State lawmakers zero in on education funding, OPI spending

Montana lawmakers this month have trained a critical eye on funding for public schools, proposing new enhancements to the state's education funding formula and raising concerns about the handling of federal school funds by Montana's statewide education agency.

The latter initially arose last week when state auditors in Helena presented legislators with a scathing report questioning the Montana Office of Public Instruction's handling of $67.5 million in federal money for Montana schools. Auditors specifically noted that the agency had not maintained sufficient documentation for federal programs directed at low-income students, special education and COVID-19 relief - an issue they partly attributed to high employee turnover at OPI.

State Superintendent Elsie Arntzen acknowledged that loss of institutional knowledge last week, but along with OPI staff sought to defend the agency's recent efforts to improve its accountability and compliance procedures. That defense continued Wednesday as members of the Legislature's Education Interim Budget Committee revisited the audit's findings during an update on OPI's progress in spending its remaining federal pandemic dollars. Rep. David Bedey, a Republican from Hamilton and the committee's chair, said lawmakers had a "heightened awareness" of issues related to the funding following the audit report.

"That gives us some concern about the completion of this project," he added, inviting OPI staff to "assuage our concerns." Wendi Fawns, ESSER program director at OPI, informed lawmakers that the agency is working with district administrators and business officials to ensure they submit proper documentation as they access the remaining federal relief dollars.

The majority of the spending questioned by Montana auditors was tied to Elementary and Secondary Schools Emergency Relief funds, a nearly $190 billion pot of federal money established by Congress to address pandemic-related relief and recovery in schools nationwide. While that funding did help districts secure critical resources and services for students and staff over the past four years, state and federal audits elsewhere in the country have highlighted specific instances of inadequate tracking or inappropriate use of those funds. Documented misuse of ESSER funds in one West Virginia county prompted the state's board of education last year to seize control of the county's school system and fueled the retirement of the state's superintendent.

Members of the Legislature's education interim budget committee also reviewed several proposals Wednesday for improving state funding for Montana's K-12 school system - an acknowledgment of the mounting struggles districts across the state have experienced in delivering a quality education to their students.

"We see that there's still a lot of work to be done," Bedey said in introducing the draft policies, which he initially teased earlier this month on a panel at Free Press Fest, "but this is an important enough thing that we thought the conversation should start now and not on the first of January."

Among the notions advanced by Bedey ahead of the 2025 legislative session was the addition of two new components to the state's education funding formula, a complex mix of financial building blocks that set the floor and ceiling for local district budgets. In addition to per-student bulk payments, existing components include state allocations to support quality teachers, Indigenous students, special education programs and instructional requirements around Indigenous history and culture. The new components would add to that mix state funding to incentivize teacher pay raises and student enrollment in college-level courses.

The former marks a continued evolution of the 2021 TEACH Act, which established state-funded incentives for local districts to increase salaries for early career teachers. Under the latest proposal, those incentives would be built directly into the state funding formula, and eligibility would expand to include all licensed school employees including librarians, counselors and teachers working under emergency authorizations. Rep. Llew Jones, R-Conrad, who Bedey credited as the architect of the proposal, described it as "the TEACH Act on steroids."

"We started thinking, well, local control is local control," Jones said Wednesday, "but if we are going to put a big block of money into schools - since the TEACH Act concept put about $3 million in but it wasn't enough to move the needle - we were going to pursue a similar concept but with a much bigger number."

Initial estimates presented to the budget committee showed that, with 13,000 employees statewide currently meeting that threshold, the change would result in an additional $50 million in state funding for public schools.

The second new component would create a new revenue stream in the funding formula based on the number of high school students in a district taking at least one semester worth of dual-enrollment college courses. Legislative estimates show the change could result in a statewide funding increase of up to $28 million.

During public comment, Kim Popham with the Montana Federation of Public Employees expressed concern about how the proposal would account for Advanced Placement credits, which are only awarded after a student completes an end-of-year exam. Montana School Boards Association Executive Director Lance Melton seconded that concern but noted such details will drive discussion during the coming session, adding, "We're really excited at the prospect of improving equity and adequacy."

The policy package also included a proposal to increase the state cap on local school budgets for districts where housing costs exceed 105% of the state median. The additional budget authority would be restricted to employee housing stipends or district-provided housing, and the costs would have to be covered entirely by those districts. Bedey introduced a separate bill draft as well that would revise how the state equalizes funding between districts with differing levels of property tax wealth.

Collectively, the proposed changes begin to shed light on how lawmakers plan to address a fundamental concern articulated by local education leaders over the past year: that state support for public schools has not kept pace with those schools' needs. Those leaders have specifically called out the Legislature for its strict adherence to a 3% annual funding increase to account for inflation - an issue Jones and Bedey indicated the new proposals are intended to resolve.

In addition to the 2025 legislative session, public school advocates have repeatedly invoked the upcoming 10-year review of the state funding formula as an opportunity to explore longer term fixes to the current crisis. That review, which is required by law and will occur after the session next year, was the subject of one more proposal put forth to the budget committee Wednesday: a draft bill to restructure the commission in charge of that review, requiring that it include lawmakers from key legislative committees as well as representatives from the state superintendent's office, the board of public education and at least one local school board trustee.

"I think a comprehensive review of school funding has to involve a comprehensive look at the totality of funding and funding sources across the board," Bedey said, noting that while state funding is a significant chunk of the revenue that flows to public schools, it isn't the only source. "The only way to get at that is to, unlike the 2015 decennial study, is to actually do the analysis necessary to answer the question: What is the adequate level of funding? Once you have that, then you can start deciding how you're going to actually do it."