Minnesota voters will decide this November whether to increase annual distributions from the state's Permanent School Fund to 4.5 percent of the fund's market value, more than doubling the current payout rate. The constitutional amendment comes as the state faces a structural budget deficit, and according to a report published by the Center of the American Experiment in May 2025, the proposal could drain the trust over time just as lawmakers need it most. The report argues that the timing couldn't be worse for a decision that might undercut the fund's long-term viability.
The Permanent School Fund currently holds $2.3 billion as of March 2025 and generated a record $58 million for the state's 329 public school districts and 181 charter schools in fiscal year 2025. That amounts to roughly 0.4 percent of the E-12 education biennial budget, or about $68 per student statewide. The fund, established in 1858 with revenue from mining and timber production on federally granted lands, typically distributes between 2 and 2.5 percent of its value annually through investment income like interest and dividends. Minnesota's constitution prohibits spending the principal itself, requiring it remain "perpetual and inviolate forever." Anoka-Hennepin, the state's largest district, received $2.6 million from the fund, while Minneapolis collected $2 million.
The report warns that raising distributions to 4.5 percent could eat into the principal and drain the trust over time. Author Martha Njolomole, an economist at the Center of the American Experiment, writes that the amendment eliminates any reserve option just as legislators prepare for what will likely be a brutal 2027 budget session. The report notes that Minnesota's general fund has run a structural deficit every year since 2024, with E-12 education and Health and Human Services consuming over 70 percent of the budget and representing the two areas most likely to deliver necessary savings.
The fund's structure explains why the amendment poses particular risks now. Because the trust operates separately from the general fund as "extra" funding for public schools, the Permanent School Fund could serve as a cushion for general fund spending cuts in education during the 2027 budget session. But that requires the trust stay solvent long-term, which becomes far harder if annual payouts more than double. The fund also uses a statutory smoothing process to recover realized investment losses over time, which can make payments fluctuate from year to year. Draining the fund faster limits that flexibility. The report suggests the appeal of "extra" funds might delay the spending reforms needed to achieve long-term fiscal stability for both schools and the state as a whole.
The report concludes that discussions around the amendment have largely overlooked the state's worsening fiscal outlook, probably because the trust currently functions as supplemental funding outside the general fund. If the amendment passes, lawmakers lose a potential buffer against education cuts at precisely the moment they'll need every fiscal tool available. The bottom line: doubling down on short-term school funding increases could cost Minnesota its financial safety net when the next budget crisis hits.