Modern costs.
Old formula.
Montana’s school funding formula was built for a different era.
Since then, costs have surged, expectations have grown, and student needs have changed, but the formula hasn’t kept up.
Public schools aren’t falling short because of mismanagement. They’re falling short because the system is outdated.
Understanding why starts here.
Montana school funding explained
Local taxes. State funding. Local schools. And how it all works
The promise
The Montana Constitution guarantees every child a free, quality public education. In 2005, legislators passed laws that defined the elements of a "quality education" and a formula for how to pay for it.[1a] That formula is still in effect today.
By law, that formula must be reviewed every ten years to ensure it's still working. That review is happening right now. The bipartisan School Funding Interim Commission (SFIC) will bring recommendations to the 2027 Legislature, making this Montana's once-in-a-decade window to change the way the state pays for schools.
Learn about the SFIC process – meetings are public and open for comment.
Where the money comes from
Montana's public schools receive funding from three sources. Each plays a different role — and the way the money moves is not what most people expect.
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State (~42%): Formula-based, per-student allocation set by the Legislature
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Local (~36%): Property taxes and voter-approved levies
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Federal (~12%): Restricted grants (special education, nutrition, Title I)
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Other (~10%): Fund balances, miscellaneous grants, and other sources that vary by district and year.
Percentages are approximate and vary by district and year.[1b]
One thing most people don't expect: when you pay property taxes, the school portion doesn't flow directly to your local school. It goes to the state general fund, gets pooled with other state revenues, and flows back out through the formula. Local communities effectively fund the state system, then wait for the formula to send it back.
How the formula works
The formula covers 80% of what the state defines as the cost of a quality education. Local districts must levy the remaining 20% through property taxes and bonds. But the formula also includes a hard ceiling. School budgets can grow no more than 3% per year, no matter what costs actually do. That cap applies regardless of inflation, energy prices, construction costs, or any other real-world cost driver.
The formula excludes school buildings entirely and most needs that didn't exist in 2005 — like the technology which is now considered essential for career readiness. And there's a counterintuitive effect: when local property taxes rise, the formula can actually cause the state to reduce its contribution to keep total spending within the cap. More taxes paid in. No more reaching schools. The result is a gap that has been widening for two decades, and it shows up everywhere you look.
The gap is growing
You may have seen your property tax bill increase in recent years. Many Montana homeowners have. What you might not know: schools don't see most of that increase. Because of the funding cap, more money paid in by local property tax payers does not equal more money in local classrooms. And because the formula only provides 80% of the cost of operating schools, districts must still ask local taxpayers for the remaining 20% if they want to be fully funded.
Property taxes are up 100%. School spending is up 40%.
Since 2005. The gap between what Montanans pay and what schools receive has more than doubled.[1c]
Over the past decade, actual costs have far outpaced the spending cap. In Montana:
Electricity: +28% in a single year. NorthWestern Energy raised rates sharply in 2023 and continues seeking increases. It powers most of Montana. [2]
Health insurance is districts' fastest-growing cost. Significant enough that the 2023 Legislature created a statewide health insurance trust to manage it. [3]
School construction and repair costs are up more than 60% since 2015. Nationally, per the Bureau of Labor Statistics Producer Price Index for school construction. [4]
Special education (SPED) costs have more than doubled as a share of district budgets since 1990. Over the same period, the state's share of SPED funding dropped from 82% to 33%. [5]
Inflation has compounded the gap further. Legislative fiscal staff presented this analysis to the SFIC in February 2026, showing that the real purchasing power of Montana's per-student funding has declined substantially since 2008 and dropped sharply after 2021. Montana's schools have fallen an estimated $141 million behind inflation since 2020. [6]
That cumulative gap shows up in how Montana compares nationally. Montana spends about 15% less per student than the national average — and between 17% and 44% less than neighboring states that are outspending Montana. That difference isn't abstract. It's teachers, counselors, and programs. [10]
Where the money actually goes
It's fair to ask: where does the money go? If funding isn't keeping up, are schools spending it wisely? Here's the reality: Schools are people-powered by design. About 80 % of school budgets go to staff salaries and benefits — the teachers, paraeducators, counselors, nurses, bus drivers, and support staff who make schools work. That's not a sign of inefficiency. It's what education actually costs.
When the formula doesn't keep up with costs, that 80% is where cuts happen — because it's the only place there's anything to cut. Programs disappear. Class sizes grow. Experienced staff leave. And school days sometimes shorten, pushing childcare and supervision costs onto working families.
And specifically, when counseling positions are cut, the impact goes beyond academics. Montana's youth suicide rate is among the highest in the nation — triple the national rate for children ages 10–14. School counselors are often the only mental health resource available to students in rural communities.
And yet: Montana students have historically scored near or above the national average on national assessments — ranking 19th among states for school system quality. [11] That's a track record built by the people described above, working within a formula that hasn't kept pace with what it actually costs to employ them. The question the SFIC is now asking is what Montana schools could do with a formula that reflects reality.
Montana's staffing problem
Montana faces real challenges keeping these roles filled:
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Montana’s teacher salaries rank among the lowest in the country — even after the STARS Act[7]
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Nearly 31% of first-year teachers leave within their first year. Of those who leave, more than half leave the profession entirely.[8a]
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Replacing a single teacher costs districts up to $25,000 — money that never reaches classrooms.[8b]
Buildings don't fix themselves
Montana’s public schools are responsible for buildings that must last generations, but there’s virtually no federal or state funding to maintain them. The state only pays 1.3% of school construction costs in Montana – among the lowest in the country. The national average is 21%, or 16 times more.[9] Local taxpayers are expected to cover about 95% through bonds and levies — and 50–60% of those fail in many communities. At the same time, facilities costs don’t shrink.
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Heating a school costs the same whether it serves 100 students or 80
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Buildings still need repairs and maintenance
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Buses still run
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Safety systems still must function
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Special education services are still required
As buildings age, the gap between what's needed and what's funded grows. When emergencies hit — a roof that can't wait, a boiler that fails — districts have no reserve. They pay immediately, often by cutting staff or programs, or they wait in buildings without heat until a levy passes.
Montana's public schools face two separate annual shortfalls[9a] :
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$103 million per year in maintenance and operations
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$158 million per year in capital investment
These shortfalls have contributed to Montana school districts carrying $1.6 billion in long-term debt at the end of FY2023. This is 16% above the national average. Local communities paid $53 million in interest on that debt in FY2023 alone.[9a] This isn’t mismanagement. It’s a system that asks communities to fund 100-year buildings one levy at a time.
This plays out in communities across Montana. In June 2025, Helena's school board voted to close Hawthorne Elementary — a 100-year-old neighborhood school — after years of deferred maintenance and a district deficit that had grown to millions of dollars despite levies, cuts, and community pleas. Keeping Hawthorne open would have required eliminating school nurses, cutting special education to the legal minimum, and removing music and PE teachers. The board faced a choice no community should have to make.[9b]
Special education - a growing gap
Montana schools are required by law to serve every student with a disability. There's no opt-out. When SPED is underfunded, schools are forced into impossible tradeoffs that strains the whole system.
Here's who's is paying for special education and how that's shifted: In 1990, state and federal funding covered nearly 90% of SPED costs. Today, local districts absorb 54% while student need has grown by more than 20%. This means the local burden for SPED has more than quadrupled during this time.[5]
When special education is fully funded, everyone benefits:
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Students get the support they need earlier, which typically means less intensive (and less expensive) interventions over time
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Teachers can focus on teaching
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Classrooms are more stable
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Resources are used more efficiently across the system
This isn’t about one group of students taking from another. It’s about aligning funding with reality, so schools can serve all kids well.
References
[1a] Montana Constitution / Montana Code Annotated 20-9-309 (2005 School Funding Act). leg.mt.gov
[1b] Montana Free Press Visual Guide to Montana Public School Budgets, 2024. montanafreepress.org
[1c] Montana Free Press, school-district property tax analysis, 2020. montanafreepress.org
[2] Montana Public Service Commission rate records; Montana Environmental Information Center, NorthWestern Energy rate case, 2023. psc.mt.gov / meic.org
[3] Montana Legislature, HB 332 (2023) — School Group Benefits health insurance trust. leg.mt.gov
[4] Bureau of Labor Statistics, Producer Price Index for school construction, 2015–2024. fred.stlouisfed.org
[5] Montana Legislative Fiscal Division, Special Education Funding Report, 2023. leg.mt.gov
[6] Daily Montanan / Montana School Boards Association, school funding inflation gap, 2024. dailymontanan.com
[7] National Center for Education Statistics, teacher compensation data; SFIC Innovation & Excellence in Education Working Group Report, January 2026. nces.ed.gov / legmt.gov/sfic
[8a]Montana Office of Public Instruction, teacher turnover data, 2024. Reported via Montana Free Press and Daily Montanan, June 2024.
[8b] Learning Policy Institute, cost of teacher turnover by district size, 2024. learningpolicyinstitute.org/product/2024-whats-cost-teacher-turnover-factsheet
[9a] 21st Century School Fund / National Council on School Facilities, Public Education Infrastructure Profile 2025: Montana. 21csf.org
[9b] Montana Free Press, "Despite pleas from parents and teachers, Helena school board votes to close Hawthorne Elementary," June 11, 2025; Helena Independent Record, "End of an era: Helena school board shutters Hawthorne Elementary after century of service," June 2025. montanafreepress.org / helenair.com
[10] National Center for Education Statistics, per-pupil spending, FY2023. nces.ed.gov
[11] WalletHub, Best & Worst States for Education, 2025; National Assessment of Educational Progress (NAEP) state profiles. wallethub.com