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2011 Legislature: Eastern Montana Schools Seek to Protect Energy Funds

Mike Dennison
Missoulian State Bureau

December 5, 2010

Helena, Mont. – In Lambert, a small community in eastern Montana’s oil-rich Richland County, oil-and-gas tax revenue poured nearly $6 million last year into the treasury of its 88-student public schools.

That money, as well as the additional $30 million it received the previous four years in oil-and-gas taxes, has helped Lambert do many things to maintain its schools.

In addition, the school district has purchased and brought in 12 homes and a triplex, which are leased out to teachers and other school staff at a bargain rate, so teachers and staff can live in Lambert instead of being forced to fight for expensive housing in Sidney, an oil boomtown 25 miles down the road.

The money also funds more than half the school budget and has paid for many building upgrades and repairs – while homeowners and businesses pay no local school property taxes.

Yet that oil-and-gas money, which flows to Lambert and districts in nearly 60 communities across eastern Montana, will be in the political cross-hairs at the 2011 Legislature, as Gov. Brian Schweitzer is proposing to use most of it to help fund schools statewide.

Districts that receive the money are gearing up for a fight, saying it’s only right to have the funds go to schools where oil-and-gas drilling occurs, to help offset the impacts and benefit from some of the only natural resources they have.

“This money was generated in eastern Montana,” says Bill Colter, superintendent of schools in Lambert. “Let’s leave it here. The schools have used the money very wisely, and made improvements to the buildings and grounds and provided some benefit to teachers.

“The state’s already getting 50 percent of the money. … I think (the governor’s proposal) is a quick fix, a Band-Aid approach to solving school funding.”

The state treasury does get about half the money from oil-and-gas production taxes in Montana. The remainder is distributed to the 35 counties and 115 school districts where the production occurs, based on formulas in state law.

Schweitzer wants to take 90 percent of the money that goes to school districts – about $38 million a year for the next two years – and use it to finance what’s called the state “quality educator” payment, a per-teacher allocation for every school district in Montana.

The quality-educator payment is about 5 percent of all state funds that go to public schools.

Some school districts that receive oil-and-gas money get just a few dollars a year, while some get millions. Schools in Richland County, which borders North Dakota, took in $15 million last year; those in the northern and eastern Montana border counties of Glacier, Toole, Liberty, Hill, Blaine, Phillips, Sheridan, Roosevelt, Fallon, Dawson and Wibaux counted nearly $9 million in petroleum revenue. Statewide, the total was about $33.6 million.

Some of the schools also have socked away excess oil-and-gas revenues in reserve or “flex” funds, to be spent on future projects or budgets.

In Saco, a small town on the Milk River west of Glasgow, tax revenue from natural gas production finances 60 percent of the school budget; the rest is from state funds that go to every school, based mostly on enrollment.

Local property taxpayers in the district pay just 23 property tax “mills,” or about $40 on the $100,000 value of a home, toward local school costs. School levies in Montana’s major cities average about 250 mills, or $425 on the same value.

Gordon Hahn, superintendent of schools in Saco, acknowledges that property owners in the district have a good deal. But urban residents who pay higher taxes have schools and communities with many more resources and programs than do small, rural schools, he says.

The natural gas revenue helps Saco finance adult education classes, music, shop, art and other electives that are commonplace at urban schools, he says.

“If I lost 90 percent of that money, I would lose staff, I would lose programs,” Hahn says. “Any elective would be cut. It would devastate our school district and our community, because they’d have to pick up the tab to support it.”

Renee Rasmussen, superintendent of schools at Wibaux, which is just off Interstate 94 near the North Dakota border, notes that 12 years ago, oil and gas resources were taxed as property, and local schools benefited from that tax base.

When the Legislature changed oil-and-gas taxation to a state production tax in 1999, oil-patch schools were promised they’d still get some of that revenue. The governor’s proposal essentially reneges on that deal, she says.

“How is it fair that we not only get no taxable valuation (for the oil and gas), but we don’t get the money, either?” she says. Wibaux schools, which have 145 kids, received about $643,000 in oil-and-gas funds last year.

In Sidney, which has been transformed into a boomtown by oil exploration, schools have used much of their oil-and-gas revenue to upgrade the 50-year-old high school. The district also contributes to a health retirement account for teachers and pays them a starting salary of about $32,200 – one of the higher in the state.

Even with that amount, however, it’s tough recruiting teachers to Sidney, where a two-bedroom apartment or trailer can run anywhere from $700 to $1,200 a month, says Superintendent Daniel Farr.

Farr says Sidney expects oil-and-gas production to increase in the area in the coming months and years, creating more demands on the school.

Rather than taking oil-and-gas money from a few school districts to finance schools statewide, the state should be encouraging oil-and-gas production wherever possible, to boost overall revenues for everyone, he says.

“To look at one source of revenue to fix the budget woes of Montana is just not real sound management – especially when you look at what we could be doing to boost production and energy development all across our state,” Farr says.

Eric Feaver, president of MEA-MFT, the union that represents Montana teachers, supports the governor’s proposal.

He says many teachers in school districts that get oil-and-gas money disagree with him, but that without the money, schools statewide are facing a $76 million cut the next two years.

Feaver, like the governor’s office, also notes that some of these districts have built up substantial reserves from oil-and-gas revenue, into the millions of dollars.

“This has not been a mystery; we’ve been telling them this was coming for a long time,” he says. “You just can’t have a bunch of unused money sitting around, particularly in times of fiscal crisis everywhere else.”

Dan Villa, the governor’s education policy adviser, says other revenue from timber and mining is shared among schools statewide, and that oil-and-gas revenue shouldn’t be an exception.

Yet oil-and-gas school districts and their supporters are adamant that they are not getting away with anything, that they’ve used the money frugally, and should not be a target during these tight budget times.

“Every time you run a little bit short of money in your budget, you shouldn’t go out and just steal it from somebody else,” Rep. Wayne Stahl, R-Saco, says of the state. “You’ve got to consider the rest of the community you’re living in when you do these sort of things.”