Minnesota voters will decide in November 2026 whether to change how the state's $2.3 billion Permanent School Fund pays out to schools. Lawmakers placed a constitutional amendment on the ballot that would replace the current interest-and-dividend-only distribution with a payout equal to 4.5 percent of the fund's three-year average net asset value. The change, if adopted, would take effect July 1, 2027, for aid payable in fiscal year 2028. The ballot question asks whether to increase funding to all school districts without raising individual income or property taxes, and carries the title "Increasing funding to school districts."
Under current law, annual distributions have ranged from 2 percent to 2.5 percent of fund value over the past decade, according to the Minnesota House Research Department. The fund grew from $675 million at the end of fiscal year 2010 to $2.3 billion at the end of fiscal year 2025. A task force created by lawmakers in 2024 found that Minnesota's constitutional restriction on distributions is unique among states with permanent school funds and creates year-to-year swings in what districts receive. The amendment would not change the uniform per-pupil formula used to divide payments among school districts and charter schools.
The amendment and its mechanics
The amendment needs approval from a majority of all votes cast in the 2026 general election, not simply a majority on the question itself, according to the House Research Department. If adopted, annual distributions would be set at 4.5 percent of the fund's average net asset value at the end of the preceding three fiscal years. The legislation also includes a safeguard for the fund's principal: when a fiscal year produces a net gain from the sale of securities, the gain is spread in equal installments over the next ten fiscal years to cover later losses, and any portion not needed to recover those losses is added to principal.
Fund growth and payouts
The fund has been growing faster than Minnesota has been allowed to spend from it. The task force reported an annualized return of 8.0 percent over the ten years ending September 30, 2025, with an 11.4 percent return over three years and 10.9 percent over one year. Its benchmark blends the S&P 500, the Bloomberg U.S. Aggregate Bond Index, and a money market average. Distributable earnings for fiscal year 2025 were $58.6 million, up from $52.2 million in fiscal year 2024 and $42.2 million in fiscal year 2023.
How other states set distributions
Texas is the closest comparison. The state sets its Permanent School Fund distribution rate every two years based on the average market value of the preceding 16 fiscal quarters. For fiscal years 2026-27, the rate is 3.45 percent, projected to yield about $3.6 billion, with up to $600 million per year available from royalty revenue. The rate has ranged from 2.5 percent to 4.5 percent over the past two decades, according to the Legislative Budget Board of Texas.
New Mexico's land grant permanent fund distributes 5 percent of the average of year-end market values over the preceding five calendar years, plus a voter-approved 1.25 percent for early childhood programs when the five-year average stays above $17 billion. Since 2003, New Mexico has consistently distributed more than the roughly 4 percent sustainable rate identified by Headwaters Economics.
Arizona voters approved a 6.9 percent distribution rate in 2016, after backing 2.5 percent in 2012. The 6.9 percent rate ran through fiscal year 2025, and beginning in fiscal year 2026 the distribution reverted to 2.5 percent of the five-year average monthly market value unless new legislation changes it. Headwaters Economics found that the 6.9 percent rate exceeded the optimal sustainable level and eroded the real value of the trust.
Against those examples, Minnesota's proposed 4.5 percent rate is above Texas's current 3.45 percent and below the 6.9 percent Arizona allowed and the 6.25 percent New Mexico distributes when the added program's threshold is met. The averaging windows differ, so the rates are not exact comparisons.
What the research shows
The research record on the proposed rate is mixed. The Minnesota task force concluded that the fund's long-term returns support a higher distribution and that moving to a percentage-of-market-value model aligns with other states. Headwaters Economics found that rates above a fund's long-term real return, meaning returns after inflation, erode the inflation-adjusted principal over time, while rates below it let the real principal grow. The group estimated long-term real returns for several states, from 1.48 percent in Colorado to 5.14 percent in Arizona. It did not evaluate Minnesota, and its framework suggests that a 4.5 percent payout alongside an 8.0 percent nominal return would leave margin for inflation and principal growth, though the study did not apply that framework to Minnesota directly.
Texas has set its distribution rates through a State Board of Education policy of intergenerational equity, meant to keep the fund supporting future students at a comparable inflation-adjusted level. That approach stands apart from Minnesota's current constitutional limit on distributions. The Minnesota task force did not estimate the per-pupil dollar change the amendment would produce.