How the Permanent School Fund Amendment Addresses Future Generations

Minnesota's Permanent School Fund has supported public education for generations. The proposed constitutional amendment asks voters to consider a fundamental question about its future:

How can Minnesota provide more support to students today while maintaining this resource for students tomorrow?

The proposal addresses both sides of that question.

If approved, the amendment would change how annual distributions from the Permanent School Fund are calculated. At the same time, the Minnesota Constitution would require the fund to remain a perpetual financial resource, with management designed to preserve its purchasing power over time and balance the needs of current and future beneficiaries.

A permanent resource for generations

The Permanent School Fund isn't intended to be spent down.

Under the proposed constitutional language, it would continue to exist as a permanent education resource. What would change is the framework Minnesota uses to determine how much of the fund can support schools each year.

The current Constitution protects the fund's principal and generally limits distributions to net interest and dividends. The proposed amendment would move to a total-fund approach, replacing that framework with a constitutional requirement that the fund remain perpetual and preserve its purchasing power over time.

That distinction is important: the proposal changes how the fund is protected, but it does not eliminate long-term protection.

How would the new distribution model work?

If voters approve the amendment, state law would establish an annual distribution equal to 4.5% of the Permanent School Fund's average net asset value over the preceding three fiscal years.

Why use three years?

Using a rolling average helps smooth changes in the fund's value as financial markets rise and fall. Instead of basing a distribution on the fund's value at a single point in time, the calculation considers its average value over three fiscal years.

The fund also remains invested, while revenues generated from Minnesota's school trust lands continue to contribute to it.

That means a 4.5% distribution does not automatically mean the fund loses 4.5% of its value each year.

The fund's future value reflects money moving in both directions: investment performance and trust-land revenue contribute to the fund, while annual distributions provide support to schools.

Why 4.5%?

The proposed percentage comes from more than a year of work by Minnesota's nine-member Permanent School Fund Task Force.

The Task Force examined distribution rates ranging from 3% to 5%, using historical investment returns, asset allocations, revenues and forward-looking assumptions.

Importantly, the analysis wasn't limited to years when financial markets performed well.

The Task Force examined highly volatile scenarios that included multiple years of negative investment returns and declines in the fund's value exceeding 20%.

After that analysis, all nine Task Force members recommended 4.5% of the fund's three-year average value. The Task Force concluded that this approach would provide more consistent and predictable annual distributions while maintaining the Permanent School Fund as a perpetual resource and balancing current and future beneficiaries.

What happens when markets decline?

No investment fund is immune from market losses. The value of the Permanent School Fund can rise and fall along with its investments.

The three-year rolling average is one part of the proposed approach to market volatility. Because the calculation uses multiple years rather than one point in time, changes in market value are incorporated into distributions over time rather than immediately determining the entire distribution.

The Task Force also considered whether the model needed an additional mechanism specifically to curtail distributions during extreme downturns. It ultimately determined that such a mechanism would add complexity and unpredictability and that the rolling-average approach provided an appropriate adjustment mechanism.

So the proposal isn't based on an assumption that markets will always go up. Periods of significant market decline were specifically part of the analysis behind the recommendation.

What does “preserve its purchasing power” mean?

This may be one of the most important phrases in the proposed constitutional amendment.

Preserving purchasing power is about more than keeping a particular dollar amount in the account.

Over decades, inflation changes what money can buy. A fund could have the same nominal balance years from now while having considerably less economic value.

That's why the proposed Constitution specifically says management of the Permanent School Fund must be designed to preserve its purchasing power over time.

The goal is not simply to keep the fund in existence. It is to maintain it as a meaningful financial resource for future generations of Minnesota students.

Students today. Students tomorrow.

Every permanent endowment faces a balance.

Distribute too little, and today's beneficiaries may not receive the full benefit of the resource created for them. Distribute too much, and future beneficiaries could inherit a diminished resource.

The Permanent School Fund Task Force explicitly considered that balance. Its recommendation was designed around providing annual distributions while maintaining the fund as a perpetual resource for public education.

The proposed constitutional language would make that responsibility explicit: Minnesota must balance the needs of current and future beneficiaries while preserving the fund's purchasing power over time.

That's the idea behind the amendment's approach to the Permanent School Fund:

Support students today. Maintain the resource for students tomorrow.

Students First. Improve the Trust.

Learn more about Minnesota's Permanent School Fund amendment at mnpsfamendment.org.