Utah Constitutional amendment could triple school trust payments, benefiting students

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ST. GEORGE School districts could receive three times more revenue from State Trust Lands within the next few years if a proposed constitutional amendment and bill are passed by the Utah Legislature and receive voter approval.

The proposed amendment to the Utah Constitution would increase and stabilize funds distributed to Utah schools from the permanent State School Fund.

It would mean more money for schools, and it is a good policy shift,” Tim Donaldson, director of the School Children’s Trust Office for the Utah State Board of Education, said.

In 2001, only $4.9 million was distributed to schools from the fund, but by 2016 that number grew to $45.7 million. Under the proposed changes, distributions from the fund would reach $148.9 million by 2025.

Washington County School District received $1.6 million in School Land Trust Funds last year, while the smaller Iron County School District received $581,085,” Deena Loyola, public information officer for the Utah Trust Lands Administration, said. 

Annual interest and dividends from the school fund are distributed to each public school in Utah to be spent as determined by a school community council in the area of greatest academic need, and only for the direct instruction of students.

 The Changes to School Funds amendment, S.J.R. 12, sponsored by Sen. Ann Millner (R-Davis, Morgan, Weber) and Rep. Melvin Brown (R-Coalville), would change the Utah Constitution to allow a new distribution formula to be used.

The accompanying Senate bill, S.B. 109, sponsored by Millner, would create the new formula for distributing money from the State School Fund. The formula considers both enrollment growth and inflation and includes a rolling three-year average of fund growth to ensure the distribution doesn’t respond too quickly to market volatility, the statement said.

Background

One-ninth of all nonprivate land was set aside as school trust lands when Utah became a state. The lands are managed to maximize earnings, which go into the permanent State School Fund, according to a statement in support of the proposed changes written by Utah State Treasurer David Damschen, School Children’s Trust specialist Natalie Gordon and Donaldson.

The fund dropped to an all-time low of $18 million 25 years ago because trust assets were not being managed for the beneficiaries, the statement said. The land was underperforming, and the permanent State School Fund had been continually raided.

In 1994, the School and Institutional Trust Lands Administration was created to manage the land trust, generating revenue from land sales; surface easements and leases; royalties from energy projects; and real estate development.

The State School Fund has now grown to just over $2 billion in market value and interest and dividends are distributed to each public school in Utah. However, interest and dividends have become outdated categories as the fund now consists of a diverse collection of stocks, bonds, real estate holdings, real estate investment trusts and commercial partnerships.

Because of these changing market conditions and other factors such as extremely low interest rates, distributions from the fund have been only about 2 percent, and that number needs to go up, Donaldson said.

“This current formula doesn’t really work,” Donaldson said, “and so that’s why the trust fund’s board and the state board of education have looked at it and said it would work better to implement this new formula.”

The proposed formula will distribute a percentage of a three-year rolling average and is designed to stabilize the level of funding distributed to schools. A similar formula is used by every permanent endowment, Donaldson said.

The principle of intergenerational equity states that to ensure the needs of current and future beneficiaries are met, the fund should not distribute too much or too little.

If you send out more than 5 percent, you’re eating into your seed corn and the fund will actually decline over time,” Donaldson said. Distributing less makes the fund grow, but shortchanges current students.

“And so as a trustee of a permanent endowment, the state has a legal obligation to balance them. So this is about updating the legal governing documents to draw more of an optimal balance in 2016 financial markets, that are way different than the 1890s financial markets were.”

The three-year rolling average will stabilize payments to Utah schools, Donaldson said.

“We don’t want it to be really quick to go up in the good times, and then really quick to drop in the bad times. When there’s a market crash, we don’t want to see this money dry up at the same time tax revenues are drying up. This formula helps stabilize it,” he said.

Prognosis

Donaldson believes the amendment has a good chance of passing, although the financial intricacies involved in running a permanent endowment such as the State School Fund can be difficult to explain.

With the legislature and the policy makers, there is consensus,” Donaldson said. School boards, the teachers union and the parents all support the proposed changes, he said.

The proposed constitutional amendment passed the Senate Education Committee Tuesday, Donaldson said. If the resolution passes the Utah Senate and House of Representatives, it will be put on the ballot in the next general election. If passed, the changes would take effect Jan. 1, 2017.

Email: japplegate@stgnews.com

Twitter: @STGnews

Copyright St. George News, SaintGeorgeUtah.com LLC, 2016, all rights reserved.

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