Spurred by the plight of school districts like Plentywood, Mont.--where students have been attending classes in a skating rink since their school burned down a year ago--a Montana state panel has voted to provide emergency help to districts whose ability to sell construction bonds has been halted by the legislature’s failure to complete reform of the state school-finance formula.
The Board of Investments last month agreed to provide $15 million from the state’s Coal Trust in bond-anticipation notes as a “stopgap measure” that, officials say, will provide some much-needed relief to districts hamstrung by the bonding restrictions.
Plentywood is one of 13 districts statewide that have identified roughly $38 million worth of construction projects that have gone unfunded because they cannot raise money on the bond market.
Montana districts’ power to raise capital through bond sales was cast into doubt by a 1989 state supreme-court decision striking down the existing school-finance system. The court held that the state’s method of paying for school construction, as well as for other school costs, created unconstitutional variations between rich and poor districts.
To give lawmakers time to devise an alternative method for financing building costs, the court exempted school-construction bonds from the ruling until July 1991.
In response to the decision, the legislature moved during a special session to revamp the basic school-finance system. But lawmakers did not act on the bond issue during their regular 1991 biennial session. With the passing of the court’s deadline last summer, the security of any new bonds was thrown into question legally, effectively shutting districts out of the market.
Short-Term Solution
To provide some assistance to financially strapped districts, the Board of Investments decided to make money available to districts until they can legally borrow to repay the debt.
The board will give preference to districts where a school was destroyed by natural disaster or where the money is needed to meet health and safety regulations or to bring buildings into compliance with state accreditation standards.
The board has asked the state education department to help rank requests for aid, and it expects to make the money available in March.
Although the decision is expected to provide short-term relief to some districts, local officials are still concerned that $15 million will not meet enough of the pressing needs of schools and that the plan does not provide long-term assistance.
William Adamo, director of business services for the Livingston schools, for example, noted that his district has been unable to replace an unsafe elementary-school building that dates to the early 1900’s.
While the board’s decision may be “a good short-term solution, it doesn’t allow us to access the market,” he said.
Mr. Adamo explained that the district needs approximately $3.4 million to replace the building, which the state fire marshal has deemed to be “of questionable safety.”
Because the structure is in such poor condition, he added, the state beard of education has “threatened” to withhold Livingston’s state aid, which could cost the district as much as $500,000.
Such a deduction would represent a “big hit” to the elementary district’s $3.3-million annual budget, Mr. Adamo said.
Missing Out on Low Rates
Mr. Adamo argued that a better solution to the current dilemma would be to have the state guarantee local bonds. That would enable districts to enter the bond market at a time when interest rates are at their lowest levels in many years, he noted.
“The really criminal thing about this is that school districts in the state of Montana cannot access those financial markets right now when they are the best they have been in years,” he said.
Gregg Groepper, the assistant state superintendent for school operations, conceded that the investment board’s solution was far from perfect. But, he said, “right now, it’s the only relief available .”
Mr. Groepper added that state education officials are drafting a plan under which the state would, in effect, “act as a co-signer for school bonds” until a permanent solution to the problem can be found.
But such a measure could not be considered by the legislature until its regular biennial session in 1993, unless lawmakers can persuade Gov. Stan Stephens to include the bill on the agenda of a special session that he is expected to call this month.
The likelihood of addressing the bonding issue during the special session is “slight,” however, because only a few districts are affected by the bond ruling, Mr. Groepper said.
Victor Bjornberg, Mr. Stephens’s press secretary, said that, as of last month, the proposal had not been included in the Governor’s call, “simply because nobody has come forward with a plan that everyone can agree to.”
Mr. Bjornberg noted that the session is expected to be a short one focused on closing a projected $73-million shortfall in the state’s $4.2-billion biennial budget.
Rural Challenge Mounted
In a related development, a group of 160 rural districts has filed a school-finance suit that argues that Montana’s foundation formula fails to adequately reimburse rural districts for the higher costs of educating students.
The suit, filed last month by the Montana Rural Education Association, also charges that the state’s guaranteed-tax-base program, which is designed to reduce disparities in the state’s property-tax-based funding system, favors larger urban districts, said Charles Erdmann, the association’s lawyer.
A separate suit questioning the constitutionality of the state’s revamped funding formula has already been filed. But Mr. Erdmann said that suit does not address the issues that concern rural schools.
