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A plan to eliminate nearly $13 million in school funding will require many districts to strain reserve funds while a few will have to reduce services, maybe eliminating bus routes.

Some school leaders accept the proposal as a duty to share the burden of state budget woes. Others criticize legislators for forcing schools to raise local taxes in order to save political face by avoiding raising rates at the state level.

Dennis Parman, executive director of the Montana Rural Education Association, said the cuts proposed by Gov. Steve Bullock have “tepid support” from school leaders because they will “hurt less” than other ideas.

Parman said a separate suggestion by state leaders from both parties to freeze annual inflationary increases to base aid payments would be unconstitutional and would likely result in lawsuits.

“One big message was that K-12 education was going to have to be part of the solution of balancing this state budget,” Parman said.

Bullock called legislators back to Helena this week for a special session to address a $227 million shortfall after revenues came in lower than expected. Schools make up one of the largest sections of the state budget, receiving nearly $1.6 billion each biennium from the $4 billion general fund.

Legislators already cut $19 million from annual school budgets earlier this summer to address low revenues and had reduced state funding during the spring legislative session. Now, the governor is asking legislators to eliminate block grants mostly used for transportation.

The legislation also has a provision that keeps schools from shifting the cost to local taxpayers, at least immediately. Instead, it directs districts to dip into reserve funds which are used to balance cash flow, maintain buildings, cover emergency expenses and return taxes that are successfully protested.

Education organizations reluctantly supported the proposal but said it’s unclear how districts will make reductions if they don’t have enough reserves to cover expenses. They also said it’s possible districts will be forced to levy for more taxes in future years to replenish reserves.

At a Monday hearing, Kirk Miller, executive director of School Administrators of Montana, said some districts would suffer more than others. Three districts in Montana — Biddle School in Powder River County, Cardwell Elementary in Jefferson County, and Kircher Elementary in Custer County — don’t have enough in their reserve funds and will have to cut services, Parman said.

A spokesperson for Superintendent Elsie Arntzen had said late last week that the Office of Public Instruction opposed eliminating the block grant, but she did not go that far in her legislative testimony.

She canceled a Monday interview and her spokesperson declined to clarify whether her position had changed, noting only that she had concerns and “her role is to show what the effects will be of eliminating block grants.”

District officials interviewed Monday were worried most about the proposed elimination of transportation funding.

Bainville Superintendent Renee Rasmussen, a school finance expert who has served on state committees, said her district in rural northeastern Montana would only be able to patch its transportation budget with fund transfers for “maybe a year.” After that, she said it would have to cut services or seek local tax increases that the legislative proposal seeks to ban for four years.

“It will depend on the school district,” Rasmussen said, noting that schools that contract for bus services — such as Missoula and Billings — will have less flexibility than those that run their own buses. “The question has to be, what’s the long-term impact of this? If taxpayers don’t want to do this, the only thing you can do is sell off your buses.”

Missoula public schools, one of the largest districts in the state, would be able to cover transportation costs with reserves as proposed, but doing so would damage the security and flexibility of the budget, said Pat McHugh, who manages operations and finances for the district.

The elementary district has about $1.9 million in reserves across all its funds and would lose about $442,000 over the two years without state support for transportation. The high school district has about $1.6 million in various reserves and would have to backfill about $342,000. Reserves would be drained further by the loss of other state block grants, including one the district uses to pay for unexpected building maintenance.

Bullock Budget Director Dan Villa said the legislation must pass to deal with state cash flow problems. Districts without enough in reserves right now will have to cut services, he said.

Villa argued eliminating the grants for two years and blocking new taxes for four years should have minimal effects going forward. Some districts said it’s not so simple.

The reserve figures presented to legislators do not provide additional context about the size of each district’s budget. The reserves in Missoula, for instance, account for about 5 percent of annual spending or a little less than one month’s payroll. It’s a narrow safety net that, depending on the district, McHugh said could be wiped out by a financial emergency.

The scenario, while unusual, is not far-fetched.

For six years, legislators failed to fund major maintenance at public schools, exacerbating a backlog estimated to be $1 billion. This spring, legislators crafted a long-term solution, but the current budget crisis includes a proposal to freeze access to those funds for now.

And Laurel schools serve as an example of the importance of having adequate reserves.

The district has had to return taxes paid by the CHS refinery, which makes up more than than 50 percent of the district’s K-8 tax base, after the company successfully protested its bill year after year.

Schools who have to pay back those taxes because of a dispute in property values set by the state drain their reserves and sometimes have to take out loans, all but halting any discussions about expansions or improvements. Sometimes districts cannot simply cut spending because schools must spend a certain amount as part of a statewide effort to equalize the quality of education.

In Missoula, McHugh said trustees decided to be “conservative with our reserves” this year and did not renew two elementary-level permissive levies out of recognition that local taxpayers already faced higher bills after approving building bonds totalling $158 million in 2015 and an operating levy for $800,000 earlier this year.

If legislators move ahead with eliminating block grants, McHugh said building up reserves, possibly through a tax levy, “will be part of the discussion next budget session.”He is unsure, however, that might be structured since the state limits the circumstances under which districts can move money to reserves, rules designed to prevent over-taxation.“It’s not just an option at this point,” he said, referencing a feeling statewide that taxpayers cannot or will not accept higher local property taxes.

Communications Director Hatton Littman noted that “Missoula taxpayers have already picked up more of the district’s budget this year due to cuts from HB 647 and SB 621,” which McHugh estimated cost the district about $1.5 million in state support.

Yet, most districts are willing to spend their reserves if asked by state leaders, calling it the best possible compromise given the state's budget situation. McHugh noted other state-funded programs have had steeper cuts and layoffs already.

“We recognize for certain the predicament we’re in as a state. We’re already looking for other options,” he said. “We’ll manage. I worry more about the future and what goes down.”

Rasmussen noted it’s not the first time the state has tapped into school reserves to manage a state budget crisis.

“It's be done before. Schools just have to muddle through. The impact, however, falls on the kids,” she said, skeptical that this will be the last time state leaders cut school funding to fix what she sees as bigger issues with the state budget. “The state isn't saying ‘We have enough money, just not allocated well.’ They are saying, ‘We need more money but we're not willing to tax and risk the wrath of the taxpayers. You, local school district, you tax.’”


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