DNR under fire for management of trust fund for Minn. schools

Exploratory drill site
A Duluth Metals exploratory drill site near Ely, Minn. in a file photo. A proposal to mine between Babbitt and Ely would generate $2.5 billion for a trust fund composed of revenue from timber sales, mining royalties other other sources of income.
MPR File Photo/Derek Montgomery

Minnesota schools are reeling from tightening budgets and expect little help from the state, which has a $5 billion deficit.

Schools get some financial help from a state trust fund most people know little about. That financial help could balloon in coming years, thanks largely to royalties from mining on state lands.

But critics say the fund isn't generating as much money for schools as it should, and they blame the Department of Natural Resources.

The Permanent School Trust Fund was established in Minnesota's constitution. It's a nest egg that's been growing for more than a century and now totals more than $600 million.

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The investment returns generated about $55 million in the state's previous 2-year budget cycle. That amounts to about $26 per student for Minnesota K-12 schools. A portion goes to each school district in the state.

Revenue from timber sales, mining royalties and other sources of income from certain state land parcels goes into the trust fund.

Most of the state's school trust parcels are in northern Minnesota, and they're managed by the DNR.

Iron mining is a major contributor to the fund and its significance is growing fast, according to Peter Clevenstine, manager of engineering and mineral development with the DNR in Hibbing.

The price of iron ore is almost 2.5 times what it was five years ago.

"If it took 100 years to get $700 million into the trust, we're looking at the next few years, that probably every four years we'll put $100 million into the trust at current iron ore prices," Clevenstine said.

But that's nothing compared to the revenue anticipated from copper-nickel mining. A proposal to mine between Babbitt and Ely would involve many school trust parcels, generating money for the next 25 years from commodities like platinum, palladium and gold.

"We're now looking at close to $2.5 billion [of] potential payout to the school trust if these deposits go forward," he said.


Despite the DNR's projection of a windfall from copper nickel mining, critics say the agency has done a lousy job managing the school trust to generate funding for schools. State Rep. Denise Dittrich, DFL-Champlin, said the DNR's mission of conservation clashes with its obligation to maximize revenue from school trust lands.

"They have a conflict of interest in trying to then manage the land for the beneficiaries," Dittrich said.

Dittrich said the DNR siphons significant money away from the permanent fund for its own land management costs, keeping 70 cents of every dollar earned from managing forestry trust lands over the past five years. The DNR can pocket $3 million, or 20 percent of mine royalties a year for managing the school trust mine properties.

Dittrich said that money should be kept for the benefit of schools.

"I think you can double that revenue," Dittrich said.

Dittrich has introduced legislation to create a new agency to run the Permanent School Trust Fund with an independent director and board of trustees.

Dittrich models her proposal on Utah, a state she said has boosted a $100 million fund to $1 billion in just 10 years, helped in part by oil reserves.

The plan has the backing of an impatient Minnesota School Boards Association. Lobbyist Grace Keliher said the DNR has not followed the legislature's direction to improve financial returns from trust lands, or to sell certain properties.

"I think it's through a bunch of frustration with the present process that we're looking at somebody who's got a voice for kids, and getting someone out of the DNR to really evaluate and structure the school trust fund land program," Keliher said.

The DNR opposes the idea, saying the result could be a patchwork of land parcels, many within state forests, managed by one agency, while the surrounding forest is managed by another.

"Having a forestry division for example, is a lot cheaper, we feel, than building a new forest agency," said Bob Meier, the DNR's director of policy and government relations. "Or if we were to contract back to another entity for our services, we would have to cover that overhead somehow.

Officials have time to sort through the debate. Copper-nickel mining still appears years away as project navigate the environmental permitting process.