
[42:35] responsible for
[42:37] overseeing managing the
[42:38] investments of the fund in
[42:40] financial instruments during
[42:42] the period of time that the
[42:43] those dollars live within the
[42:45] fund,
[42:47] according to the current legal
[42:48] framework meeting
[42:50] calculating net interest and
[42:52] dividends, the SBI is
[42:53] responsible for determining
[42:54] which dollars need to be
[42:56] distributed from the fund to be
[42:58] in accordance with the current
[42:59] legal framework.
[43:00] And then we then have those
[43:01] dollars off and ultimately they
[43:04] end up with the Department of
[43:04] Education
[43:06] who's responsible for making
[43:07] sure those dollars and up with
[43:08] school districts around the
[43:09] state.
[43:11] Does that answer your question?
[43:15] Go ahead. Give it the question.
[43:17] Thank you, Madam Chair, and
[43:18] thank you for that.
[43:21] The concern I have with the SBI
[43:23] is one that I've had for many
[43:24] years and for those who may not
[43:25] be familiar just and over there
[43:27] and I couldn't hear FBI's
[43:29] answer State Board of
[43:30] Investments, the and the 4
[43:32] people the for individuals that
[43:34] make up the SBI are the 4
[43:36] constitutional officers here in
[43:37] the state of Minnesota, the
[43:38] governor, attorney general,
[43:40] secretary of state and state
[43:41] auditor. And over the years,
[43:44] there have been multiple
[43:45] attempts to to leverage the
[43:47] state assets in the SBI for
[43:50] purposes that I think many will
[43:51] find alarming. So just this
[43:53] morning, I want to confirm it
[43:54] was still there express
[43:55] purpose. And for those
[43:56] listening to this conversation,
[43:58] this is right from the Web site
[43:59] this morning, SBI investment
[44:01] staff with the external
[44:03] investment managers work with
[44:05] external and doesn't managers
[44:06] to addressed.
[44:07] >> Esg related risks within the
[44:09] managers, investment portfolios
[44:11] and within the managers
[44:12] organizations themselves.
[44:14] Most managers have documented
[44:15] esg integration approach with
[44:17] dei policy and then go on to
[44:20] and I can recall back multiple
[44:21] times. One of those actors is
[44:23] the state auditor, as I
[44:24] mentioned, and she is expressly
[44:26] stated that she uses her
[44:29] position on the SBI to further
[44:32] advance these causes here.
[44:33] She says through actions like
[44:35] proxy vote at these companies,
[44:37] more meetings importing with
[44:38] other institutional investors,
[44:40] weekend influence corporate
[44:41] decisions.
[44:42] I'm very concerned.
[44:45] Esg clearly has an anti mine
[44:49] philosophy in many aspects and
[44:51] with assets that are in the
[44:53] control or decisions made by
[44:54] the SBI. They may be working
[44:57] against some of the very things
[44:58] that we're trying to do in
[44:59] terms of maximizing revenue are
[45:01] why, which which returns to our
[45:03] students just throwing that out
[45:04] there as part of the
[45:05] consideration? Not necessarily
[45:07] for this group at all, but the
[45:08] reality that any influence or
[45:11] involvement by SBI can have a
[45:13] counterproductive outcome with
[45:15] what's trying to be chief of
[45:16] Maxim Mising the dollars from
[45:18] the resources in some of the
[45:20] great parts of our state.
[45:22] So thank you, Madam Chair.
[45:24] >> And I see that the director
[45:27] of SBI has joined us miss
[45:30] shirts. If you'd like to
[45:33] state your name for the record
[45:34] and if you'd like to respond.
[45:36] >> Thank you, Madam Chair.
[45:37] My name is Joe Shirts. It's my
[45:39] honor and privilege to serve as
[45:40] the executive director and the
[45:42] chief investment officer of the
[45:44] Minnesota State Board of
[45:45] Investment. Sarah, Sarah, I I
[45:47] appreciate your question.
[45:48] It's an important one. And
[45:51] frankly, we don't have many
[45:52] opportunities to address your
[45:54] question head-on. So thank you.
[45:57] First of all, I appreciate all
[45:59] of you. Your service public
[46:01] service is an incredibly
[46:02] important thing. Personally.
[46:03] I've been very lucky to observe
[46:05] public service through most of
[46:06] my professional career,
[46:07] starting with the military and
[46:10] now over the last 14 years in
[46:12] service, both in a local level.
[46:14] And now at a state level.
[46:16] I want to assure you that
[46:17] although our governance
[46:19] structure certainly
[46:20] interesting, as you look across
[46:21] the country, there are not that
[46:23] many that have a
[46:25] constitutionally mandated
[46:27] approach for elected official
[46:29] serving as the port
[46:30] that's been enshrined in the
[46:31] Constitution since 18. 85
[46:34] also want to assure you that as
[46:36] I thought about taking this
[46:37] role, I thought about that
[46:39] governance structure. I can
[46:41] tell you. And I think there is
[46:42] a fair body of evidence to
[46:45] support crew about to say
[46:47] that throughout many
[46:48] administrations, the for
[46:50] members of the State Board of
[46:51] Investment have been unified in
[46:53] placing their fiduciary duty
[46:56] front and center
[46:57] notwithstanding any political
[46:58] believes they may or may not
[46:59] have. And that includes the
[47:01] issues you've identified.
[47:04] Our fiduciary duty is our first
[47:07] and foremost responsibility,
[47:09] followed closely with respect
[47:11] to particularly the combined
[47:12] funds, the public pension plans
[47:14] that we make sure that our only
[47:16] focus
[47:18] Britt generating a sufficient
[47:19] return to support the
[47:20] retirement. And I would say the
[47:21] same is absolutely true with
[47:23] respect to the permanent school
[47:25] fund.
[47:26] The issue you've identified has
[47:27] been in our national ones for
[47:30] quite a while. It's the object
[47:31] of significant political focus
[47:34] at the state Board of
[47:35] Investment. We spent an
[47:36] enormous amount of time making
[47:38] sure that we communicate anyone
[47:40] who wishes to hear us that we
[47:42] are distinctly a political and
[47:44] that profoundly impacts how we
[47:46] think about every portfolio we
[47:48] manage
[47:49] and we're very fortunate.
[47:51] Sarah Board has exhibited that
[47:53] exact approach.
[47:54] To that end. They were actually
[47:57] willing to enshrine that in
[48:00] policy. Recently
[48:02] at the October board meeting,
[48:04] we made a presentation, I would
[48:05] say as detailed as the one you
[48:06] see now about best practices
[48:09] across the country when it
[48:10] comes to large institutional
[48:12] investors such as ourselves.
[48:14] And again, we manage around
[48:15] 160 billion dollars of assets
[48:17] across many pools capital.
[48:19] In that presentation, we poured
[48:22] put forth the premise that
[48:23] delegated authority,
[48:25] in other words, placing
[48:26] investment authority in the
[48:27] hands of the staff of the state
[48:29] board. And I'm very lucky to
[48:31] have a deep pool of incredibly
[48:33] dedicated and talented people
[48:35] that investment decision should
[48:37] reside with us.
[48:39] That doesn't mean that they're
[48:40] trying to in my seat only we
[48:42] have extensive internal
[48:43] policies practices. I'm very
[48:46] senior internal policy group
[48:49] to make sure that we are always
[48:51] balancing our approach.
[48:53] We do not place any one
[48:55] particular approach above any
[48:56] other.
[48:57] What we have said and I I think
[49:00] given his on this body would
[49:02] resonate, I would help
[49:04] is that we maintain the
[49:05] absolute importance of
[49:07] considering all material risks
[49:10] and opportunities when make
[49:12] investment decisions.
[49:15] We have been very proactive and
[49:17] stated publicly on a number of
[49:19] occasions, for example, we do
[49:21] not support divestment
[49:22] initiatives. We don't think
[49:24] that's in the best interest of
[49:25] our portfolio. We've been vocal
[49:27] about that.
[49:28] If you look at our portfolio,
[49:30] it's representative of the
[49:31] broader market.
[49:32] So I do understand and
[49:34] appreciate your concern.
[49:36] But I want to assure you that
[49:38] our focus is very clear when we
[49:40] are fiduciaries first
[49:43] middle and last.
[49:46] >> Thank you so much. Any other
[49:48] questions where we would really
[49:50] like to narrow our focus here
[49:51] on the school trust lands and
[49:53] if you have broader questions
[49:55] for the the department, maybe
[49:58] you could take that offline.
[50:05] I recognize we. Yes, thank you.
[50:07] >> I I appreciate those those
[50:09] words and I have the upmost
[50:11] respect for or the staff.
[50:14] My concern is the 4th, the top
[50:16] and obviously the staff are
[50:17] following the directives of
[50:19] those that are the 4
[50:21] constitutional officers.
[50:22] But again, I appreciate your
[50:24] words and I appreciate your
[50:25] professionalism. What I am
[50:28] concerned about against those
[50:29] directors at the top. I'm
[50:31] looking at the website here.
[50:33] There's 6 press desire and
[50:35] purpose from resolutions that
[50:37] have been passed by the 4
[50:38] members
[50:39] with the intent of a directive.
[50:41] How those are being carried out
[50:43] by the staff will be determined
[50:46] opportunity by day basis.
[50:47] But it's very clear the
[50:49] direction that the for members
[50:51] are attempting to to leverage
[50:54] the incredible assets. But
[50:55] again, I appreciate that.
[50:56] Thank you, Madam Chair.
[50:58] >> Thank you. And thank you
[51:00] executive director for stepping
[51:01] up.
[51:02] Senator, make I think that
[51:04] chair I the first I want to say
[51:06] that anyone of this is like the
[51:07] largest audience they've had
[51:08] all year. And committee
[51:09] hearings are usually not this
[51:10] dense.
[51:13] But my question is really
[51:14] specific on slide 9. You just
[51:16] identified things that were
[51:17] outside of the scope of the
[51:19] legislative mandate. And one of
[51:21] them is defining what is and is
[51:22] not a school district
[51:25] can use a little bit more.
[51:26] I might have missed it, but
[51:27] it's a little bit more about
[51:28] that. And do does the
[51:29] legislature have some work to
[51:30] do to define that?
[51:32] Madam Chair? Yes.
[51:33] >> Senator, make weight.
[51:34] I respond to that may be asked
[51:36] John to chime in as well.
[51:38] So we identified that in
[51:43] in the scope of the legislative
[51:44] framework, constitutional and
[51:46] statutory that directly
[51:47] addresses the permanent school
[51:49] fund.
[51:50] The word district is is used a
[51:51] few times and it's not clearly
[51:53] defined in that specific set
[51:55] legal framework. I think is we
[51:57] engaged with John in our legal
[51:59] counsel to say what what what
[52:01] does that what does that word
[52:02] intended to mean? As we look
[52:03] across a broader legal
[52:05] framework in across statutes in
[52:07] the state, what we observed is
[52:09] that it it's it's perhaps
[52:10] somewhat ambiguous where and
[52:12] how and exactly what that were
[52:14] district means. And we
[52:16] determined that the the best
[52:18] folks to us to really clearly
[52:20] defined that term, probably not
[52:22] the 9 members of the Permanent
[52:23] School Fund task force. So
[52:25] that's why we reached the
[52:25] conclusion that it's outside of
[52:27] our scope trying to do if you
[52:28] have any additional come.
[52:30] >> Thank thank you for that
[52:31] explanation. And I think there
[52:33] was a reason for that
[52:34] conversation. And I'm just
[52:36] going to ask our
[52:41] non-partisan to be on to talk
[52:44] about that, Mr. Innocent.
[52:49] >> Madam Chair,
[52:51] prior to
[52:53] change made by the Legislature
[52:55] in in the 2011 session, the
[52:58] permanent school fund
[53:01] distribution was apportioned
[53:02] among
[53:04] school districts, only
[53:05] independent and special school
[53:07] districts
[53:08] in the last 2011. And that
[53:11] previous apartment was on the
[53:12] basis of resident ATM or
[53:15] average daily membership.
[53:16] Select a count of the number of
[53:19] students living in that school
[53:21] district
[53:22] under laws. 2011, the
[53:24] Legislature
[53:26] made to charter schools
[53:27] eligible also for the
[53:28] apportionment
[53:30] and in that act switch the
[53:34] apportionment basis from
[53:36] resident ATM to adjust adiam
[53:39] court or pupils actually
[53:41] enrolled in in those schools.
[53:43] And those consider because
[53:45] because definition of the
[53:46] charter schools don't have
[53:47] residents students.
[53:50] More recently, there have been
[53:51] conversations about whether to
[53:53] include
[53:55] students enrolled at trouble,
[53:57] contract schools and the
[53:58] apportionment from the fund.
[54:01] But under current law, the and
[54:03] it is eligible for receipt of a
[54:06] portion dating include school
[54:07] districts and charter schools.
[54:10] Any follow-up?
[54:12] >> Senator helped post you had
[54:14] a question or comment for.
[54:16] Thank you, Madam Chair.
[54:18] >> So on slide number 17, you
[54:20] guys have these really helpful
[54:21] a graph showing what your
[54:24] projected that the projected
[54:25] growth of the fund would be
[54:27] if we took the 4 and a half
[54:28] percent, if we kept that the 2
[54:30] and a half of work, if we fail
[54:31] to changes at all, what is a
[54:33] fun look like stretching out
[54:35] over 10 years? What is the
[54:36] growth like?
[54:38] >> Yes, Madam Chair, Senator
[54:40] Dole's from
[54:42] if you imagine that chart and
[54:45] distributions remains limited
[54:46] to net interest and dividend
[54:49] income, which over the last,
[54:50] you know, 10 or so years has
[54:52] been about 2 and a half percent
[54:53] of fund assets. I would point
[54:55] out it's
[54:58] there's no particular reason to
[54:59] believe that it would be
[54:59] exactly that percentage of fund
[55:01] assets going forward. It could
[55:02] change, according to all kinds
[55:04] of things, including prevailing
[55:06] interest rate environment,
[55:07] corporate decisions that
[55:08] corporations make about how
[55:10] much of their earnings to
[55:11] distribute and dividends, so
[55:13] that so that I want to be clear
[55:14] that we don't we don't assume
[55:16] that the state is the status
[55:18] quo remaining in place would
[55:20] somehow guarantee a 2 and a
[55:21] half percent distribution about
[55:22] that could be variable. But for
[55:25] the sake of argument, if it did
[55:26] remain the same, but you'd
[55:28] likely see is that the growth
[55:30] of the left side of that chart,
[55:33] the value of the fund would
[55:35] increase at a rate that's
[55:35] higher. That's that's a steeper
[55:37] than the highest wind that you
[55:38] see on that chart today
[55:41] and that you would likely see
[55:42] on the right side of that chart
[55:43] that the distribution profile,
[55:45] those bars would be much more
[55:47] similar to what you see for the
[55:48] years 2024 2025 which reflect
[55:50] the reality of the current
[55:51] legal framework.
[55:56] >> Any other questions or
[55:57] comments? Senator Clark,
[55:59] thank you, chair condition and
[56:01] thank you all as someone who
[56:03] manages a much, much smaller
[56:05] endowment. I'm
[56:06] really impressed with the
[56:08] consistent returns that you you
[56:10] have have on the permanent
[56:12] school fund. One piece that I
[56:14] needed just a little bit more
[56:15] information on and I'm glad
[56:18] Senator Farnsworth is back
[56:19] because not just great folks of
[56:21] honor in Buhl of contribute
[56:22] this. What else has country?
[56:24] I know it's 90% from that.
[56:25] I or that
[56:27] the the mine in which my great
[56:29] uncle Clayton worked in the
[56:31] 60's.
[56:34] What what were the other pieces
[56:35] that fall under the land
[56:36] management in revenues
[56:37] understand enforced and such.
[56:39] But if you could just to remind
[56:41] me on that.
[56:42] >> Okay. We will invite
[56:45] director the office of the
[56:47] School Trust Lands. Erin Van
[56:49] Dillen back and if you'd like
[56:50] to respond.
[56:52] >> Thank you, Madam Chair
[56:53] members, senator clerk,
[56:57] the breakdown. And
[56:59] so just want to back up a
[57:00] little bit. We we've talked
[57:01] about the fund its value right
[57:03] now is 2.3 billion dollars.
[57:05] When I talk about land
[57:06] management revenue,
[57:09] the cash basis that that's
[57:11] generated is 1.1 billion
[57:13] dollars. So the value of the
[57:15] fund it 2.3,
[57:18] half investment about that.
[57:20] But that 1.1 cash basis to 80%
[57:24] minerals,
[57:25] 7% real estate, 9%. Amber,
[57:29] 4% investment returns on the
[57:32] land management. So
[57:35] investment on land management.
[57:37] So we sold the land under
[57:38] contract for deed.
[57:40] Got interest payments on that
[57:41] things of that nature. So
[57:44] it's the foreperson investment
[57:46] that I talk about has nothing
[57:47] to do with SBA. They they do
[57:50] entirely sure credibly better
[57:51] than that.
[57:53] Any follow-up question.
[57:55] >> Thank You, Chair Commission
[57:56] and thank you for that to the
[57:58] obviously you want to grow both
[58:00] the base and so the so the
[58:01] income as well as the return.
[58:03] So thank you on that. My
[58:05] general comment is I know what
[58:07] they said on
[58:09] on Page 12 following the best
[58:10] practices
[58:12] that that matches my
[58:14] understanding that Page 18,
[58:16] sorry, the 8, 4, and a half
[58:18] distribution rate and
[58:19] three-year-old rolling average
[58:21] that matches what what I do.
[58:22] So
[58:23] you must be wonderful.
[58:25] Thank you.
[58:27] >> I think we've had we've had
[58:28] good people looking out for.
[58:31] Well, it has to say, but I
[58:33] think I think the the school
[58:35] chess signs have been in good
[58:36] hands and they've done their
[58:37] due diligence. And now we just
[58:40] need to let them do a little
[58:41] bit better. Any other questions
[58:43] or comments?
[58:47] Well, we're gonna move along
[58:48] because we have a couple of
[58:49] bills to be heard in the next
[58:51] one is going to be my bill on
[58:54] making the changes of the
[58:55] Reccomendation. So thank you,
[58:57] gentlemen, for joining us
[58:58] today. And thank you, executive
[59:00] director for stepping in and
[59:03] maybe just stick around in case
[59:04] there's a question or 2.
[59:05] Thank you.
[59:54] >> All right, Senator C****,
[59:55] when you're ready, you can make
[59:56] a motion to move SF 3, 6, 2, 5,
[59:59] be recommended to
[1:00:01] certainly the wrong tree.
[1:00:03] Stand by.
[1:00:09] Let's try that again. Senator,
[1:00:11] could this will hear a SF 3,
[1:00:14] 5, 9, threes when you're ready.
[1:00:16] >> Thank you so much, Madam
[1:00:18] chair and members. This next
[1:00:21] part is is the proposal for a
[1:00:24] constitutional amendment to
[1:00:25] make the recommended changes
[1:00:28] that we just discussed in order
[1:00:31] to make those chains. We do
[1:00:32] have to go through the
[1:00:33] Constitution,
[1:00:35] a constitutional amendment
[1:00:37] process, which means that we
[1:00:38] would take those
[1:00:40] recommendations to the voters.
[1:00:43] And I'm just going to read what
[1:00:45] that might sound like on on the
[1:00:48] ballot in November. The
[1:00:50] submission to of the voters and
[1:00:52] you'll see this on Page 2 of
[1:00:53] the bill. Section 2. The
[1:00:56] proposed amendment must be
[1:00:57] submitted to the people at the
[1:00:59] 2026 state general election.
[1:01:02] And the questions submitted
[1:01:03] must be shell. The Minnesota
[1:01:05] Constitution be amended to
[1:01:07] modify the permanent school
[1:01:08] fund to calculate the
[1:01:10] distributable amount and to
[1:01:12] maintain the fund has a
[1:01:13] perpetual financial resource
[1:01:16] for Minnesota schools and that
[1:01:18] would go into effect July Force
[1:01:20] first excuse me of 2027.
[1:01:25] I think at this time I will ask
[1:01:28] our legislative analysis of the
[1:01:31] are innocent to maybe walk
[1:01:33] through the bill. It's not a
[1:01:34] big bill, but I think it would
[1:01:37] be helpful for him to just go
[1:01:38] through. And if you have any
[1:01:39] questions, happy to answer
[1:01:41] those Senator, Chris, to want
[1:01:42] to move your a one amendment
[1:01:43] for your side.
[1:01:53] >> All those in favor of
[1:01:54] adopting a one amendment say
[1:01:56] aye.
[1:01:57] Any opposed
[1:02:03] amendment adopted. You can
[1:02:04] begin. Thank you, Mr. Innocent
[1:02:06] if you are ready to.
[1:02:11] >> Madam Chair members, all all
[1:02:12] walk through the one delete
[1:02:14] everything amendment
[1:02:17] as
[1:02:18] Sir Commission to to the the
[1:02:20] amendment is
[1:02:24] implements the recommendations
[1:02:27] from the task force itself
[1:02:29] because this is the the first
[1:02:31] bill proposing a constitutional
[1:02:32] amendment. Some of the
[1:02:33] committee this year just note
[1:02:35] that under the joint rules cost
[1:02:37] Bill proposing Constitution
[1:02:38] amendment must include the
[1:02:40] amendment language itself and
[1:02:43] anything
[1:02:44] relevant. Statutory changes
[1:02:46] required by the amendment.
[1:02:47] So the Constitution Amendment
[1:02:50] is an article.
[1:02:51] One of the
[1:02:54] of the bill and the structural
[1:02:56] changes are contained in
[1:02:58] Article 2 of the bill.
[1:03:04] The previous presentation
[1:03:05] described it to some degree the
[1:03:07] proposed constitutional
[1:03:08] language change the new
[1:03:10] language. This list of the 1.1,
[1:03:13] 9 through 1.0, 2, 5, of the a
[1:03:16] one Amendment.
[1:03:19] It includes
[1:03:23] describing the principles
[1:03:25] overarching principles for the
[1:03:27] permanent school fund. It
[1:03:29] strikes language that Mr.
[1:03:31] Kirk and others describe
[1:03:32] limited in limiting the amounts
[1:03:34] available for apportionment
[1:03:36] from the fund.
[1:03:37] It requires that the fund
[1:03:39] it designs to provide annual
[1:03:41] distributions and preserve the
[1:03:42] purchasing power and further
[1:03:44] bet balance needs of current
[1:03:45] and future
[1:03:47] and the fish areas.
[1:03:48] It requires that administrative
[1:03:50] spending from the fund,
[1:03:52] the item in the manner
[1:03:53] prescribed by law
[1:03:56] and continues the current
[1:03:59] practice. The distributions
[1:04:01] must be a portion in the in the
[1:04:03] manner described prescribed by
[1:04:04] law,
[1:04:06] sir, could just describe the
[1:04:08] the way that the question would
[1:04:09] be submitted to the voters.
[1:04:11] The task force itself to make
[1:04:12] recommendations about this belt
[1:04:14] language. But it's presented
[1:04:15] here for
[1:04:16] further consideration by the
[1:04:18] Legislature
[1:04:20] beginning at 2.0, 6 would begin
[1:04:23] article 2 of the bill which
[1:04:26] features the statutory changes.
[1:04:30] Section one is the section
[1:04:33] requiring that 4.5% of the
[1:04:35] Rolling 3 year average.
[1:04:37] That's the value of the fund to
[1:04:38] be the available for
[1:04:39] distribution.
[1:04:41] And the stricken language in
[1:04:44] Section one
[1:04:45] is stricken because it would be
[1:04:47] obsolete of this under this new
[1:04:50] distribution method
[1:04:53] paragraph. The beginning of
[1:04:54] 2.0, 2, 3, requires the
[1:04:56] director of SPI to any other
[1:04:59] report. This to strip it along
[1:05:01] to the Legislator Permanent
[1:05:02] School Fund Commission and to
[1:05:03] the Commissioner of Education.
[1:05:06] Section 2
[1:05:10] is modified to such a conform
[1:05:12] with the requirements of
[1:05:13] section one. There's some
[1:05:14] language their stricken that
[1:05:16] would be again made obsolete by
[1:05:18] this alternative
[1:05:19] calculation of the
[1:05:20] distributable amount and
[1:05:22] clarifies that it's the
[1:05:24] commissioner management and
[1:05:25] budget transfers. This district
[1:05:26] will mount
[1:05:28] 2 from the permit school fund
[1:05:29] to the school Endowment fund
[1:05:30] has needed to make the payments
[1:05:32] from the school in a month and
[1:05:36] Section 3 upped its a term
[1:05:39] to conform with the changes
[1:05:41] under Section one, section 4
[1:05:44] status as the effective date
[1:05:45] for all of Article 2
[1:05:47] to align with the effective
[1:05:49] date indicated in the in the
[1:05:51] Constitutional question.
[1:05:53] And so if the if the question
[1:05:56] were adopted by the people
[1:05:59] at the 2026 election, the the
[1:06:03] first impacted apportionment
[1:06:06] would be the apportionment in
[1:06:08] September of
[1:06:10] 20 20th.
[1:06:14] I think as mentioned earlier,
[1:06:15] the apportionment among school
[1:06:17] districts happens twice a year
[1:06:18] in September and March Beach,
[1:06:20] fiscal year.
[1:06:21] And so the whole the whole
[1:06:22] proposal would be effective,
[1:06:23] beginning July 1st, 20.0, 7
[1:06:26] for fiscal year, 2028 and
[1:06:28] therefore the first impact of
[1:06:29] the portion that would be the
[1:06:30] September
[1:06:32] 2027 portion,
[1:06:34] Madam Chair. That's
[1:06:36] pretty quick overview of them.
[1:06:42] >> All right. Senator
[1:06:42] commissioners, any of the
[1:06:43] testifier?
[1:06:46] Yes, we have Kirk.
[1:06:49] She when the wing, the
[1:06:50] executive director of the men
[1:06:52] in both Minnesota School Boards
[1:06:53] Association.
[1:06:56] >> Welcome to the committee.
[1:06:57] If you could say your name for
[1:06:58] the record of the begin when
[1:06:59] you're ready. Yes, Madam Chair,
[1:07:00] my name is Kirk Snyder when
[1:07:01] executive director for the
[1:07:02] Minnesota School Boards
[1:07:03] Association first.
[1:07:05] >> I want to thank you. And the
[1:07:07] chair coup niche on the and the
[1:07:09] permanent task force for their
[1:07:10] serious bipartisan work on this
[1:07:12] proposal.
[1:07:14] The recommendations are
[1:07:15] thoughtful, data-driven,
[1:07:16] and grounded in long-term
[1:07:18] fiduciary responsibility.
[1:07:20] As I shared my name, I
[1:07:22] represent the school Boards
[1:07:23] Association, but I'm also
[1:07:24] speaking on behalf of the MSD
[1:07:26] school districts, the Minnesota
[1:07:28] Rural Education Association and
[1:07:30] that secondary and Alamo
[1:07:32] Elementary principals as well
[1:07:33] as the Superintendents
[1:07:34] Association.
[1:07:36] The Permanent School Fund is
[1:07:37] Minnesota Students Trust Fund.
[1:07:39] It was created to support
[1:07:41] public education in perpetuity,
[1:07:44] but the constitutional
[1:07:45] framework governing
[1:07:46] distribution limits our ability
[1:07:48] to modernize how earnings are
[1:07:50] calculated and distribute it.
[1:07:53] Today. The fun distributes only
[1:07:54] what it earns an annual
[1:07:56] interest and dividends in most
[1:07:58] years. The rich, that results
[1:08:00] in distributions below what a
[1:08:01] professionally managed
[1:08:03] endowment of this size could
[1:08:04] sustainably provide
[1:08:07] in practical terms? We are
[1:08:08] managing a modern investment
[1:08:10] portfolio under an outdated
[1:08:12] formula.
[1:08:13] After extensive study, the task
[1:08:15] force recommends moving to a
[1:08:16] percentage of market value or P
[1:08:18] O and B
[1:08:20] model. Under that approach, the
[1:08:22] state would distribute a fixed
[1:08:23] percentage typically between 4
[1:08:25] and 5% based on a multi year
[1:08:27] average of the fund's market
[1:08:29] value.
[1:08:30] That rings reflects best
[1:08:32] practice for large endowment
[1:08:33] funds.
[1:08:35] It is designed to balance 2
[1:08:36] responsibilities as shared by
[1:08:38] the Testifiers earler meeting.
[1:08:40] Current needs while preserving
[1:08:42] long term purchasing power
[1:08:45] at 4 and a half percent
[1:08:46] calculated on a three-year
[1:08:48] rolling average as outlined in
[1:08:49] the bill.
[1:08:51] It strikes the right balance.
[1:08:53] It would provide more stable
[1:08:54] and predictable funding for
[1:08:56] schools while predicting law
[1:08:58] protecting the integrity of the
[1:08:59] fund for future generations.
[1:09:03] Predictability matters to our
[1:09:04] school district. Right now.
[1:09:05] School districts across
[1:09:06] Minnesota are making difficult
[1:09:08] budget adjustments, boards
[1:09:10] right-sizing programs,
[1:09:11] adjusting staff and delaying
[1:09:13] investment in that environment,
[1:09:15] stable and reliable revenue is
[1:09:17] critical.
[1:09:19] School boards adopt annual
[1:09:20] budget and with an eye on the
[1:09:21] future negotiate contract to
[1:09:24] make long-term commitments.
[1:09:26] Volatility makes that work
[1:09:27] harder. Stability strengthens
[1:09:30] our governance, moving from the
[1:09:32] interest and dividends only
[1:09:34] model to a modern peel and the
[1:09:36] framework is responsible
[1:09:37] endowment management. It aligns
[1:09:40] Minnesota with the net, the
[1:09:42] national best practice and
[1:09:44] improves distribution
[1:09:46] reliability without raising
[1:09:48] taxes or creating new ongoing
[1:09:50] spending
[1:09:51] on behalf of the school boards
[1:09:53] in our urban suburban in
[1:09:55] greater Minnesota. We strongly
[1:09:57] support House and we strongly
[1:09:59] support the center found
[1:10:00] respectfully, ask for your
[1:10:01] support.
[1:10:03] Thank you, Madam Chair
[1:10:06] members, any questions.
[1:10:09] >> Senator Le Cerro.
[1:10:12] Yes, thank you, Madam Chair and
[1:10:14] a question. But I'd like to
[1:10:15] offer the a 2 amendment to the
[1:10:19] a one Amendment.
[1:10:26] Those are being distributed.
[1:10:30] >> If you want to speak a
[1:10:30] little bit about your amendment
[1:10:32] center Lou, Sarah, before,
[1:10:33] well, world getting copies.
[1:10:36] >> So the thank you, Madam
[1:10:37] Chair. So the this amendment
[1:10:39] would modify if you look at the
[1:10:41] amendment on the one that was
[1:10:42] already offered, if you look on
[1:10:43] my 1.2 6,
[1:10:46] it says that the funds, if the
[1:10:48] const, the propose constitute a
[1:10:50] constitutional amendment were
[1:10:52] to be adopted,
[1:10:53] the funds would be distributed
[1:10:56] in a manner prescribed by law.
[1:10:58] I am seeking to modify that the
[1:11:01] funds will be distributed in an
[1:11:04] equal amount per pupil.
[1:11:08] And the reason I am seeking to
[1:11:10] do that as we know, we've been
[1:11:12] having a conversation in this
[1:11:14] committee on equity, in
[1:11:16] education funding.
[1:11:17] And there is a an incredible
[1:11:19] inequity right now with the
[1:11:20] current
[1:11:21] funding formula seeks to
[1:11:24] provide some fairness and
[1:11:25] certainty
[1:11:27] in the Constitution
[1:11:30] that our students
[1:11:32] don't have different
[1:11:33] opportunities based on their
[1:11:34] zip code but instead makes it
[1:11:36] equal across the board. So I
[1:11:38] would encourage support for
[1:11:39] those with a yes vote. Thank
[1:11:41] you.
[1:11:43] >> Madam Chair, Start will
[1:11:45] Madam Chair and Senator Kurdish
[1:11:47] any response the a one
[1:11:48] Amendment.
[1:11:49] >> Thank you so much. You know,
[1:11:50] I I first want to just say that
[1:11:53] this amendment are this
[1:11:56] legislation was very
[1:11:57] painstakingly looked at.
[1:12:00] I mean, literally every word
[1:12:02] and every reference in this in
[1:12:06] this legislation to ensure that
[1:12:08] there aren't any real
[1:12:11] complications. But I'm
[1:12:13] wondering if perhaps
[1:12:18] or a square foot would be able
[1:12:21] to
[1:12:23] help us better understand how
[1:12:25] this language
[1:12:27] might make a difference or
[1:12:30] might change the bill in a way
[1:12:32] that
[1:12:33] I'm not quite sure up
[1:12:40] because if I'm not mistaken, we
[1:12:43] we do distribute that amount
[1:12:46] per pupil
[1:12:48] at this time. And is that what
[1:12:50] the law actually is stating?
[1:12:56] >> Madam Chair, the a 2
[1:12:58] amendment would
[1:13:00] require constitutionally, but
[1:13:03] the
[1:13:04] the apportionment be in an
[1:13:06] equal per pupil amount under
[1:13:08] current statutory law. The
[1:13:10] apportionment is unequal per
[1:13:13] pupil amount. And as I
[1:13:15] indicated earlier, that that
[1:13:16] that per pupil measure is the
[1:13:18] adjusted average daily
[1:13:19] membership. So so the
[1:13:20] constitutional that the
[1:13:22] amendment would would not
[1:13:24] wouldn't change in practice how
[1:13:27] the
[1:13:27] amount is a portion now, it
[1:13:29] would it would
[1:13:32] in trying to the Constitution
[1:13:34] that that portion of method or
[1:13:36] the the apportionment amount.
[1:13:41] >> Senator Commission.
[1:13:43] So based on the fact that we
[1:13:45] did go through this and looked
[1:13:47] at all of the different
[1:13:48] elements and I'm very
[1:13:51] comfortable that our present
[1:13:53] constitution and the present
[1:13:54] language that we have will
[1:13:56] ensure that those students
[1:13:58] continue to receive equal per
[1:14:01] pupil amount. I am going to
[1:14:06] respectfully not accept this
[1:14:08] amendment.
[1:14:12] >> All those in favor of the so
[1:14:14] sorry. Senator Mike Lee,
[1:14:16] thank you after and I would
[1:14:17] also respectfully ask for a no
[1:14:19] vote for for 2 reasons. One,
[1:14:22] even though we currently
[1:14:23] distributed on equal per people
[1:14:25] out, there might be a time and
[1:14:26] this is the diversity
[1:14:27] inequality inequity, right
[1:14:28] qualities. Everyone gets the
[1:14:29] same thing equity is that
[1:14:30] everybody gets what they need,
[1:14:32] even if it's different amounts.
[1:14:33] And so I could see it maybe in
[1:14:34] a time in the future where we
[1:14:35] want to send more money to
[1:14:37] schools because the CA fixed
[1:14:38] costs of running a school
[1:14:39] doesn't go down regardless of
[1:14:40] how many students you have in
[1:14:41] that. And so if we wanted to
[1:14:42] say we want to keep this small
[1:14:45] district from losing an
[1:14:46] elementary school were going
[1:14:47] up, the amount we're going to
[1:14:48] give to the school or these
[1:14:50] types of school districts
[1:14:51] instead of having it be a, you
[1:14:53] know, people amount we wouldn't
[1:14:54] be able to do that without
[1:14:55] changing the Constitution
[1:14:57] instead. Right now, what we can
[1:14:58] do is we can change in line.
[1:14:59] So I think reserving the
[1:15:00] ability to make those decisions
[1:15:03] in law for the legislature to
[1:15:04] debate instead of having to put
[1:15:06] it in the constitution and then
[1:15:07] being bound by not being able
[1:15:09] to change it based on our
[1:15:11] changing state in our student
[1:15:12] needs. That is why I think we'd
[1:15:14] be better off just leaving it
[1:15:16] and law and not in the
[1:15:17] constitution.
[1:15:18] Senator Eric, thank you, Madam
[1:15:20] Chair.
[1:15:22] >> I'm gonna speak in favor of
[1:15:23] the amendment. I think.
[1:15:24] >> As was just talked about the
[1:15:27] needs that would come a rise or
[1:15:29] come up. We have that ability
[1:15:31] through the general fund and
[1:15:33] what we deal with in this
[1:15:34] committee all the time. But
[1:15:35] this is the permanent
[1:15:37] trust fund for all of
[1:15:39] Minnesota.
[1:15:41] And so this piece is a small
[1:15:44] piece should be equal to every
[1:15:47] student throughout the state
[1:15:49] for this particular fund.
[1:15:50] And that's what this amendment
[1:15:51] is getting at for this fund,
[1:15:54] which comes from
[1:15:56] around the state. Although most
[1:15:58] of it comes from one particular
[1:16:00] area of the state, this should
[1:16:02] be distributed equally to every
[1:16:05] student in the state. Again, we
[1:16:07] have that ability for special
[1:16:08] needs that arise. We have that
[1:16:11] through the funding formulas to
[1:16:13] address those other needs.
[1:16:14] But for this particular fund,
[1:16:16] we should absolutely be
[1:16:18] treating every student around
[1:16:20] the state the same and keep
[1:16:22] this and not allow for a future
[1:16:25] legislature to change that and
[1:16:26] put this money into a funding
[1:16:28] formula. We should put this
[1:16:30] language in this. This money
[1:16:32] will always go
[1:16:34] per pupil. Exactly the same
[1:16:36] around the state. So I would
[1:16:37] ask people to vote. Yes.
[1:16:40] >> Senator home certain.
[1:16:43] >> Thank you. Madam Chair.
[1:16:43] I would speak in favor of this
[1:16:45] amendment as well. The people
[1:16:46] of Minnesota have supported
[1:16:48] this this constitutionally
[1:16:49] required fund for 150 plus
[1:16:52] years specifically because we
[1:16:54] believe that that that
[1:16:57] investing in education is
[1:16:58] important for all students.
[1:17:01] The idea that we may choose to
[1:17:04] insert politics into that and
[1:17:05] favor some students over of or
[1:17:07] others on this particular
[1:17:09] program makes no sense to me.
[1:17:11] I think that we need to be true
[1:17:12] and honest with the people of
[1:17:13] Minnesota, but what our plans
[1:17:14] are and this does that it makes
[1:17:16] clear what our intentions are
[1:17:18] with this fund. Thank you.
[1:17:21] >> Thank you. Anyone else,
[1:17:23] Senator West London.
[1:17:24] I have a quick question either
[1:17:27] for Senator Le Cerro or perhaps
[1:17:29] the task force members. And I'm
[1:17:30] wondering if if this particular
[1:17:32] issue
[1:17:34] was brought up with the task
[1:17:35] force
[1:17:37] members in their consideration
[1:17:39] of recommendations made because
[1:17:41] I would prefer to have
[1:17:44] a little more vetting
[1:17:47] before putting something into
[1:17:49] the Constitution that I think
[1:17:50] has not been fully vetted
[1:17:52] and the challenge with putting
[1:17:53] things into the Constitution
[1:17:54] and Senate,
[1:17:55] if there is a problem with its
[1:17:56] going to be much, much harder
[1:17:58] to change. So I guess maybe my
[1:18:00] question is to Senator Cerro
[1:18:02] Hat. Did you run your amendment
[1:18:05] passed
[1:18:06] the Working Group Task Force.
[1:18:09] >> Senator the Sarah, thank
[1:18:11] you. Madam Chair. I was not
[1:18:13] part of the task force. I was
[1:18:14] involved in it at all.
[1:18:16] This amendment is the result of
[1:18:18] a conversation I had yesterday
[1:18:20] in preparing for this bill that
[1:18:22] would be in committee today.
[1:18:23] So we're as a task force of
[1:18:25] Glee provides recommendations
[1:18:27] to the legislature. It's this
[1:18:28] committee that starts the
[1:18:29] vetting process for the policy
[1:18:32] for the education of our
[1:18:33] students. So that's why I think
[1:18:35] it is most appropriate now for
[1:18:37] us to have this conversation
[1:18:38] and make a decision. Thank you.
[1:18:40] >> Senator was a Madam Chairman
[1:18:41] Sen. I don't think this is the
[1:18:43] last stop for this bill, but
[1:18:45] I'm wondering if you are
[1:18:47] willing to have that
[1:18:48] conversation with the members
[1:18:50] of the task force,
[1:18:53] I maybe we don't have a sight
[1:18:55] line into where an issue might
[1:18:57] arise here. I certainly don't
[1:18:58] necessarily. And I
[1:19:00] I don't feel comfortable
[1:19:01] accepting this kind of on the
[1:19:02] fly. Know you said you just
[1:19:04] kind of came up yesterday and
[1:19:05] that's fine. That's how things
[1:19:06] work or is sometimes things
[1:19:08] come up the last minute.
[1:19:10] But my question to you is, are
[1:19:11] you willing to
[1:19:14] actually have conversations
[1:19:15] with the task force
[1:19:17] to walk through this or even
[1:19:19] with
[1:19:20] nonpartisan staff? But I'm not
[1:19:22] comfortable voting for this
[1:19:23] today. And I do understand that
[1:19:26] this will have other stops.
[1:19:28] So I'm a no vote. But again,
[1:19:29] I'm just curious to know if
[1:19:30] you'd be willing to has some
[1:19:32] additional conversations.
[1:19:35] >> Thank you, Senator. Wasn't.
[1:19:36] We do have another question
[1:19:38] from a member, but we are
[1:19:39] deciding that it might be
[1:19:40] helpful to bring up the task
[1:19:41] force. Whether members choose
[1:19:43] to ask them questions or not.
[1:19:44] It might be helpful to come to
[1:19:45] the table,
[1:19:47] Mr. Craig should help him
[1:19:49] saying it correctly
[1:19:52] and Mr. Mule and yes, all of
[1:19:54] you and Senator Eric.
[1:19:58] >> Thank you, Madam Chair.
[1:19:59] And I think in response to
[1:20:00] Senator West Linn is question.
[1:20:02] You know, I believe that
[1:20:03] happened. They me answer this
[1:20:04] better. The task force was put
[1:20:06] in place, talk about how we're
[1:20:07] going to distribute the moneys
[1:20:09] based on
[1:20:11] the investments themselves.
[1:20:13] This is talking about in
[1:20:15] particular how it will go out.
[1:20:17] That was not what the task
[1:20:18] force was looking into. That is
[1:20:21] something for this committee to
[1:20:23] talk about. And, yes, it just
[1:20:26] kind of came up yesterday
[1:20:27] because in our discussion we
[1:20:29] were saying, hey, this is this
[1:20:31] is a fund that small, but it's
[1:20:33] not something that should be
[1:20:35] limited are open to formulas.
[1:20:38] This is something that should
[1:20:39] be equally distributed to all
[1:20:41] schools. But I think the task
[1:20:43] force can probably answer, but
[1:20:44] that was not part of what they
[1:20:46] were asked to look at. That
[1:20:47] would be a conversation for the
[1:20:49] legislature.
[1:20:50] >> Senator Wilson, Madam Chair,
[1:20:52] I have to pull my papers back
[1:20:54] out again. But I thought that
[1:20:55] the recommendations included
[1:20:58] recommended changes to the
[1:21:00] Constitution, recommended
[1:21:01] statutory changes. And so
[1:21:04] I just curious to know of they
[1:21:06] have any opinion about this and
[1:21:07] any potential implications and
[1:21:10] maybe they don't. But I'd at
[1:21:12] least like to get some input
[1:21:13] from them.
[1:21:19] >> Ok, don't know if we have
[1:21:20] any other members who want to
[1:21:21] talk if the task force enter
[1:21:23] commish. If you want to invite
[1:21:24] that has forced to answer bres
[1:21:26] any of those before we go to
[1:21:27] Senator Le Cerro to close out
[1:21:28] the amendment.
[1:21:31] >> And do you have a is there a
[1:21:33] response that you'd like to
[1:21:34] share? Okay. Yes, we have
[1:21:36] executive director here.
[1:21:38] >> Thank you. Madam Chair,
[1:21:39] executive directors say Joe
[1:21:41] Shirts. Thank you for the
[1:21:42] question. I appreciated the
[1:21:44] task force actually did
[1:21:45] consider questions very similar
[1:21:48] to this. I would answer this
[1:21:50] into parts of the night as my
[1:21:51] colleagues to provide
[1:21:54] additional information.
[1:21:55] First and foremost, we thought
[1:21:57] one of the most important
[1:21:57] things consistent as we discuss
[1:21:59] our fiduciary duty was to
[1:22:00] really dig into the scope of
[1:22:02] the task force mission.
[1:22:04] And to be very clear about
[1:22:05] those questions that are within
[1:22:07] the scope of the task force and
[1:22:09] those that are better left to
[1:22:10] the legislator Legislature,
[1:22:12] these particular policy
[1:22:13] questions I we believe the task
[1:22:17] force, but a lot of time
[1:22:18] talking about this in voting on
[1:22:19] it
[1:22:20] was that these particular
[1:22:21] questions were more appropriate
[1:22:22] for statute as their policy
[1:22:25] driven decisions for the
[1:22:26] legislature
[1:22:28] and that they were specifically
[1:22:29] outside of the scope of the
[1:22:30] statute. The second part of the
[1:22:32] answer that question an
[1:22:33] enormous amount of time and
[1:22:35] energy, one into the research.
[1:22:36] What do other similarly
[1:22:38] situated institutional
[1:22:39] educational focused funds do?
[1:22:42] And that research was very
[1:22:43] clear that these types of
[1:22:44] issues are answered in statute,
[1:22:46] not in the constitution.
[1:22:48] And that also guided the
[1:22:49] approach of the task force.
[1:22:51] I would stop and defer to my
[1:22:54] colleagues percent.
[1:23:01] >> Thank you. Madam Chair, Erin
[1:23:03] Ban on School trust lands
[1:23:04] director getting Senator Le
[1:23:05] Cerro. If you do bring up the
[1:23:07] next one point, the history of
[1:23:09] school trust lands and I've
[1:23:10] gone back and read the debates.
[1:23:12] Its statement when we were
[1:23:14] becoming a state on these
[1:23:16] lands,
[1:23:18] the debates were were
[1:23:21] link me to say the least and a
[1:23:23] hard to read. But
[1:23:25] what they be,
[1:23:27] what they determined at the
[1:23:28] time was that these lands as
[1:23:30] they are across the state
[1:23:32] aren't going to be held for a
[1:23:33] specific community. They're
[1:23:35] going to be held for the entire
[1:23:36] state.
[1:23:37] That was the decision in 18,
[1:23:39] 58. We have maintained that
[1:23:42] throughout
[1:23:43] to your point about equal
[1:23:46] receipts or payments to the
[1:23:48] pupils, that's
[1:23:51] the task force is the executive
[1:23:53] director said we felt that
[1:23:54] those decisions were policy
[1:23:57] better situated to be held in
[1:23:59] dealt with in statute.
[1:24:01] And just to give us a specific
[1:24:03] example of why we did that,
[1:24:05] Utah, the state of Utah
[1:24:08] has a permanent school fund.
[1:24:09] It's managed by the U.S.
[1:24:11] institutional investment in
[1:24:13] Utah.
[1:24:15] They passed
[1:24:17] 3, 4, years ago and
[1:24:18] constitutional amendment very
[1:24:20] similar to this. They put their
[1:24:23] amounts their distribution
[1:24:25] amounts in the Constitution.
[1:24:28] 2 years later, they are going
[1:24:30] back and amending their
[1:24:31] constitution
[1:24:33] because they couldn't
[1:24:34] distribute as much as they
[1:24:36] could because they limited it
[1:24:38] in the Constitution.
[1:24:39] So they limited the
[1:24:40] constitution at 4 and a half
[1:24:42] percent in,
[1:24:43] you know, for 5 years ago,
[1:24:45] they have the ability because
[1:24:47] of the oil and gas revenues to
[1:24:48] distribute over 7 and a half
[1:24:50] percent of their permanent
[1:24:52] fund. And they had to leave
[1:24:53] that 3% in their funded,
[1:24:55] not distributed because it was
[1:24:57] in the Constitution.
[1:24:58] So we took that
[1:25:01] to heart when we were making
[1:25:02] our recommendations of what
[1:25:04] should be in the Constitution
[1:25:05] and what should be in statute.
[1:25:07] And that was
[1:25:10] months of discussion and our
[1:25:11] task force.
[1:25:14] >> Madam Chair members not just
[1:25:16] add in and directly respond to
[1:25:18] the question of was this a
[1:25:19] topic that the task force
[1:25:20] discussed? The answer is yes.
[1:25:22] I think we ultimately reached a
[1:25:24] conclusion that chill
[1:25:26] articulated that this was
[1:25:27] outside the scope of what we
[1:25:29] were tasked with and that our
[1:25:30] focus should be on the
[1:25:32] investment areas of the caught
[1:25:35] the legal framework that
[1:25:35] addresses the investments of
[1:25:37] the permanent school fund to
[1:25:38] not apportionment.
[1:25:39] However, in reaching that
[1:25:41] conclusion, we did discuss
[1:25:43] amongst each other,
[1:25:45] what is the basis for
[1:25:46] apportionment and there?
[1:25:47] And just amongst the 9 of us,
[1:25:49] there were differing opinions.
[1:25:51] There were some folks who felt
[1:25:52] very strongly that people
[1:25:54] apportionment policy was the
[1:25:55] correct policy.
[1:25:57] There are some folks who
[1:25:58] pointed out that I think
[1:25:59] Senator equated that the fixed
[1:26:01] costs of running schools are
[1:26:02] not dependent on the number of
[1:26:04] students in that school.
[1:26:05] And so perhaps apportionment
[1:26:07] should be thought about in that
[1:26:08] context. There are members that
[1:26:10] observed that most of the
[1:26:11] revenues coming into the
[1:26:12] permanent school fund stem from
[1:26:14] certain areas of the state and
[1:26:15] not others. And so I just point
[1:26:17] that out to say just within
[1:26:18] this group of 9 people who
[1:26:19] spent a lot of time discussing
[1:26:21] and thinking about this,
[1:26:22] we did not reach a conclusion.
[1:26:24] We did not all reached the same
[1:26:25] conclusion on this question.
[1:26:27] That's part of what got us to
[1:26:28] think that this is best left
[1:26:29] with the Legislature.
[1:26:31] >> Thank you, Senator Cruz.
[1:26:33] Thank you. Madam Chair, just
[1:26:35] chiming in on a couple of
[1:26:36] comments on this amendment
[1:26:38] isn't
[1:26:40] related to what happened in
[1:26:41] Utah. That totally makes sense
[1:26:43] to not have a distribution
[1:26:44] about in the Constitution.
[1:26:45] But that's not what this is.
[1:26:48] This is and you said it
[1:26:49] yourself. The intent of the
[1:26:50] legislators back to the state's
[1:26:52] founding
[1:26:53] was for this trust to be held
[1:26:55] for the entire state. And
[1:26:56] that's exactly what this
[1:26:58] amendment seeks to do.
[1:27:00] I don't think the founders of
[1:27:02] this state, those legislators
[1:27:03] that were voting on this
[1:27:05] back in the 18 50's could have
[1:27:07] possibly imagine the
[1:27:09] complicated funding formula
[1:27:11] that the state would end up
[1:27:12] with
[1:27:14] for its general fund, but of
[1:27:15] when even be within their
[1:27:16] comprehension
[1:27:18] and so or or the legislature's
[1:27:20] willingness
[1:27:23] to come up with all of these
[1:27:24] different compensatory funds
[1:27:26] and all of these different ways
[1:27:27] that we fund our schools.
[1:27:29] This fund is different.
[1:27:31] This fund is in the
[1:27:31] Constitution and should benefit
[1:27:33] the entire state. Senator, the
[1:27:35] Sarah's Amendment does exactly
[1:27:36] that.
[1:27:37] I personally don't trust future
[1:27:39] legislatures to not take her
[1:27:40] with this.
[1:27:41] Once they they have this pot of
[1:27:43] money. It's just prescribed by
[1:27:45] law. It's not in the
[1:27:46] constitution. Then it just
[1:27:47] becomes another fun that they
[1:27:49] can
[1:27:50] take and make a complicated
[1:27:52] formula out of. I think the
[1:27:54] people of Minnesota deserve
[1:27:55] simplicity
[1:27:57] on this particular farm.
[1:27:59] There are plenty of other funds
[1:28:00] from the general Fund for
[1:28:01] compensatory funding to address
[1:28:04] particular needs about
[1:28:06] declining enrollment for other
[1:28:07] compensatory funding factors.
[1:28:09] But this fund is different.
[1:28:11] This fund should have the
[1:28:12] confidence of the people
[1:28:14] when they're voting on this
[1:28:15] constitutional amendment that
[1:28:17] it is going to be distributed
[1:28:18] on a per pupil basis. Thank
[1:28:20] you.
[1:28:21] >> Senator homes from.
[1:28:23] >> Madam Chair. I will add to
[1:28:25] that that the executive
[1:28:27] director of the Middle School
[1:28:28] Board Association just
[1:28:29] testified to us that the school
[1:28:31] board's need to have stability.
[1:28:33] They need to know long term
[1:28:36] what to expect. This amendment
[1:28:38] does just that. It tells them
[1:28:39] exactly what to expect where
[1:28:40] these dollars are going to be
[1:28:41] spent long into the future.
[1:28:43] Thank you.
[1:28:48] >> Senator commissioning
[1:28:49] closing thoughts will go to
[1:28:50] Senator the Cerro. Okay.
[1:28:52] >> Yeah. I mean, this has been
[1:28:53] a really good discussion.
[1:28:55] And I wish even though you kind
[1:28:56] of came up with this yesterday,
[1:28:58] had to given the a little heads
[1:29:00] up so that I could kind of wrap
[1:29:02] my head around it and ask a lot
[1:29:03] of other questions. I wasn't
[1:29:05] surely have appreciated that.
[1:29:08] But again, at this time because
[1:29:10] I feel like I now need to
[1:29:13] talk about it. Think about it,
[1:29:15] perhaps meet with any of you
[1:29:17] around this before we make a
[1:29:20] decision on this. I think I I
[1:29:22] need to think a little bit more
[1:29:24] as senator said, this has other
[1:29:29] stops and perhaps on one of
[1:29:32] those other stops, having done
[1:29:34] better review and reflection on
[1:29:36] this and having more
[1:29:37] information about what the
[1:29:39] cause and effect of something
[1:29:40] like this might be, how it
[1:29:42] might make the fund more
[1:29:43] vulnerable. And as we're
[1:29:46] talking about future
[1:29:48] legislators being able to tap
[1:29:50] into this, we want to make sure
[1:29:52] that we are being very
[1:29:53] protective and what those kind
[1:29:56] of consequences would be.
[1:29:57] So I'm willing to work with you
[1:29:59] on this. I just need more time
[1:30:01] and I need a better
[1:30:02] understanding before I could
[1:30:04] accept a an amendment such as
[1:30:07] this.
[1:30:08] >> Senator Louis, Errol, thank
[1:30:10] you. Madam Chair members,
[1:30:12] the Minnesota Constitution,
[1:30:14] states
[1:30:15] general and uniform system of
[1:30:18] public schools,
[1:30:19] that is the objective.
[1:30:22] The school trust lands were to
[1:30:24] benefit all students. So in the
[1:30:27] spirit of benefiting all
[1:30:29] students
[1:30:30] and his spirit of having a
[1:30:32] uniform system,
[1:30:34] I encourage members to vote in
[1:30:36] support of this to ensure that
[1:30:38] those funds are distributed
[1:30:40] uniformly for the benefit of
[1:30:43] all students equally. That's
[1:30:45] what our Constitution should
[1:30:47] reflect.
[1:30:48] A green vote is too support
[1:30:51] that philosophy and support all
[1:30:53] students equally.
[1:30:54] If you don't agree with that
[1:30:56] vote. No. Thank you, Madam
[1:30:57] Chair.
[1:30:59] >> Thank you. Senator Le Cerro.
[1:31:00] We will vote on the B 2 on the
[1:31:04] to all those in favor say Aye,
[1:31:06] aye. All those opposed say no,
[1:31:08] no
[1:31:10] to does not pass
[1:31:14] any other discussion.
[1:31:16] >> Closing remarks, Senator
[1:31:17] could inch. Thank you. This has
[1:31:19] been a really good discussion
[1:31:21] and I appreciate everybody
[1:31:22] bringing their perspective to
[1:31:24] this conversation as a
[1:31:26] constitutional amendment.
[1:31:27] It's really vital that we get
[1:31:29] this. You know, right before we
[1:31:33] take it to the voters and at
[1:31:35] the end of the day, it will be
[1:31:36] the voters that are going to
[1:31:39] make that decision for our
[1:31:40] students. And so with that,
[1:31:42] I would ask you all to on vote
[1:31:45] Green to move this bill on its
[1:31:47] way.
[1:31:50] >> All right. As amended will
[1:31:53] vote now to move this to state
[1:31:54] local governor. All those in
[1:31:55] favor say aye on all those
[1:31:58] opposed say no
[1:32:01] motion carries
[1:32:08] next. We'll hear some file.
[1:32:10] 1, 2, 0, 1, Senator commish,
[1:32:12] you are up again. I believe
[1:32:14] it's your attention to Saint
[1:32:15] SF. 1, 2, 0, 1, to the
[1:32:17] committee on commerce. Yes,
[1:32:19] it is.
[1:32:21] Would you like to make that
[1:32:21] motion? Yes, I make so moved
[1:32:25] perfect. All right. You've been
[1:32:26] a 3 amendment. Would you like
[1:32:28] to move the a 3 amendment and
[1:32:29] introduce it?
[1:32:30] >> Yes, the a 3 Amendment is is
[1:32:33] an amendment to delete all and
[1:32:35] then add the language that you
[1:32:37] will find on in Bill 12.
[1:32:39] 0, 1,
[1:32:43] >> All right. All those in
[1:32:43] favor of adopting the a 3
[1:32:45] amendments. I I all those
[1:32:47] opposed. All right. Seeing it
[1:32:49] here. Bill, thank you so much
[1:32:52] members. This is a.
[1:32:53] >> This is another really
[1:32:54] curious bill. And it is a bill
[1:32:58] that would require school
[1:33:01] health insurance annual
[1:33:02] reports. The goal with this
[1:33:05] report is to give the state a
[1:33:07] clear picture of what districts
[1:33:08] are paying for health insurance
[1:33:10] under the current system and
[1:33:12] how many potential employees
[1:33:14] would be eligible to be an and
[1:33:18] eg IP, which is a statewide
[1:33:20] health insurance pool for
[1:33:22] educators.
[1:33:24] And as we know, one of the
[1:33:27] probably the largest budgetary
[1:33:31] issue is health care for not
[1:33:34] only our teachers but
[1:33:35] administrators and parents and
[1:33:37] those sort of things. And so we
[1:33:40] are this report is tasked with
[1:33:44] getting the did the district's
[1:33:46] to share with us what the
[1:33:49] insurance is so that they have
[1:33:50] a really important. They have a
[1:33:52] very clear picture of how and
[1:33:55] what we are paying for in the
[1:33:56] insurance world. And it also is
[1:34:02] requiring a each student just
[1:34:05] or each district and charter
[1:34:07] school to complete an annual
[1:34:10] survey survey by September 4,
[1:34:12] excuse me, first, using data
[1:34:14] from the most recent fiscal
[1:34:16] year so that we can kind of
[1:34:19] wrap our head around what
[1:34:21] really is the cost of this
[1:34:24] health insurance and how we
[1:34:25] might be able to create a
[1:34:27] better system for that.
[1:34:28] And with that, I have a few a
[1:34:31] few test fires.
[1:34:34] >> Thank you, Senator Kunesh.
[1:34:35] If we could bring the
[1:34:36] testifiers to the table and
[1:34:38] just want to remind you that we
[1:34:40] are sort of limited on time.
[1:34:42] So if both of you
[1:34:44] testifiers who come to the
[1:34:45] table,
[1:34:49] I'm gonna let you all decide
[1:34:50] who goes first and just
[1:34:51] identify yourself for the
[1:34:53] record and you can begin when
[1:34:54] you're ready.
[1:34:58] >> Hello Committee members.
[1:34:59] My name is John Wachter.
[1:35:01] And I'm the president of know,
[1:35:02] kind of an education,
[1:35:03] Minnesota, the union
[1:35:05] representing the teachers and
[1:35:06] license staff and, you know,
[1:35:07] kind of in school district.
[1:35:09] I'm here to to speak in favor
[1:35:11] of Senate file 12. 0, 1,
[1:35:13] a bill that would direct the
[1:35:14] state to study the health
[1:35:15] insurance plans. School
[1:35:17] districts offer to employees.
[1:35:20] 2 months ago. We were on the
[1:35:21] precipice of a strike,
[1:35:23] a crisis largely driven by the
[1:35:25] struggle to address a crushing
[1:35:28] increases in health care costs
[1:35:31] for the 2025 26 school year.
[1:35:34] The self insured premiums for
[1:35:35] our health plans increased an
[1:35:37] average of 22%.
[1:35:39] This resulted in 400 to $700
[1:35:42] increases per month in premiums
[1:35:45] for family coverage this year.
[1:35:47] Given that 82% salary increase
[1:35:50] equates to between 1002 $1000
[1:35:52] for educators for the entire
[1:35:54] year, you can see the problem.
[1:35:57] I know get up and is currently
[1:35:58] in the process of setting rates
[1:36:00] for next year. And we have been
[1:36:01] told to, again expect
[1:36:02] double-digit percentage
[1:36:04] increases
[1:36:06] during bargaining educators.
[1:36:08] Find ourselves trying to put
[1:36:09] money, shaped Band-Aid on a
[1:36:11] gaping flesh wound.
[1:36:13] It has been implied publicly
[1:36:14] that we have actively chosen
[1:36:16] our current trade off between
[1:36:17] salary and benefits
[1:36:19] rather than it being the result
[1:36:21] of insurance costs rapidly
[1:36:23] outpacing inflation.
[1:36:25] We have often raised the idea
[1:36:27] of making our district's
[1:36:28] contributions towards our
[1:36:29] health insurance, a percentage
[1:36:30] of premiums and have been
[1:36:31] rebuffed every time
[1:36:34] this continues to put the onus
[1:36:36] of cost increase is largely an
[1:36:38] educators.
[1:36:39] Due to this many question,
[1:36:41] whether a career serving the
[1:36:43] students of an account of bin
[1:36:44] is one that will allow them to
[1:36:45] continue to support their own
[1:36:47] families.
[1:36:49] Already, the cost increases
[1:36:50] this year caused at least 900
[1:36:53] individuals and dependents to
[1:36:55] leave our district health and
[1:36:57] insurance plans and moved to
[1:36:58] other coverage.
[1:37:00] Right now. Hundreds of
[1:37:02] districts across the state are
[1:37:04] replicating the same work
[1:37:05] requesting in analyzing bids
[1:37:07] for health insurance.
[1:37:08] Each one of those districts is
[1:37:11] one bad claims year from their
[1:37:13] carefully constructed plans
[1:37:15] falling apart.
[1:37:17] This bill does not represent a
[1:37:19] burden to districts as 95% of
[1:37:21] the information being requested
[1:37:22] is already being gathered for
[1:37:24] bargaining and insurance
[1:37:26] bidding processes.
[1:37:27] Important aspect of this bill
[1:37:29] is too,
[1:37:30] is the opportunity to gather
[1:37:32] vital information about how
[1:37:35] much districts are spending on
[1:37:36] health insurance across the
[1:37:37] entire state to help inform a
[1:37:39] statewide solution as
[1:37:41] envisioned in Senate file 29.
[1:37:43] 0, 9,
[1:37:44] We cannot solve this problem
[1:37:45] until you have a true sense of
[1:37:47] the scope of the issue. I urge
[1:37:49] you to support Senate file 12
[1:37:51] on.
[1:37:53] Thank you, Miss Goff.
[1:37:55] >> Thank you, chair and
[1:37:57] members. My name is Lori Goff
[1:37:58] and I'm a special education
[1:38:00] para for the Saint. Michael,
[1:38:01] a Purple School district.
[1:38:02] I provide academic support in
[1:38:04] general education, classrooms
[1:38:06] and Iran are resource room
[1:38:07] where students can come and get
[1:38:08] extra help.
[1:38:10] There was a time when education
[1:38:11] support professional jobs were
[1:38:12] side after because of the good
[1:38:14] paying great benefits. But
[1:38:16] after 25 years of underfunding
[1:38:18] by the state of Minnesota are
[1:38:20] wages and benefits have not
[1:38:21] kept up and positions like mine
[1:38:23] are hard to fill
[1:38:25] when bargaining the district
[1:38:26] comes to the table says this is
[1:38:28] your budget
[1:38:29] wages, our health health
[1:38:30] insurance, not everyone takes
[1:38:32] the insurance, but everyone
[1:38:33] takes the wages. So the
[1:38:35] insurance gets more expensive.
[1:38:36] And the plans get worse.
[1:38:39] After decades of disinvestment,
[1:38:40] my insurance is well bat.
[1:38:44] I'd like to tell you about my
[1:38:45] son. One day he woke up in can
[1:38:48] see out his right eye
[1:38:49] after many appointments with
[1:38:51] many doctors and specialists
[1:38:52] and patiently also known as a
[1:38:55] gun eyes only waiting for test
[1:38:57] results. And numerous summarize
[1:38:59] we found out he has a rare eye
[1:39:00] disease.
[1:39:02] It took a year, but the doctors
[1:39:03] found a way to stabilize it.
[1:39:05] Unfortunately, our insurance
[1:39:07] will not cover the medication
[1:39:08] the doctor prescribed.
[1:39:10] Instead, we're forced to use
[1:39:12] the medication that is for
[1:39:13] children with cancer who are
[1:39:15] waiting to have a bone marrow
[1:39:16] transplant.
[1:39:18] It suppresses the immune system
[1:39:19] and has possibly devastating
[1:39:21] and irreversible longtime
[1:39:23] certify side effects. Some of
[1:39:25] this part makes me emotional.
[1:39:27] He needs to be on this for at
[1:39:28] least 3 years and possibly
[1:39:30] forever.
[1:39:31] This medication isn't covered
[1:39:32] by insurance either, but it's
[1:39:34] $168 a month out of pocket
[1:39:37] rather than 7,000.
[1:39:39] I worked 3 jobs to pay for
[1:39:41] medical expenses and mice and
[1:39:43] we still lose his sight.
[1:39:45] Imagine telling your child that
[1:39:47] you can't afford to keep them
[1:39:49] healthy.
[1:39:50] I don't want to be just one was
[1:39:52] that story.
[1:39:53] But I do want to put a face to
[1:39:54] a statewide problem.
[1:39:56] Eu's peas and every district in
[1:39:58] our state are struggling to
[1:40:00] care for families.
[1:40:02] This is a statewide problem and
[1:40:04] it needs a statewide solution.
[1:40:06] >> This report will help us
[1:40:07] understand the full scope of
[1:40:09] the problem and what it would
[1:40:10] take to provide us with the
[1:40:12] kind of health insurance that
[1:40:13] would allow us to care for our
[1:40:14] kids at school and their
[1:40:16] families at home.
[1:40:18] I encourage you to support this
[1:40:19] Bill. Thank you so much for
[1:40:21] your time.
[1:40:23] >> Thank you, members. Any
[1:40:24] questions or comments,
[1:40:30] senator condition to closing
[1:40:31] thoughts words?
[1:40:33] >> No, but thank you for
[1:40:34] listening. And I hope that that
[1:40:37] we get some really good
[1:40:38] information out of this report.
[1:40:41] Should it pass into law this
[1:40:42] year so that we do have a
[1:40:44] better and fuller understanding
[1:40:46] of the costs of insurance,
[1:40:49] not only in, you know, the
[1:40:51] individual districts but across
[1:40:52] the state and perhaps provide
[1:40:55] an opportunity for us to really
[1:40:57] address this in a real way.
[1:40:58] So appreciate a green vote on
[1:41:00] this bill.
[1:41:02] >> Thank you, Senator. With
[1:41:03] that. Senator Cruz renews her
[1:41:04] motion that SF 1, 2, 0, 1, as
[1:41:06] amended be recommended to pass
[1:41:08] and referred to the committee
[1:41:09] on Commerce. All those in favor
[1:41:11] say Aye. Aye. Any opposed
[1:41:14] seeing none. This bill as
[1:41:15] amended has moved to the
[1:41:16] committee and state local
[1:41:17] government,
[1:41:18] commerce, commerce. This thing
[1:41:23] members, we will not have
[1:41:24] education finance hearing on
[1:41:26] Thursday this week. It is 10,
[1:41:28] 20 and we are adjourned