Frequently asked questions about Montana school finance reform

What type of K-12 funding formula does Montana use?

Montana employs a hybrid education funding formula that has features of multiple formula types—student-centered, resource-based, and program-based formulas. As a result, substantial shares of education dollars are ineffectively delivered to school districts based on inputs, not individual student counts. Notably, only seven states use resource-based funding as their primary funding formula to allocate education dollars to school districts because they’re generally opaque and restrictive. Furthermore, no states employ program-based funding as their primary formula. This puts Montana in the minority of states.  

What are the drawbacks of Montana’s approach to K-12 funding?

Rather than putting the focus on students’ needs, Montana’s education funding formula is built around the needs of school districts. When legislators make critical decisions, the conversation should be squarely on kids and outcomes, not school districts and inputs, like staff counts. Importantly, Montana’s funding formula is also opaque, with only a handful of experts who understand how money is distributed.

What are the most pressing problems with Montana’s funding formula?

Montana’s basic entitlement lacks a coherent purpose. Rather than targeting additional dollars to rural or sparse districts with low enrollment, it instead provides a foundational grant, or a funding floor, to all districts.  

Additionally, Montana’s base funding amount (i.e., per-Actual Number Belonging) isn’t uniform. Most states have a standard per-student amount that is sometimes adjusted by grade level. But Montana uses so-called “decrement” funding that reduces transparency and further subsidizes districts with low enrollment.

Finally, Montana’s Quality Educator Payments focuses on inputs rather than students. Under the program, each school district in the state receives a set amount ($3,566 in the 2024 fiscal year) to fund each licensed educator and other licensed professionals, such as social workers, counselors, psychologists, and others. These payments incentivize hiring additional non-teaching staff because each employee generates an additional state subsidy. Additionally, research shows that teaching credentials have a weak relationship with student achievement and Montana students would be better served by allowing school districts to spend these dollars flexibly instead.

What about how local property tax dollars are equalized under the state’s funding system? 

The way Montana equalizes local property tax dollars is also a problem. Reason Foundation research shows that Montana’s higher-wealth school districts generally receive more funding per student, that greater local tax effort (i.e. districts with higher tax rates) is associated with lower per-student funding, and that higher school district poverty rates are also associated with lower per-student funding. Montana’s equalization mechanism is complex but fails to accomplish its primary goal: to streamline K-12 education dollars in a way that’s fair for students and taxpayers.

What education funding reforms should state policymakers pursue to help students and schools? 

Montana should fully adopt a student-centered funding formula as its primary way to allocate education dollars. Student-centered funding is an approach to K-12 education finance that ties education funding to individual students. It can take many forms, but typically sets a base funding amount for regular-program students, with additional weights added for classifications such as special education. Policymakers should also streamline how local dollars are equalized among school districts to reduce funding disparities, increase transparency, and result in greater tax fairness. 

Which states have student-centered funding?

The majority of states—30 states—use student-centered funding as the primary formula to allocate education dollars to school districts. This includes states with rural student populations similar to Montana, including Oklahoma, Nebraska, and New Hampshire.   

What are the benefits of student-centered funding?

Unlike other school finance approaches, student-centered funding puts student needs as the focus of education funding decisions. It also gives policymakers a clear policy lever for allocating dollars based on their goals and priorities for public education, such as improving special education services or career and technical education. Finally, student-centered funding is a transparent approach to school finance that encourages local flexibility over spending decisions.

How are weights used in a student-centered funding formula?

States use weights to deliver extra funding to support certain student populations. The most frequently used weights are for special education students, English language learners, and low-income students. Sometimes weights target additional dollars to gifted and talented students or students enrolled in career and technical education. Ultimately, policymakers can choose weights based on their K-12 priorities.

Is student-centered funding the same thing as school choice?

No, student-centered funding is not a school choice program. Both red and blue states use student-centered funding to allocate dollars to public school districts. For example, states such as Texas, Tennessee, Utah, Kansas, California, and Oregon all employ some form of student-centered funding.

What is an example of a state that has adopted student-centered funding similar to what Montana should do?

Most recently, Mississippi adopted student-centered funding in 2024, and Tennessee adopted it in 2022. But California’s transition to student-centered funding—just over a decade ago—provides valuable research and insight.

In 2013, California’s Local Control Funding Formula (LCFF) streamlined more than 30 categorical grants into a single weighted-student formula. A study by Education Trust-West found that this change helped drive substantial improvements in funding fairness.

The Local Control Funding Formula remains a popular reform. In a survey of California’s school district superintendents, 82 percent agreed that the funding formula leads to greater alignment among goals for serving students, strategies, and resource allocation decisions, and 74 percent of superintendents indicated that the financial flexibility enabled their school districts to better match education spending with their schools’ local needs. A separate survey found that, of those familiar with the California law, 72 percent of likely voters and 84 percent of parents with school-aged children viewed it positively.

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Source: https://reason.org/commentary/montana-school-finance-reform-faqs/