Asset Management Plan

Minnesota’s population, demands on natural resources, and school funding needs have increased significantly since school trust lands were granted by the federal government to the state in 1857 to provide income for Minnesota’s public schools. What remains unchanged is the intent of the language in the Minnesota Constitution that directs the state to manage school trust lands to provide a steady stream of income to help fund the state’s public education system.

To make informed and deliberate future management decisions, the Office of School Trust Lands (OSTL), in conjunction with the Department of Natural Resources (DNR), has completed Phase One of the first-ever Asset Management Plan (Plan) for Minnesota’s school trust lands. The Plan will serve as a 25-year framework to guide the management of Minnesota’s 2.5 million acres of school trust lands and additional 1 million acres of severed mineral rights.

The goals of the 25-year framework, as defined in Minnesota Statutes section 127A.353 , are:

1. Retain core real estate assets.
2. Increase the value of the real estate assets and the cash flow from those assets.
3. Rebalance the portfolio in assets with high performance potential and the strategic disposal of selected assets.
4. Establish priorities for management actions.
5. Balance revenue enhancement and resource stewardship.
6. Advance strategies on school trust lands to capitalize on ecosystem services markets.

OSTL contracted with the institutional investment consulting firm Callan LLC to spearhead Phase One of the Plan and prescribe a series of recommendations to address in a second phase of the plan. Callan has extensive experience working with other states on their trust land portfolios, including developing asset management plans.

The Plan represents a new, forward-looking management approach for managing the state’s school trust lands, which make up 45% of all DNR-administered lands. The Plan intentionally focuses on bolstering existing revenue-generating assets (minerals, timber, and real estate transactions) while identifying potential opportunities to generate new revenue (such as ecosystem services projects) to ensure the Permanent School Fund financial assets will continue to grow.

Phase One of the Plan was completed in early 2023 and includes foundational information about school trust lands and how they are managed, recommended systems to improve strategic decision-making and facilitate robust management, a situational and risk analysis, and Callan’s recommendations. Phase Two of the Plan will address Callan’s recommendations so OSTL and DNR can successfully complete the Plan.

Callan’s Priority Recommendations

• Develop a full cost accounting or allocation methodology and system to measure the complete and accurate costs of managing school trust lands.
• Develop and operationalize a performance measurement system.
• Increase net proceeds into the Permanent School Fund.
• Adapt the portfolio to address climate change-related risks and opportunities.
• Increase understanding within DNR regarding how the agency defines and operationalizes “sound natural resource conservation and management principles”.

Three additional recommendations include developing and utilizing a series of recommended systems to make better informed school trust land management decisions. These systems include:

• Land Classification System: A classification system based on the current source of revenue generated on a land parcel or group of parcels. The purpose of this classification system is to provide asset managers an understanding of the current status of the assets within the portfolio.
• Parcel Ranking System: A system that ranks lands within each land class from high to low revenue generating potential so that high-value core assets lands are retained and low performing parcels may be considered for divestment.
• Asset Class Business Plans: Asset-specific plans (e.g. minerals, forestlands) designed to provide direction to asset managers as they implement day to-day management decisions involving school trust lands. They set forth the tactics and link on-the-ground operational management decisions with the objectives outlined in the asset management plan.

Phase Two of the Plan is currently underway. It will assess options to capture the full costs of managing school trust lands and determine the resources needed to collect and synthesize data to develop performance metrics. These steps are intended to lead to implementing a methodology and systems to:

• Fully identify, routinely compile, and consistently track all revenues, expenses, management costs, and appropriations for school trust lands management.
• Measure financial as well as natural resource-related performance.

Additionally, Phase Two will evaluate whether to develop and utilize the systems described above. Phase Two is targeted for completion in 2025. The timeline for future phases of the project will be determined by the results of those efforts.

When complete, the Plan will become a decision-making and strategic planning tool to guide the state’s school trust land management by consolidating planning for the full scope of revenue-generating activities (forest management, minerals management, real estate transactions, ecosystem services, etc.) in one place. The final plan will assess the strengths and challenges of generating revenue from school trust lands with a structure that:

• Adapts the portfolio to address climate change-related risks and opportunities.
• Considers other changing conditions such as industry growth trajectories into its strategic plans and decision-making processes for school trust land management.
• Allows OSTL and DNR to assess management decisions across asset classes and identify and pursue new strategies to generate increased net revenue for the Permanent School Fund.