Montana’s Education Funding: A Fiscal Roadmap for Montana (2012)

By Curt Nichols, MPI Fellow

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Executive Summary

Montana’s school funding and administration system is complex, and disappointing student outcomes indicate room for improvement. Those who wish to improve the system will need a basic understanding of these systems or their arguments and ideas will fall on deaf ears. Yet few people do understand these systems, the incentives they create or the forces that have led to their complexity.

Schools are financed by a mixture of state, federal, and local funds. District budgets are regulated by state statute with restrictions on local control to meet state constitutional mandates as interpreted by the courts. Governance is shared by the elected local board of trustees, the governor-appointed state board of public education, the legislature, and the elected superintendent of public instruction.

Montana’s constitution guarantees equity and adequacy in our education system. School district have successfully challenged the state’s funding system based on both these guarantees in separate actions over the past two decades. In response to the Montana Supreme Court’s equity ruling, variations between districts’ budgets have been limited, state funding has been increased, state subsidies have been targeted at districts with smaller relative property tax bases, and district budgeting practices have been revised. The adequacy ruling has resulted in new entitlements and increases in state funding. The overall effect has been an increase in school spending and a reduction in district-to-district spending variation.

Districts have varying expenses and resources that are based on differences in demographics and economic bases. Districts enroll varying proportions of low income and handicapped students. These students require additional resources. Districts also vary widely in their tax and non-tax revenue bases. These widely varying revenue bases lead to large differences in property tax rates between districts spending at only modestly different levels and keep spending near statutory minimum levels in some districts.

Montana students perform well when compared to other states. However, this good performance is partly due to demographic attributes characteristic to Montana, including fewer low income, minority, and English language learners that place fewer burdens on our schools than in more populous states. The large numbers of small, rural districts, which perform well with these groups, aid the state’s overall performance record. In spite of Montana’s solid performance record, it is important to consider the relative weakness of the United States education system in international comparisons as well as the failure of our schools to meet our own expectations. Many Montana students are inadequately prepared for post-secondary education. In particular, high percentages of low income and Indian students graduate without proficiency in mathematics and science.

The impact of equity and adequacy lawsuits has been primarily to increase funding for districts. The district judge in the adequacy case specifically excluded considering student performance as an indicator of funding adequacy despite the fact that national studies demonstrate that the link between funding levels and student performance is weak. Performance incentive programs in other states and advocated by the some federal education programs are based on a belief that incentives matter and can be used to improve schools and student outcomes. Montana does not have voucher or charter school programs and only minimal performance incentive funding. Despite support in numerous other states, the rejection of these programs is partially attributable to comfort with Montana’s relatively good current student performance on standardized tests. Interestingly, other states that have adopted performance-focused programs have learned that incentives matter and actually boost student outcomes.

This paper endeavors to help parents and policymakers better understand a complex education funding system in order to more effectively evaluate education policy in the future. Our hope is that Montana’s primary and secondary education system is not only the best in the nation in terms of academic performance but also the most efficiently managed and administered in terms of dollars and cents. Our children and taxpayers deserve no less.