From public lands to Montana classrooms

Just ahead of the Thanksgiving holiday, state Superintendent Elsie Arntzen issued a celebratory announcement that she’d accepted $46.3 million from the Montana Department of Natural Resources and Conservation. Her message came complete with a photo of a large novelty check made out to “Montana’s K-12 Schools” and emblazoned with the image of a remote state-owned cabin site in Sanders County.

“Our precious state trust lands are working for our most precious treasures — our students,” Arntzen said in a statement accompanying the announcement. “The money earned from our trust lands directly benefits all Montana’s public school students while easing the burden on Montana taxpayers.”

The celebration spoke to a line often repeated by politicians and conservationists about the role that public lands — and, more specifically, the money they generate — play in Montana’s public school system. For decades, activities such as natural resource development and livestock grazing have been touted as a boon for school funding, producing approximately $50 million annually that state law earmarks for the benefit of students. It’s a source of financial support for public education that’s actually enshrined in the Montana Constitution, designed to channel dollars to classrooms in perpetuity.

But as with so many revenue streams in state government, the full story is far from simple. The $46.3 million Arntzen accepted last fall will eventually reach public schools across the state, but not before traveling a path that will take it through the Montana Legislature, which convened for the 2023 session on Jan. 2. In fact, lawmakers on a joint subcommittee tasked with overseeing Montana’s next education budget received a detailed briefing Monday on the various formulas and mechanisms in place to guide state dollars to local schools. 

During that presentation, Legislative Services Division research analyst Pad McCracken was candid with senators and representatives about the intricacies of those mechanisms — and the considerable power lawmakers wield in appropriating those dollars.

“We’ve got formulas for retirement, transportation, debt service, major maintenance aid and the building reserve, and I can’t think of one that’s simple. They’ve all got lots of dials and levers in them,” McCracken said. “The 150 people who are empowered to make adjustments to that is this body, the Legislature.” 

How exactly does money generated by Montana’s public lands reach its final destination? And where else do those dollars end up? As lawmakers dive into yet another round of budgeting and policymaking, these are central but frequently overlooked questions. The answers can provide Montanans with a deeper understanding of the complexities of making good on a constitutional guarantee: “a system of education which will develop the full educational potential of each person.”

THE GUARANTEE ACCOUNT

Public lands generate distinct pots of money for public education that find their way to schools in different ways. The first, and biggest, is called the Guarantee Account. That’s where the $46.3 million that Arntzen accepted from the DNRC last fall landed. Those dollars come from the sale of timber harvested on school trust lands, as well as from the leasing of state land for grazing by cattle, sheep and other livestock. Under state law, the Legislature is required to allocate a certain amount of funding for each school in the state based on several factors, including the number of students enrolled in those schools. That allocation is called BASE Aid, and the first source lawmakers tap to fund it is the Guarantee Account.

Education is consistently the single largest chunk of Montana’s two-year budget. As the Office of Public Instruction documented in a post-session report, the 2021 Legislature appropriated $2.1 billion in state funding for K-12 public education, with BASE Aid alone accounting for roughly $1.7 billion. In other words, the roughly $50 million generated in trust land revenues each year covers only a fraction of the financial needs of Montana schools — 5.2% of OPI’s total expenditures in fiscal year 2022, according to the DNRC’s most recent financial review. The rest of the funding for BASE Aid payments to schools is pulled from the state’s General Fund, a huge collection of cash that comes primarily from income and property taxes.

If trust land revenues cover only a small fraction of the state’s overall budget for K-12 education, their share begins to shrink further as you look at where individual schools and districts get their money. Mike Waterman, executive director of business and operations at the Bozeman School District, said his district’s adopted budget for the current school year is close to $109 million. Of that, he estimated that local property taxes are covering about 44%, while state revenue is covering roughly 32%.

Kalispell Public Schools Finance Director Denise Williams said the share of state funding in her district is quite a bit higher — about $10 million in direct aid and a further $7 million in tax-based equalization funds, contributing to an overall district budget of $23 million. She added that while it’s “great” to know that trust land revenues were up this year, the news has little impact on local decision-making.

“It’s nice,” Williams said, “but it doesn’t impact how I plan here.”

Because state law guarantees schools a certain amount of funding each year, and because trust land revenues cover only a fraction of that funding, Lance Melton characterizes the Guarantee Account as more of an offset. As executive director of the Montana School Boards Association, Melton has played a prominent role in helping shape the policies governing public education in the state. He’s quick to note that while commercial activity on public lands is often touted as benefitting K-12 students, the reality is that any increase in revenue from those lands simply frees up General Fund dollars for lawmakers to direct to other agencies.

“The bottom line is that if the [trust land] money comes in short of what we anticipated, it doesn’t change what schools get,” Melton said. “If it comes in long, it doesn’t change what schools get.”

The last time Montana saw a considerable increase in trust land revenues was in 2011, when the state received a sudden influx of bonus payments from coal leases at Otter Creek. Then-Gov. Brian Schweitzer billed it as a coup for public schools to the tune of $86 million, a line that public education advocates criticized as misleading. In an op-ed at the time, Melton pointed out that the one-time payments merely increased the state’s ending fund balance, and that messaging about a trust land windfall going directly to schools actually contributed to voters across Montana rejecting local ballot requests for additional education funding.

That episode triggered a successful push for change in the laws governing trust land revenues — and the one caveat to Melton’s reality check. As of 2017, every dollar generated for the Guarantee Account over $56 million goes into the state’s major maintenance account, a separate pot of cash schools can access for improvements to physical infrastructure. Revenues from timber and grazing leases have not exceeded $50 million a year since the law was changed.

THE REST OF THE PIE

When it comes to other revenue-generating resources on public lands — namely, royalties from oil, gas and coal development — Montana treats the flow of money a bit differently. Those dollars are still earmarked for education, but rather than going straight to schools, they’re directed to a long-term cash reserve designed to ensure K-12 funding for decades to come. That trust account, known as the Permanent Fund, produces annual interest, 95% of which gets funneled into the Guarantee Account. Last fiscal year, that interest amounted to just over $24 million, a little more than half of the total contributions to the account.

Additional smaller stores of money from trust lands are directed to more tailored purposes, chief among them the School Facility and Technology Fund. Lawmakers created that account in 2017 to assist public schools with equipment and infrastructure improvements, and redirected excess revenues from timber sales above 18 million board feet from the Guarantee Account to help fill those coffers. The fund also draws money from leases of state-owned riverbeds for hydroelectric generation.

According to OPI spokesperson Brian O’Leary, the Legislature last session earmarked $1 million per year in timber-derived funds specifically for distribution to schools for technology needs. O’Leary added that any money from riverbed leases currently goes toward a debt service program for public schools.

Over the past decade, lawmakers have occasionally used their authority to implement temporary changes to how this money flows. From 2012 to 2014, riverbed lease revenues were redirected to the Guarantee Account before reverting back to the facility and technology fund. And during a special session convened in fall 2017 to address budget shortfalls, the Legislature opted to temporarily steer funds from the School Facility and Technology Fund to the Guarantee Account to help pay for BASE Aid.

There’s one more large slice of school funding that, while not generated from trust lands, may become tied to trust land revenues in the months to come. In the late 1980s, concerns about unequal per-pupil spending between districts with lower or higher taxable property values fueled a lawsuit against the state. The result is that now, a portion of county and state property taxes goes to help equalize funding for schools across the board. According to the Legislative Services Division’s presentation Jan. 9, those “95 mills,” as they’re known, generated roughly $335 million in fiscal year 2022.

While the 95 mills are collected expressly for distribution to K-12 districts, current law deposits that revenue in the General Fund. As a result, Assistant Budget Director Ryan Evans with the governor’s Office of Budget and Program Planning said, “sometimes you can lose track of that money.” As the 2023 session continues, that’s one of the aspects of education funding in Montana that Gov. Greg Gianforte is looking to tweak.

PROPOSED TWEAKS AND PROJECTIONS

Last fall, Gianforte released his proposed budget for the coming biennium, which lawmakers will now consider as they debate their own two-year spending package for Montana. Gianforte’s proposal includes dozens of major and minor adjustments, among them a pitch to redirect the 95 mills for school equalization into the Guarantee Account. As Evans told Montana Free Press, that funding switch would “without a doubt” ensure the funding is reaching schools “as it’s intended.”

“What it is on our part, it’s a transparency effort for those 95 mills to get it dedicated to a state special [account] to make it undeniably available for the schools to equalize education across Montana,” Evans said.

The redirect will ultimately have to be approved by the Legislature. As of Jan. 10, no such bill had yet to appear before lawmakers.

Arguably the biggest issue driving the policy conversation in Helena this year is how best to utilize a nearly $2 billion surplus in state funds. For his part, Gianforte has expressed a desire to direct those funds toward housing development, state health care and correctional facilities, and the creation of a child tax credit, along with roughly $1 billion in property and income tax cuts. Also on the list is a one-time $83 million infusion into the facilities fund that pays for major school maintenance. According to Evans, that infusion would bring the fund’s balance up to the $200 million cap implemented by lawmakers in 2017 and maximize the amount of interest it generates annually for schools.

“The governor said, ‘Let’s jumpstart that money, let’s get that money out on the streets as soon as this biennium to start offsetting some of those local costs for major maintenance across the state,” Evans said. “That in perpetuity will be effectively endowed or in trust to school major maintenance of facilities.”

While revenue from Montana’s public lands may cover only a fraction of the expenses necessary to meet those challenges, the forecast for how much those lands will generate for education in the coming years looks promising. The Legislative Fiscal Division is projecting that trust lands will produce as much as $56.8 million for the Guarantee Account annually by 2025. That tracks with predictions from the governor’s budget office, which is forecasting slight decreases in money from timber and grazing activity offset by a sizable increase in investment income. Evans attributed that outlook to favorable interest rates and the considerable value of Montana’s trust land assets.

“It truly is a story of interest earnings,” Evans said.

Why do the details of trust land revenues and education funding matter? Money lies at the heart of many of the challenges public schools across Montana contend with, from recruiting and retaining qualified teachers to maintaining safe facilities for their students. Adequate funding ensures not only that schools are able to meet those challenges, but that lawmakers have the financial flexibility to explore new solutions this session. Given how rural and isolated much of the state is, Melton said, conventional wisdom suggests Montana should be spending more per pupil than states with closely grouped student populations. Instead, Montana’s public school system operates at roughly $216 million a year less than the national average, according to 2020 data from the U.S. Department of Education.

“We actually fund our schools and our schools get by on nearly $1,400 less per pupil, and there’s 155,000 of those kids in our public schools,” Melton said. “I’ll tell you that our schools do a pretty darn good job for the people of Montana for substantially less than what it ordinarily costs elsewhere.”