Task force urges constitutional change to allow 4.5% rolling‑average distribution from Minnesota Permanent School Fund

The Legislative Permanent School Fund Commission on Jan. 15 heard the Permanent School Fund Distribution Task Force recommend a constitutional amendment and accompanying statutory changes to shift Minnesota’s school trust payouts to a market‑value distribution model.

The task force, convened in May 2024 and composed of nine members with investment and legal experience, recommended a 4.5% distribution rate applied to a three‑year rolling average of the fund’s market value. "A 3‑year rolling average can provide stable and predictable funding for current beneficiaries while preserving the fund's long term purchasing power for future generations," the task force told the commission.

The recommendation responds to a structural constraint in Minnesota’s constitution (Article 11, Section 8), which currently limits distributions to net interest and dividends and requires capital gains to be used to offset prior‑year losses before distributions may be made. Task force presenters said that exclusion of capital gains has kept distributions historically low relative to long‑term investment returns: the fund’s average annual investment return net of fees has been about 8% over the last decade, while distributions averaged roughly 2.5% of fund value in recent years.

Members of the task force and State Board of Investment staff described the research and modeling behind the proposal. They reviewed distributions used by higher‑education endowments and comparable state school funds and worked with consultants (Makita Investment Group and Aon Investments) to model outcomes under differing payout rates and averaging windows. SBI staff reported that, in their modeled scenarios, a 4.5% payout on a three‑year trailing market value generally increased near‑term distributions without materially impairing long‑term fund growth in baseline and many stress scenarios.

Task force counsel said the draft approach would remove the constitutional loss‑offset provision and place the distribution formula, governance details and apportionment mechanics in statute, while retaining constitutional language that the fund be held as a perpetual financial resource to "support the school districts of the state." The nine members of the task force "unanimously endorsed" the recommendations, the presenters said after about 17 months of work; the report was delivered to the legislature on 2026‑01‑15.

Commissioners asked technical questions about key terms such as "preserving purchasing power" and whether the word "earnings" would capture unrealized capital gains; presenters said their intent was for an expansive definition of earnings, to include capital gains and other forms of income, and that moving calculation mechanics to statute would allow the legislature to prescribe an explicit distributable amount methodology.

Next steps identified in the meeting included drafting statutory language and further committee review; Chair Mary Kunish said commissioners will continue discussion about placing a constitutional amendment on the November ballot and about funding any voter education effort.

Authorities cited in the presentation included the Laws of Minnesota, 2024, chapter 115, article 10, section 4 (legislative charge creating the task force) and Minnesota Constitution, Article 11, Section 8 (current distribution restrictions).