2005 Montana Legislature

HOUSE BILL NO. 4

INTRODUCED BY WAGMAN

A BILL FOR AN ACT ENTITLED: "AN ACT GENERALLY REVISING SCHOOL FUNDING; ESTABLISHING A FORMULA CONSISTING OF NINE COMPONENTS BASED UPON AND ADJUSTED BY EDUCATIONALLY RELEVANT FACTORS TO EQUITABLY AND ADEQUATELY FUND THE BASIC SYSTEM OF FREE QUALITY PUBLIC ELEMENTARY AND SECONDARY SCHOOLS AS DEFINED BY THE MONTANA LEGISLATURE; REQUIRING A SCHOOL DISTRICT TO NOTIFY THE OFFICE OF PUBLIC INSTRUCTION ON OR BEFORE MARCH 1, 2006, AS TO WHETHER THE DISTRICT SELECTS FUNDING UNDER THE EXISTING BASE FORMULA OR UNDER THE QUALITY BASE FORMULA; PROVIDING AN AT-RISK ADJUSTMENT TO THE PER-STUDENT COMPONENT FOR INCREASED FUNDING TO DISTRICTS PROVIDING SERVICES FOR AT-RISK STUDENTS; PROVIDING FOR THE CALCULATION OF THE FUNDING OF CLASSROOMS BY SCHOOL SIZE, STUDENT-TEACHER RATIO, AND TEACHER SALARIES, WITH ADJUSTMENTS PROVIDED FOR GIFTED AND TALENTED AND AT-RISK STUDENTS IN EACH CLASSROOM; RETAINING 3-YEAR AVERAGE FOR ANB; RETAINING INCREASES IN THE CURRENT PER-ANB ENTITLEMENT AND THE BASIC ENTITLEMENT; PROVIDING FOR A NEW SCHOOL DISTRICT GENERAL FUND; PROVIDING SCHOOL DISTRICTS WITH BUDGETARY FLEXIBILITY BY ELIMINATING THE FLEXIBILITY FUND, THE LITIGATION RESERVE FUND, THE TRAFFIC EDUCATION FUND, THE METAL MINES FUND, AND THE MINING IMPACT FUND AND BY DIVIDING THE MISCELLANEOUS PROGRAMS FUND INTO THE FEDERAL PROGRAMS AND STATE AND PRIVATE PROGRAMS FUNDS; PROVIDING AN INCENTIVE FOR DISTRICTS THAT CHOOSE TO CONSOLIDATE; PROVIDING FUNDING FOR DEFERRED MAINTENANCE; REQUIRING A CONDITION AND NEEDS ASSESSMENT AND ENERGY AUDITS FOR K-12 PUBLIC SCHOOL FACILITIES; REQUIRING EACH SCHOOL DISTRICT TO PUBLISH CERTAIN DATA RELATED TO TEACHER SALARIES, EXPENDITURES, AND TEST SCORES; REQUIRING THE SUPERINTENDENT OF PUBLIC INSTRUCTION TO IDENTIFY AND ELECTRONICALLY POST BEST PRACTICES USED BY SCHOOL DISTRICTS TO IMPROVE THE ACHIEVEMENT OF AT-RISK STUDENTS; REQUIRING THE OFFICE OF PUBLIC INSTRUCTION TO PROVIDE A DISTRICT WITH THE ESTIMATED COSTS OF EACH PROGRAM RECOMMENDED IN A STUDENT'S INDIVIDUALIZED EDUCATION PROGRAM; REQUIRING THE SUPERINTENDENT OF PUBLIC INSTRUCTION TO ADOPT PROCEDURES TO PAY FOR STUDENTS UNDER 19 YEARS OF AGE WHO HAVE DROPPED OUT OF THEIR RESIDENT DISTRICT TO ENROLL IN AN ACCREDITED PROGRAM THAT OFFERS A HIGH SCHOOL DIPLOMA PROGRAM; PROVIDING A STATUTORY APPROPRIATION TO THE MONTANA SCHOOL FOR THE DEAF AND BLIND; PROVIDING AN INCOME TAX CREDIT FOR PROPERTY TAXES PAID FOR FUNDING SCHOOLS; AMENDING SECTIONS 7-2-2253, 17-3-222, 17-7-301, 17-7-502, 20-1-101, 20-1-308, 20-2-121, 20-3-106, 20-3-205, 20-3-324, 20-4-203, 20-5-323, 20-5-324, 20-6-424, 20-6-502, 20-6-503, 20-6-504, 20-6-506, 20-6-507, 20-6-603, 20-6-702, 20-6-703, 20-6-704, 20-7-102, 20-7-117, 20-7-306, 20-7-414, 20-7-420, 20-7-431, 20-7-435, 20-7-457, 20-7-507, 20-7-705, 20-9-104, 20-9-141, 20-9-166, 20-9-201, 20-9-212, 20-9-231, 20-9-306, 20-9-309, 20-9-311, 20-9-331, 20-9-333, 20-9-343, 20-9-406, 20-9-422, 20-9-439, 20-9-501, 20-9-505, 20-9-507, 20-9-510, 20-9-620, 20-9-622, 20-9-703, 20-10-144, 20-20-105, 39-71-2352, 90-6-309, AND 90-6-403, MCA; REPEALING SECTIONS 20-9-515, 20-9-533, 20-9-534, 20-9-541, 20-9-542, 20-9-543, AND 20-9-544, MCA; PROVIDING APPROPRIATIONS; AND PROVIDING AN IMMEDIATE EFFECTIVE DATE, AN APPLICABILITY DATE, AND A TERMINATION DATE."

WHEREAS, on March 22, 2005, the Montana Supreme Court, in Columbia Falls Elementary School District v. Montana, 2005 MT 69, 326 Mont. 304, 109 P.3d 257 (2005), affirmed the District Court's decision by concluding that the current school funding system is not correlated with any understanding of what constitutes a "quality" education; and

WHEREAS, the Court concluded that without an assessment of what constitutes a "quality" education, as that term is used in Article X, section 1(3), of the Montana Constitution, the Legislature has no reference point from which to relate funding to relevant educational needs; and

WHEREAS, the Court ruled that the current funding system is not based on educationally relevant factors and ordered the Legislature to fashion appropriate policies and legislation to define "quality", assess educational needs, and construct a funding system rationally related to educationally relevant factors; and

WHEREAS, the Court also ordered the Legislature to uphold the state's recognition, in Article X, section 1(2), of the Montana Constitution, of the distinct and unique cultural heritage of American Indians and the state's commitment in its educational goals to preserve the cultural identity of American Indians by funding the constitutional provision as implemented by the Legislature through enactment of "Indian Education for All" codified in Title 20, chapter 1, part 5, MCA; and

WHEREAS, with passage of Senate Bill No. 152 (Chapter 208, Laws of 2005), the 2005 Montana Legislature defined "a basic system of free quality public elementary and secondary schools" and provided for educationally relevant adjustments to the basic funding formula; and

WHEREAS, the 2005 Legislature also enacted Senate Bill No. 525 (Chapter 371, Laws of 2005), which established a Quality Schools Interim Committee to assess the educational needs of Montana's children, determine the costs of a basic system of free quality public elementary and secondary schools based on the definition enacted by the Legislature in Senate Bill No. 152, determine the state's share of the total costs of the basic system, and construct a funding formula that allows for adjustments based on the educationally relevant factors adopted by the Legislature in Senate Bill No. 152 and that equitably distributes the state's share of the costs of the basic system of free quality public elementary and secondary schools; and

WHEREAS, in the spring of 2005, the Quality Schools Interim Committee contracted with a team of national and Montana school finance experts to complete a needs assessment and cost analyses of the K-12 schools in Montana; and

WHEREAS, based on the needs assessment, cost analyses, and other research regarding educationally relevant factors, the Quality Schools Interim Committee drafted legislation to construct a funding formula to ensure equitable distribution of the state's share of funding for an adequately funded basic system of free quality public elementary and secondary schools.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MONTANA:

NEW SECTION. Section 1. Components of basic system of free quality public elementary and secondary schools. (1) The components of the basic system of free quality public elementary and secondary schools, as defined in 20-9-309, include the costs related to the nine components described in subsections (2) through (10) of this section.

(2) (a) The per-student component includes:

(i) funding for supplies and materials of an expendable nature that are consumed or worn out or that have deteriorated in use or items that lose their identity through fabrication or incorporation into different or more complex units or substances, commonly known as consumables; and

(ii) funding for school-sponsored activities for students that are not part of the regular instructional programs and for which students do not receive educational credit and one-half of the general fund expenses for school-sponsored athletics that allow student participation in sports programs, normally involving competition between schools.

(b) The per-student component must be adjusted pursuant to [section 4] to provide additional funding to each district serving at-risk students.

(3) The classroom component includes funding for providing the services necessary for classrooms in a school district, including funding for salaries, benefits and professional development for instructional staff, and expenditures other than salaries and benefits that are associated with educational media services and improvement of instruction services.

(4) (a) The accredited program component includes funding for the cost of providing:

(i) services necessary for general administration, building administration, and support services for students;

(ii) salaries and benefits associated with support services and business services; and

(iii) general fund food services costs.

(b) The accredited program component provides funding for a school district based on the ANB of the schools within the district, the ANB of the district as a whole, the accreditation standard requirements for administrative staff and support staff, and additional staffing determined to be necessary for district and school-level business services.

(5) The building operation and maintenance component includes funding for the operation and maintenance of fixed assets, such as land, buildings, building improvements, site improvements, service systems, and equipment.

(6) The special education component includes funding for services to students who meet the definition of a child with a disability under 20-7-401.

(7) (a) The transportation component includes funding for school district expenditures for activities associated with transporting students to and from school as provided by state and federal law, including trips between home and school.

(b) The transportation component does not include student transportation related to extracurricular activities or athletics.

(8) The capital projects component includes funding for the acquisition of fixed assets, such as land, buildings, building improvements, site improvements, service systems, and equipment.

(9) (a) The debt service component includes funding to retire long-term debt of the school district, including payments of both principal and interest on bonds. The debt service component is allocated on the basis of a debt service per-ANB amount.

(b) As used in subsection (9)(a), "long-term debt" means obligations in excess of 1 year.

(10) The Indian education for all component includes funding to each district of a base amount or a per-student amount, whichever is greater, to implement the provisions of Article X, section 1(2), of the Montana Constitution and Title 20, chapter 1, part 5.

(11) The sum of the calculated amount of all nine components constitutes the funding for a basic system of free quality public elementary and secondary schools as defined in 20-9-309. Funding is allocated based upon a calculated amount. A district is not required to allocate or expend funds in accordance with a calculation unless specifically provided by law.

NEW SECTION. Section 2. Method of calculating per-student and classroom components -- per-student size categories -- elementary and high school size categories -- gifted and talented and at-risk adjustments -- student-teacher ratios -- classroom teacher salaries. (1) The number of classrooms for each school district is calculated based on the maximum number of students that may be in each classroom according to the accreditation standards and is adjusted as provided in subsection (4). The student-teacher ratio for a classroom is based upon the size category for an elementary school district or a high school district as described in subsection (2).

(2) (a) The size of an elementary school district is the larger of the current year ANB or the 3-year average ANB calculated as provided in [section 10]. The size categories are as follows:

(i) "E6" means an elementary school district or a K-12 elementary program with less than 41 ANB;

(ii) "E5" means an elementary school district or a K-12 elementary program with at least 41 ANB, but not more than 150 ANB;

(iii) "E4" means an elementary school district or a K-12 elementary program with at least 151 ANB, but not more than 400 ANB;

(iv) "E3" means an elementary school district or a K-12 elementary program with at least 401 ANB, but not more than 850 ANB;

(v) "E2" means an elementary school district or a K-12 elementary program with at least 851 ANB, but not more than 2,500 ANB;

(vi) "E1" means an elementary school district or a K-12 elementary program with more than 2,500 ANB.

(b) The size of a high school district or a K-12 high school program is the larger of the current year ANB or the average 3-year ANB calculated as provided in [section 10]. The size categories are as follows:

(i) "H5" means a high school district or a K-12 high school program with less than 75 ANB;

(ii) "H4" means a high school district or a K-12 high school program with at least 75 ANB, but not more than 200 ANB;

(iii) "H3" means a high school district or a K-12 high school program with at least 201 ANB, but not more than 400 ANB;

(iv) "H2" means a high school district or a K-12 high school program with at least 401 ANB, but not more than 1,250 ANB;

(v) "H1" means a high school district or a K-12 high school program with more than 1,250 ANB.

(3) The per-student component is calculated based on the following per-ANB amounts according to the size categories identified in subsection (2):

(a) E6, $558;

(b) E5, $362;

(d) E3, $339;

(e) E2, $231;

(f) E1, $145;

(g) H5, $1,442;

(h) H4, $1,005;

(i) H3, $843;

(j) H2, $648; and

(k) H1, $369.

(4) The student-teacher ratios, including the weighting for gifted and talented and at-risk students, as defined in 20-1-101, used to determine the number of classrooms for the classroom component are based on the size categories in subsection (2) and are funded as follows:

(a) E6, 10.2 students per teacher;

(b) E5, 16.0 students per teacher;

(d) E3, 19.7 students per teacher;

(e) E2, 21.2 students per teacher;

(f) E1, 22.5 students per teacher;

(g) H5, 10.1 students per teacher;

(h) H4, 17.1 students per teacher;

(i) H3, 19.7 students per teacher;

(j) H2, 21.0 students per teacher; and

(k) H1, 22.5 students per teacher.

(5) The salaries for teachers in the classroom component are funded as follows:

(a) E6, $27,503;

(b) E5, $33,437;

(d) E3, $44,585;

(e) E2, $44,355;

(f) E1, $47,688;

(g) H5, $37,094;

(h) H4, $40,017;

(i) H3, $42,391;

(j) H2, $44,949; and

(k) H1, $49,658.

(6) The classroom component includes the following amounts for each classroom:

(a) $6,761 each year for health insurance, which consists of $6,378 times 1.06 in order to provide coverage for the teacher and the paraprofessional;

(b) $765 each year for paraprofessional costs;

(d) $800 each year for professional development; and

(e) 1.3% of instructional salaries for workers' compensation.

NEW SECTION. Section 3. Method of calculating accredited program component -- definitions. (1) The accredited program component is calculated using three tiers, which include the central office tier, the school office tier, and the per-student tier.

(2) The central office tier provides funding for district- level costs of an independent elementary district, a K-12 district, a high school district and elementary district operating under a combined board, or an independent high school district that does not have a unified elementary district. The central office tier is calculated as follows:

(a) for each school district, determine the greater of the current year ANB or the 3-year average ANB as provided in [section 12];

(b) add the ANB of districts within a school system to determine the total school system ANB;

(c) use the school system ANB to determine the number of FTE, calculated pursuant to subsection (3), to be funded for the central office, which includes the district superintendent, assistant superintendents, district level program and activities coordinators, curriculum coordinators, department chairs, business managers or clerks, business clerical staff, district secretarial staff, nurses, human resources staff, superintendent support staff, information technology staff, central services staff, and athletic directors; and

(d) for each FTE allocated for funding pursuant to subsection (2)(c), multiply the number of FTE by the average salary and benefits provided for that position, as provided in subsection (6), to determine the total central office tier dollar amount for the school system.

(3) (a) For K-12 districts, high school districts and elementary districts operating under combined boards, or independent high school districts, funding for the central office tier must be calculated based upon the following full-time certified positions with those positions prorated for smaller and larger school systems:

(i) one quarter-time superintendent at a minimum and one full-time superintendent in school systems with more than 500 ANB;

(ii) one full-time assistant superintendent in school systems with more than 5,000 ANB;

(iii) one full-time program and activities coordinator in school systems with more than 4,500 ANB;

(iv) one full-time curriculum coordinator in school systems with more than 1,300 ANB.

(v) for departmentalized middle school, 7th and 8th grade, and high school programs is as follows:

(A) for school systems with 1,301 to 5,000 ANB, 0.60 FTE for department chair positions;

(B) for school systems with 5,001 to 7,500 ANB, 0.75 FTE for department chair positions;

(D) for school systems with 10,001 to 12,500 ANB, 1.35 FTE for department chair positions;

(E) for school systems with 12,501 to 15,000 ANB, 1.8 FTE for department chair positions; and

(F) for school systems with more than 15,000 ANB, 1.95 FTE for department chair positions.

(b) For independent elementary districts, funding for the central office tier must be calculated based upon the following full-time certified positions with those positions prorated for smaller and larger school systems:

(i) one quarter-time superintendent in school systems with more than 125 ANB and one full-time superintendent in school systems with more than 500 ANB;

(ii) one quarter-time program or activities coordinator in school systems with more than 1,000 ANB; and

(iii) one full-time curriculum coordinator and 0.15 FTE for department chair positions in school systems with more than 1,300 ANB.

(c) Funding for the central office tier must be calculated based upon the following full-time, noncertified positions, with those positions prorated for smaller and larger school systems as follows:

(i) one full-time business manager or clerk for school systems with more than 80 ANB;

(ii) one half-time business clerical position for school systems with 750 to 1,150 ANB, increasing by increments of one quarter-time position for each additional 400 ANB;

(iii) one full-time district secretarial position for each superintendent and each assistant superintendent;

(iv) 0.22 full-time equivalent nurses for school systems with 151 to 400 ANB, increasing by increments of 0.22 FTE for each additional 400 ANB;

(v) one full-time human resource position for school systems with 400 ANB, increasing by increments of one half-time position for each additional 400 ANB up to 4,000 ANB and then by one half-time position for each additional 500 ANB;

(vi) one full-time position for superintendent support and public relations for school systems with 5,000 to 10,000 ANB and two full-time positions for school systems with more than 10,000 ANB;

(vii) one quarter-time position for information technology for:

(A) K-12 districts, high school districts and elementary districts operating under combined boards, or independent high school districts with up to 350 ANB and 0.48 FTE for school systems with 351 to 750 ANB, increasing by increments of 0.48 FTE for each additional 400 ANB; or

(B) independent elementary school districts with 125 to 350 ANB and 0.48 FTE for school systems with 351 to 750 ANB, increasing by increments of 0.48 FTE for each additional 400 ANB;

(viii) one quarter-time position for central services for school systems with 351 to 750 ANB, increasing by one quarter-time position for each additional 400 ANB;

(ix) no athletic directors for independent elementary districts;

(x) one half-time athletic director for K-12 districts, high school districts and elementary districts operating under combined boards, or independent high school districts with 400 to 799 ANB; and

(xi) one full-time athletic director for school systems with 800 to 8,000 ANB and two full-time athletic directors for school systems with more than 8,000 ANB.

(4) For a school system comprising elementary and high school programs:

(a) multiply the total central office tier dollar amount determined under subsection (2)(d) by the ratio of elementary ANB to the school system ANB, rounded to the nearest whole percentage to determine the elementary portion of the central office tier dollar amount;

(b) multiply the total central office tier dollar amount from subsection (2)(d) by the ratio of high school ANB to the school system ANB, rounded to the nearest whole percentage, to determine the high school district's portion of the central office tier dollar amount.

(5) (a) The school office tier provides funding for school-level costs for schools included in an elementary, high school, or K-12 district. The school office tier is calculated as follows:

(i) determine the ANB of each school of the district using the greater of the current year ANB or the 3-year average ANB for the district determined as provided in [section 12]. In a K-12 district, the current ANB or the 3-year average ANB of an elementary school must be determined on the same basis as the elementary ANB of the district, and the current year ANB or the 3-year average ANB for a high school must be determined on the same basis as the high school ANB of the district.

(ii) use the school ANB to determine the number of FTE, calculated pursuant to subsection (5)(b), funded for the school office tier including the supervising teacher or principal, assistant principal, librarians, counselors, and school program coordinators;

(iii) for each FTE allocated for funding in subsection (5)(b), multiply the number of FTE by the average salary and benefits provided for that position as provided in subsection (6) to determine the school office tier dollar amount for the school;

(iv) add the school office tier dollar amounts for all schools of a district to determine the total school office tier dollar amount of the accredited program component for the school district.

(b) The school office tier of the accredited program component must be calculated for each school based on the ANB for the school. Funding for the school office tier must be calculated based upon the following full-time certified positions with those positions prorated for smaller and larger school systems:

(i) a supervising teacher in each elementary school in independent elementary districts with 80 or fewer ANB;

(ii) a full-time principal in schools with more than 250 ANB;

(iii) a full-time assistant principal in schools with more than 500 ANB;

(iv) a full-time librarian in schools with more than 250 ANB;

(v) a full-time guidance counselor in schools with more than 350 ANB; and

(vi) a full-time school program coordinator in schools with more than 950 ANB.

(c) Funding for the school office tier must be calculated based upon the following full-time, noncertified positions, with those positions prorated for smaller and larger school systems:

(i) one full-time school secretarial staff position for each principal; and

(ii) one full-time school attendance and records staff position for schools with 1,000 to 1,800 ANB and two full-time school attendance and records staff positions for schools with more than 1,800 students.

(6) The dollar amounts to be applied for each FTE in the accredited program component include average salaries, workers' compensation coverage, health insurance, and professional development for certain funded positions. The salaries in the accredited program component are funded as follows:

(a) superintendent and assistant superintendent, $68,846;

(b) district-level program and activities coordinator, $65,005;

(d) business manager, $43,781;

(e) business clerical staff, $37,732;

(f) district secretarial staff, $25,101;

(g) nurse, $39,790;

(h) human resources staff, $48,565;

(i) information technology staff, $37,694;

(j) central services staff, $24,310;

(k) athletics director, $36,508;

(l) supervising teacher, $39,870;

(m) principal and assistant principal, $65,986;

(n) librarian, $47,740;

(o) counselor, $52,229;

(p) school program coordinator, $39,870; and

(q) school secretarial staff and school attendance and records staff, $25,101.

(7) The accredited program component includes:

(a) $6,378 each year for health insurance for each funded FTE;

(b) 1.3% of salaries for workers' compensation; and

(i) $800 each year for the superintendent, assistant superintendent, district-level program and activities coordinator, curriculum coordinator, supervising teacher, principal, assistant principal, librarian, counselor, and school program coordinator; and

(ii) $500 each year for the business manager, business clerical staff, district secretarial staff, nurse, human resources staff, information technology staff, central services staff, athletics director, school secretarial staff, and school attendance and records staff.

(8) The per-student tier of the accredited program component provides funding for purchased services, administrative supplies, and other expenditures associated with business services, administration, support services for students and instructional staff, and general fund food services and must be allocated to each school district by multiplying the ANB, as calculated in [section 12], for the elementary or high school district or program of a K-12 district by the per-student amounts as follows:

(a) E6, $446;

(b) E5, $364;

(d) E3, $229;

(e) E2, $191;

(f) E1, $118;

(g) H5, $730;

(h) H4, $553;

(i) H3, $352;

(j) H2, $246;

(k) H1, $178.

(9) For purposes of the accredited program component:

(a) "accredited school program" means a set of course offerings and support services designed to meet the Montana accreditation standards;

(b) "FTE" means a full-time equivalent personnel position; and

(c) "school" means an accredited school program, including an elementary school program, an accredited 7th and 8th grade, junior high, or middle school program, or a high school program.

(d) "school system" means the administrative unit of a district or combination of districts. The types of school systems include:

(i) a K-12 district;

(ii) a combined elementary and high school district, which is an elementary district and a high school district that are combined for district administration purposes;

(iii) a county high school district, which is a 4-year high school operated on a countywide basis; or

(iv) an independent elementary school district, which is a district organized for the purpose of providing public education for all or any combination of kindergarten through 8th grade.

NEW SECTION. Section 4. Risk category index -- calculation of at-risk adjustments to the per-student component. (1) (a) An at-risk adjustment to the per-student component must be computed for each district as provided in this section. The indexed value for the adjustment is derived from the following risk categories:

(i) the percentage of students in the school district who are American Indian;

(ii) the percentage of students who are eligible for free or reduced-price lunches in the school district;

(iii) the percentage of migrant students in the school district;

(iv) the percentage of students who are identified as students with limited English proficiency in the school district;

(v) the educational attainment of women within the boundaries of the school district; and

(vi) the per capita income within the boundaries of the school district.

(b) (i) The percentages in subsections (1)(a)(i) through (1)(a)(iv) must be calculated for each fiscal year by the office of public instruction based on the count of regularly enrolled students as provided in [section 12] for the previous school year.

(ii) The information in subsection (1)(a)(v) and (1)(a)(vi) must be calculated by the office of public instruction based upon the most recent data from the national center for educational statistics and must be updated as new data becomes available from the decennial census.

(2) By March 1 of each year, the office of public instruction shall compute a risk category index for each school district by:

(a) subtracting the district's computed value for each risk category enumerated in subsection (1)(a)(i) through (1)(a)(iv) from one and dividing the result by the difference of the statewide average value for that risk category from one; and

(b) dividing each district's average value for each risk category provided in subsections (1)(a)(v) and (1)(a)(vi) by the statewide average for that risk category.

(c) The office of public instruction shall calculate the sum of the values across risk categories for the district and divide the sum by the total number of risk categories. The office of public instruction shall subtract one from the result and convert the difference to a percent difference from the statewide average.

(3) (a) For districts where the difference calculated in subsection (2)(c) is positive, a 10% premium must be added to the district's per-student component.

(b) For districts where the difference calculated in subsection (2)(c) is negative, a premium equal to the percent difference in subsection (2)(c), plus 10%, must be added to the district's per-student component.

NEW SECTION. Section 5. School district funds. The superintendent of public instruction has general supervisory authority over the provisions of this section and the fund structure used by school districts. For the purpose of limiting the number and type of school district funds to those necessary for maximum budgetary flexibility while still ensuring accountability and efficiency, school districts must use the following funds, fund types, and fund categories:

(1) the governmental fund category, which includes:

(a) the general fund, which accounts for the general operating costs of the district and includes the per-student component, the classroom component, the accredited program component, the building operation and maintenance component, the special education component, and the Indian education for all component. The costs of school district general administration, school administration, and business office support services must be accounted for in the school district general fund.

(b) the special revenue fund type, which accounts for the proceeds of specific revenue sources, other than private purpose trusts or major capitol projects that are legally restricted to expenditure for specified purposes. The financial activities of the special revenue fund type are subdivided into the following funds to serve the purpose indicated:

(i) the retirement fund, which accounts for all money from state and county sources that is earmarked for purposes of paying the employer contributions for retirement, social security, medicare, and unemployment for school district employees whose salaries are paid from the general fund, the impact aid fund, or the school food services fund;

(ii) the transportation fund, which accounts for costs related to the transportation component and all money from county and local sources that is earmarked for the purpose of paying the costs of transporting students to and from school and home;

(iii) the tuition fund, which accounts for money earmarked for the purpose of paying the cost of tuition paid by the district under approved out-of-district attendance agreements;

(iv) the school food services fund, which accounts for federal, state, and local money earmarked for the purpose of paying the costs of operating the district's school breakfast and lunch programs;

(v) the impact aid fund, which accounts for federal funds received and expended under the provisions of 20 U.S.C. 7701, et seq.;

(vi) the federal programs fund, which accounts for money from federal sources, excluding impact aid money and medicaid reimbursements;

(vii) the state and private programs fund, which accounts for all money from state grants, private grants, and private donations that is not required to be accounted for in another fund;

(viii) the adult education fund, which accounts for all local money received by the district in support of the community education program, including the adult education levy under 20-7-705;

(ix) the interlocal cooperative fund, which accounts for money earmarked for the financial administration of an interlocal cooperative agreement established under Title 7, chapter 11, part 1, including federal, state, or other types of grant payments in direct support of the agreement and the financial support provided by cooperating agencies;

(x) the compensated absences fund, which accounts for transfers from the general fund that are used for the purpose of paying:

(A) any accumulated amount of sick leave that a nonteaching or administrative school district employee is entitled to upon termination of employment with the district in accordance with the provisions of 2-18-618; and

(B) any accumulated amount of vacation leave that a nonteaching or administrative school district employee is entitled to upon termination of employment with the district; and

(xi) the nonoperating fund, which is established when a district will not operate a school during the ensuing school fiscal year from end-of-the-year fund balances in each fund maintained by the district during the immediately preceding school fiscal year. The purpose of the nonoperating fund is to centralize the financing and budgeting for the limited functions of a district not operating a school.
(c) the capital projects fund type, which accounts for all financial resources to be used for the acquisition, remodeling, constructing, or equipping of major capital facilities other than those financed by the impact aid fund, proprietary funds, or trust funds. Expenditures are limited to the direct costs of capital facilities and exclude the cost of school district general administration, school administration, and business office support services. The financial activities of the capital projects fund type are subdivided into the following funds to serve the purpose indicated:

(i) the building fund, which accounts for the capital projects component and other money that is expended for building, enlarging, remodeling, or repairing a school or other building of the district;

(ii) the building reserve fund, which is established with voter approval for the purpose of raising money for the future construction, equipping, or enlarging of school buildings, for the purpose of purchasing land needed for school purposes in the district, or for the purpose of funding school transition costs;

(iii) the bus depreciation reserve fund, which is used to accumulate funds for converting, remodeling, or rebuilding a bus, for the replacement of a bus or radio, or to purchase an additional bus;

(iv) the lease or rental agreement fund, which is used by a district that provides pupil or teacher housing in district-owned buildings under a lease or rental agreement or that rents or leases any buildings, land, facilities, or personal property of the district. Money received from the lease or rental agreements may be credited to the lease or rental agreement fund and used for the maintenance and operation of the district-owned buildings to which the lease or rental agreements apply or for the acquisition of additional housing or dormitory facilities.

(d) the debt service fund type, which accounts for the accumulation of resources for and the payment of bond principal and interest, including the debt service component;

(e) the permanent fund type, which accounts for financial resources from endowments and other private donations that are legally restricted to the extent that only earnings, but not principal, may be used;

(2) the proprietary fund category, which includes:

(a) the enterprise fund type, which accounts for operations:

(i) that are financed and operated in a manner similar to private business enterprises whenever the intent of the district is that costs (i.e., expenses, including depreciation) of providing goods or services to the general public on a continuing basis are to be financed or recovered primarily through user charges; or

(ii) whenever the district has decided that periodic determination of revenue earned, expenses incurred, or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes; and

(b) the internal service fund type, which accounts for the financing of goods or services provided by one department to other departments of the school district or to other governmental entities on a cost-reimbursed basis; and

(3) the fiduciary fund category, which includes trust and agency fund types used to account for assets held by the school districts in a trustee capacity or as an agent for employees, private organizations, other governmental entities, or other funds.

NEW SECTION. Section 6. Funding for Montana state school for deaf and blind. Each fiscal year, there is statutorily appropriated, as provided in 17-7-502, $750,000 from the state general fund to the Montana school for the deaf and blind.

NEW SECTION. Section 7. School isolation. (1) Except as provided in 20-6-502(4)(b), the trustees of any district operating an elementary district of less than 18 ANB or a high school district of less than 25 ANB for 2 consecutive years shall apply to have the district classified as an isolated district. The application must be submitted by the trustees to the county superintendent by May 1 of the first year that ANB falls below the amount specified in this subsection. The application must include:

(a) the name of each pupil who will be enrolled in the district during the ensuing school fiscal year with the distance the pupil resides from the nearest county road or highway;

(b) a description of conditions affecting transportation such as poor roads, mountains, rivers, or other obstacles to travel, the distance the school is from the nearest open school having room and facilities for the pupils of the district, or any other condition that would result in an unusual hardship to the pupils of the district if they were transported to another school district; and

(2) The county superintendent shall submit the applications to the board of county commissioners for their consideration on or before May 15. The board shall approve or disapprove the application on the basis of the following criteria:

(a) for an elementary district, any school building that is located at a distance of more than 20 miles from the nearest open elementary school or that is 45 minutes or more away from the nearest open elementary school over the shortest passable route; or

(b) for a high school district, any school building that is located at a distance of more than 40 miles from the nearest open high school or that is 60 minutes or more away from the nearest open high school over the shortest passable route.

(3) When an application is approved, the county superintendent shall submit the application to the superintendent of public instruction before June 1. The superintendent of public instruction shall approve or disapprove the application for isolated classification by the fourth Monday of June on the basis of the information supplied by the application or objective information the superintendent of public instruction may collect on the superintendent's own initiative. An elementary district or high school district may not be considered an isolated district until the approval of the superintendent of public instruction has been received.

NEW SECTION. Section 8. Nonisolated districts quality BASE budget funding -- special education funds. (1) An elementary district with less than 18 ANB or a high school district with less than 25 ANB for 2 consecutive years and that is not approved as an isolated school under the provisions of [section 7] shall budget and spend the quality BASE budget amount, but the county and state shall provide one-half of the direct state aid, and the district shall finance the remaining one-half of the direct state aid by a tax levied on the property of the district. When a an elementary school with less than 18 ANB or a high school district with an less than 25 ANB is approved as isolated under the provisions of [section 7], the county and state shall participate in the financing of the total amount of the direct state aid.

(2) Funds provided to support the special education program may be expended only for special education purposes as approved by the superintendent of public instruction in accordance with the special education budgeting provisions of this title. Expenditures for special education must be accounted for separately from and in addition to the balance of the school district general fund budgeting requirements provided in [section 11]. The amount of the special education allowable cost payments that is not matched with district funds, as required in [section 15], will reduce by a like amount the district's ensuing year's allowable cost payment for special education.

NEW SECTION. Section 9. Proration and calculation of quality BASE funding program for joint district. (1) In joint districts, the direct state aid of a joint district must be prorated among the counties in which any part of the joint district is located for the purpose of determining the amount of each source of revenue for the direct state aid for which each county is obligated. The proration of the joint district direct state aid must be calculated as follows:

(a) Divide the joint district direct state aid by the ANB of the joint district to determine the per-ANB amount of the direct state aid.

(b) Determine the ANB for each county's portion of the joint district on the basis of each pupil's resident county. When taken together, the sum of the ANB assigned to all the counties must equal the total ANB for the joint district.

(c) Multiply the per-ANB amount of the direct state aid determined in subsection (1)(a) by the ANB for each county's portion, as determined in subsection (1)(b), to determine the portion of the direct state aid for each county.

(2) The portion of a joint district direct state aid for each county, as determined in subsection (1)(c), is a separate direct state aid amount in the county for the purposes of calculating the general fund components that receive direct state aid in the quality BASE funding program. After the calculation of the direct state aid, the remainder of the general fund revenue must be calculated in accordance with the provisions for general fund financing.

NEW SECTION. Section 10. Definitions -- calculation of component costs. (1) As used in [sections 1 through 29], "general fund of a district" means the fund that includes amounts for the per-student, classroom, accredited program, building operation and maintenance, special education, and Indian education for all components and the consolidation incentive provided under [section 29].

(2) As used in this title, unless the context clearly indicates otherwise, the following definitions apply:

(a) "Over-quality BASE budget levy" means the district voted levy in support of any general fund amount that is budgeted above the quality BASE budget and below the maximum general fund budget for a district.

(b) "Quality BASE" means the base amount for school equity and adequacy necessary to provide the basic system of free quality public elementary and secondary schools, as defined in 20-9-309.

(i) direct state aid for the general fund budget of a district;

(ii) guaranteed tax base aid for an eligible district for:

(A) 55.3% of the sum of the per-student, classroom, accredited program, and building operation and maintenance components and the consolidation incentive amount as provided in [section 29]; and

(B) 40% of the special education allowable cost payment.

(d) "Quality BASE budget" means the minimum general fund budget of a district, which includes:

(i) the sum of the per-student, classroom, accredited program, building operation and maintenance, and Indian education for all components and the consolidation incentive as provided in [section 29]; and

(ii) 140% of the special education allowable cost payment.

(e) "Quality BASE budget levy" means the mandatory district levy in support of the quality BASE budget of a district, which may be supplemented by guaranteed tax base aid if the district is eligible under the provisions of [sections 23 through 26].

(f) "Quality BASE funding program" means the program for equitable distribution of the cost of Montana's basic system of free quality public elementary and secondary schools through county equalization aid as provided in 20-9-331 and 20-9-333, state equalization aid as provided in 20-9-343, direct state aid, guaranteed tax base aid, legislative appropriations, and local levies.

(3) Calculation of the costs of the components described in [section 1] is as follows:

(a) (i) Funding for the per-student component is based on a specified amount per ANB by size category contained in [section 2] for fiscal year 2007.

(ii) The ANB calculation in [section 2] must be adjusted by the weighting calculation for the additional funding for at-risk students as provided in [section 4].

(b) Funding for the classroom component is the sum of the items included for each classroom by school district size category calculated pursuant to [section 2].

(d) Funding for the building operation and maintenance component is $4.50 per square foot multiplied by 137 square feet per ANB for each elementary district and 178 square feet per ANB for each high school district plus a base amount of $5,800 for each elementary district and $51,000 for each high school district.

(e) Funding for the special education component is the amount provided to fund services for students who meet the definition of a child with disabilities under 20-7-401.

(f) Funding for the transportation component is calculated pursuant to Title 20, chapter 10.

(g) Funding for the capital projects component is $23 million for fiscal year 2006 to be distributed as follows to each school district to pay the costs of weatherization and deferred maintenance in the district:

(i) $1,000 for each district; and

(ii) $160 for each ANB in the district.

(h) Funding for the debt service component is the debt service amount calculated pursuant to [section 28].

(i) Funding for the Indian education for all component is the greater of $100 per district or $21.25 per ANB.

(4) The funding for each general fund component must be adjusted for inflation pursuant to [section 16].

(5) Each district receiving funding for the Indian education for all component shall provide an annual accounting to the office of public instruction for the expenditure of those funds.

NEW SECTION. Section 11. Quality BASE budgets and maximum general fund budgets. (1) The trustees of a district shall adopt a general fund budget that is at least equal to the quality BASE budget established for the district and, except as provided in subsection (3), does not exceed the maximum general fund budget established for the district.

(2) Whenever the trustees of a district adopt a general fund budget that exceeds the quality BASE budget for the district but does not exceed the maximum general fund budget for the district, the trustees shall submit a proposition to the electors of the district, as provided in [section 22].

(3) (a) (i) Except as provided in subsections (3)(a)(ii) and (3)(b), the trustees of a school district whose previous year's general fund budget exceeds the current year's maximum general fund budget amount may adopt a general fund budget up to the maximum general fund budget amount or the previous year's general fund budget, whichever is greater.

(ii) Except as provided in subsection (3)(b), the trustees of a district whose general fund budget in the prior year may continue to adopt a general fund budget that exceeds the maximum general fund budget. However, the budget adopted for the current year may not exceed the lesser of:

(A) the adopted budget for the previous year; or

(B) the district's maximum general fund budget for the current year plus the over maximum budget amount adopted for the previous year.

(b) The trustees of the district shall submit a proposition to raise any general fund budget amount that is in excess of the maximum general fund budget for the district to the electors who are qualified under 20-20-301 to vote on the proposition, as provided in [section 22].

(4) The quality BASE budget for the district must be financed by the following sources of revenue:

(a) state equalization aid, as provided in 20-9-343, including any guaranteed tax base aid for which the district may be eligible, as provided in [sections 23 through 26];

(b) county equalization aid, as provided in 20-9-331 and 20-9-333;

(c) a mandatory district levy for support of a school not approved as an isolated school under the provisions of [section 7];

(d) payments in support of special education programs under the provisions of [section 15];

(e) nonlevy revenue, as provided in 20-9-141;

(f) a mandatory quality BASE budget levy on the taxable value of all property within the district; and

(g) reappropriated fund balance.

(5) The over-quality BASE budget amount of a district must be financed by a voted levy on the taxable value of all property within the district or other revenue available to the district, as provided in 20-9-141.

NEW SECTION. Section 12. Calculation of average number belonging -- 3-year averaging. (1) Average number belonging (ANB) must be:

(a) determined by computing an average enrollment by adding a count of regularly enrolled pupils who were enrolled as of the first Monday in October of the prior school fiscal year to a count of regularly enrolled pupils on February 1 of the prior school fiscal year, or the next school day if those dates do not fall on a school day, and dividing the sum by two.

(2) When a school district has approval to operate less than the minimum aggregate hours under 20-9-806, the total ANB must be calculated in accordance with the provisions of 20-9-805.

(3) (a) Except as provided in subsection (4), for the purpose of calculating ANB, enrollment in an education program:

(i) from 180 to 359 aggregate hours of pupil instruction per school year is counted as one-quarter-time enrollment;

(ii) from 360 to 539 aggregate hours of pupil instruction per school year is counted as half-time enrollment;

(iii) from 540 to 719 aggregate hours of pupil instruction per school year is counted as three-quarter-time enrollment; and

(iv) 720 or more aggregate hours of pupil instruction per school year is counted as full-time enrollment.

(b) Enrollment in a program intended to provide fewer than 180 aggregate hours of pupil instruction per school year may not be included for purposes of ANB.

(c) Enrollment in a self-paced program or course may be converted to an hourly equivalent based on the hours necessary and appropriate to provide the course within a regular classroom schedule.

(d) A pupil in grades 1 through 12 who is concurrently enrolled in more than one public school, program, or district may not be counted as more than one full-time pupil for ANB purposes.

(4) In calculating the ANB for pupils enrolled in a program established under 20-7-117(1), enrollment in a program that provides 360 or more aggregate hours of pupil instruction per school year must be counted as one-half pupil for ANB purposes.

(5) When a pupil has been absent, with or without excuse, for more than 10 consecutive school days, the pupil may not be included in the enrollment count used in the calculation of the ANB unless the pupil resumes attendance prior to the day of the enrollment count.

(6) The enrollment of prekindergarten pupils, as provided in 20-7-117, may not be included in the ANB calculations.

(7) The ANB of the regularly enrolled pupils for the public schools of a district must be based on the aggregate of all the regularly enrolled pupils attending the schools of the district, except that when a school has not been accredited by the board of public education, the regularly enrolled pupils attending the nonaccredited school are not included for the purposes of calculating ANB.

(8) The district shall provide the superintendent of public instruction with semiannual reports of school attendance, absence, and enrollment for regularly enrolled students, using a format determined by the superintendent.

(9) (a) Except as provided in subsections (9)(b) and (9)(c), enrollment in a basic education program provided by the district through any combination of onsite or offsite instruction may be included for ANB purposes only if the pupil is offered access to the complete range of educational services for the basic education program required by the accreditation standards adopted by the board of public education.

(b) Access to school programs and services for a student placed by the trustees in a private program for special education may be limited to the programs and services specified in an approved individual education plan supervised by the district.

(c) Access to school programs and services for a student who is incarcerated in a facility, other than a youth detention center, may be limited to the programs and services provided by the district at district expense under an agreement with the incarcerating facility.

(d) This subsection (9) may not be construed to require a school district to offer access to activities governed by an organization having jurisdiction over interscholastic activities, contests, and tournaments to a pupil who is not otherwise eligible under the rules of the organization.

(10) For ANB purposes, a district may include only an enrolled pupil who is otherwise eligible under this title and who is:

(a) a resident of the district or a nonresident student admitted by trustees under a student attendance agreement and who is attending a school of the district;

(b) unable to attend school due to a medical reason certified by a medical doctor and receiving individualized educational services supervised by the district, at district expense, at a home or facility that does not offer an educational program;

(c) unable to attend school due to the student's incarceration in a facility, other than a youth detention center, and who is receiving individualized educational services supervised by the district, at district expense, at a home or facility that does not offer an educational program;

(d) receiving special education and related services, other than day treatment, under a placement by the trustees at a private nonsectarian school or private program if the pupil's services are provided at the district's expense under an approved individual education plan supervised by the district;

(e) participating in the running start program at district expense under 20-9-706;

(f) receiving educational services, provided by the district, using appropriately licensed district staff at a private residential program or private residential facility licensed by the department of public health and human services;

(g) enrolled in an educational program or course provided at district expense using electronic or offsite delivery methods, including but not limited to tutoring, distance learning programs, online programs, and technology-delivered learning programs, while attending a school of the district or any other nonsectarian offsite instructional setting with the approval of the trustees of the district. The pupil shall:

(i) must meet the residency requirements for that district as provided in 1-1-215;

(ii) must live in the district and must be eligible for educational services under the Individuals With Disabilities Education Act or under 29 U.S.C. 794; or

(iii) shall attend school in the district under a mandatory attendance agreement as provided in 20-5-321.

(h) a resident of the district attending a Montana job corps program under an interlocal agreement with the district under 20-9-707.

(11) (a) For an elementary or high school district, the district's maximum general fund budget and quality BASE budget for the ensuing year must be calculated using the current year ANB for all budget units or the 3-year average ANB, whichever is greater.

(b) For a K-12 district, the district's maximum general fund budget and quality BASE budget for the ensuing year must be calculated separately for the elementary and high school programs pursuant to subsection (11)(a) and then combined.

(12) The term "3-year ANB" means an average ANB over the most recent 3-year period, calculated by:

(a) adding the ANB for the district or the separate elementary and high school programs of a K-12 district for the ensuing school fiscal year to the ANB for each of the previous 2 school fiscal years; and

(b) dividing the sum calculated under subsection (12)(a) by three.

NEW SECTION. Section 13. Circumstances under which regular average number belonging may be increased. The average number belonging of a school, calculated in accordance with the ANB formula prescribed in [section 12], may be increased when:

(1) the opening of a new elementary school or the reopening of an elementary school has been approved in accordance with 20-6-502. The average number belonging for the school must be established by the county superintendent and approved, disapproved, or adjusted by the superintendent of public instruction.

(2) the opening or reopening of a high school or a branch of the county high school has been approved in accordance with 20-6-503, 20-6-504, or 20-6-505. The average number belonging for the high school must be established by the county superintendent's estimate, after an investigation of the probable number of pupils that will attend the high school.

(3) a district anticipates an increase in the average number belonging due to the closing of a private or public school in the district or a neighboring district. The estimated increase in average number belonging must be established by the trustees and the county superintendent and approved, disapproved, or adjusted by the superintendent of public instruction no later than the fourth Monday in June.

(4) a district anticipates an unusual enrollment increase in the ensuing school fiscal year. The increase in average number belonging must be based on estimates of increased enrollment approved by the superintendent of public instruction and must be computed in the manner prescribed by [section 14].

(5) for the initial year of operation of a program established under 20-7-117(1), the ANB to be used for budget purposes is the same as one-half the number of 5-year-old children residing in the district as of September 10 of the preceding school year, either as shown on the official school census or as determined by some other procedure approved by the superintendent of public instruction; or

(6) a high school district provides early graduation for a student who completes graduation requirements in less than eight semesters or the equivalent amount of secondary school enrollment. The increase must be established by the trustees as though the student had attended to the end of the school fiscal year and must be approved, disapproved, or adjusted by the superintendent of public instruction.

NEW SECTION. Section 14. Procedures for determining eligibility and amount of increasing quality BASE aid due to unusual enrollment increase. A district that anticipates an unusual increase in enrollment in the ensuing school fiscal year, as provided for in [section 12], may increase its ANB calculation for quality BASE budget funding purposes for the ensuing school fiscal year in accordance with the following provisions:

(1) Prior to June 1, the district shall estimate the elementary or high school enrollment to be realized during the ensuing school fiscal year, based on as much factual information as may be available to the district.

(2) No later than June 1, the district shall submit its application for an unusual enrollment increase by elementary or high school level to the superintendent of public instruction. The application must include:

(a) the enrollment for the current school fiscal year;

(b) the ANB used to calculate the quality BASE budget for the current school fiscal year;

(d) the estimated enrollment, including the factual information on which the estimate is based, as provided in subsection (1); and

(e) any other information or data that may be requested by the superintendent of public instruction.

(3) The superintendent of public instruction shall immediately review all the factors of the application and shall approve or disapprove the application or adjust the estimated ANB for the ensuing ANB calculation period. After approving an estimate, with or without adjustment, the superintendent of public instruction shall:

(a) determine the percentage by which the estimated enrollment exceeds the enrollment used for the budgeted ANB; and

(b) approve an increase of the ANB used to establish the ensuing year's quality BASE budget in accordance with subsection (5) if the increase in subsection (3)(a) is greater than 6%.

(4) The superintendent of public instruction shall notify the district of the decision by the fourth Monday in June.

(5) Whenever an unusual enrollment increase is approved by the superintendent of public instruction, the increase of the ANB used to establish the quality BASE budget for the ensuing ANB calculation period is determined using the difference between the enrollment for the ensuing school fiscal year and 106% of the enrollment used to calculate the budgeted ANB. The amount determined is the maximum allowable increase added to the ANB for the purpose of establishing the ensuing year's quality BASE budget.

(6) (a) Any quality BASE budget increases resulting from provisions of this section must be reviewed at the end of the ensuing school fiscal year.

(b) If the actual enrollment is less than the enrollment used to determine the ANB used for the quality BASE budget, the superintendent of public instruction shall revise the quality BASE budget calculations, as provided in subsection (5), using the actual ANB.

(c) All quality BASE budget funding amounts received by the district in excess of the revised calculations are overpayments subject to the refund provisions of [section 17(4)].

NEW SECTION. Section 15. Allowable cost payment for special education. (1) As used in this section, "ANB" means the current year ANB.

(2) The 3-year average ANB provided for in [section 12] does not apply to the calculation and distribution of state special education allowable cost payments provided for in this section.

(3) For the purpose of establishing the allowable cost payment for a current year special education program for a school district, the superintendent of public instruction shall determine the total special education payment to a school district, cooperative, or joint board for special education services formed under 20-3-361 prior to July 1, 1992, using the following factors:

(a) the district ANB student count as established pursuant to [sections 12 and 13];

(b) a per-ANB amount for the special education instructional block grant;

(d) an amount for cooperatives or joint boards meeting the requirements of 20-7-457, to compensate for the additional costs of operations and maintenance, travel, supportive services, recruitment, and administration; and

(e) any other data required by the superintendent of public instruction to administer the provisions of this section.

(4) (a) The total special education allocation must be distributed according to the following formula:

(i) 52.5% through instructional block grants;

(ii) 17.5% through related services block grants;

(iii) 25% to reimbursement of local districts; and

(iv) 5% to special education cooperatives and joint boards for administration and travel.

(b) Special education allowable cost payments outlined in subsection (4)(a) must be granted to each school district and cooperative with a special education program as follows:

(i) The instructional block grant limit prescribed in subsection (4)(a)(i) must be awarded to each school district, based on the district ANB and the per-ANB special education instructional amount.

(ii) The special education-related services block grant limit prescribed in subsection (4)(a)(ii) must be awarded to each school district that is not a cooperative member, based on the district ANB and the per-ANB special education-related services amount, or to a cooperative or joint board that meets the requirements of 20-7-457. The special education-related services block grant amount for districts that are members of approved cooperatives or a joint board must be awarded to the cooperatives or joint board.

(iii) If a district's allowable costs of special education exceed the total of the special education instructional and special education-related services block grant plus the required district match required by subsection (6), the district is eligible to receive at least a 40% reimbursement of the additional costs. To ensure that the total of reimbursements to all districts does not exceed 25% of the total special education allocation limit established in subsection (4)(a)(iii), reimbursement must be made to districts for amounts that exceed a threshold level calculated annually by the office of public instruction. The threshold level is calculated as a percentage amount above the sum of the district's block grants plus the required district match.

(iv) Of the amount distributed under subsection (4)(a)(iv), three-fifths must be distributed based on the ANB count of the school districts that are members of the special education cooperative or joint board and two-fifths must be distributed based on distances, population density, and the number of itinerant personnel under rules adopted by the superintendent of public instruction.

(5) The superintendent of public instruction shall adopt rules necessary to implement this section.

(6) A district shall provide a 25% local contribution for special education, matching every $3 of state special education instructional and special education-related services block grants with at least one local dollar. A district that is a cooperative member is required to provide the 25% match of the special education-related services grant amount to the special education cooperative.

(7) The superintendent of public instruction shall determine the actual district match based on the trustees' reports. Any unmatched portion reverts to the state and must be subtracted from the district's ensuing year's special education allowable cost payment.

(8) A district that demonstrates severe economic hardship because of exceptional special education costs may apply to the superintendent of public instruction for an advance on the reimbursement for the year in which the actual costs will be incurred.

NEW SECTION. Section 16. Annual inflation-related adjustments to quality BASE funding components. (1) In preparing and submitting an agency budget pursuant to 17-7-111 and 17-7-112, the superintendent of public instruction shall determine the inflation factor for the quality BASE funding components in the general fund in each fiscal year of the ensuing biennium. The inflation factor is calculated as follows:

(a) for the first year of the biennium, divide the consumer price index for July 1 of the prior calendar year by the consumer price index for July 1 of the calendar year 3 years prior to the prior calendar year and raise the resulting ratio to the power of one-third; and

(b) for the second year of the biennium, divide the consumer price index for July 1 of the current calendar year by the consumer price index for July 1 of the calendar year 3 years prior to the current calendar year and raise the resulting ratio to the power of one-third.

(2) The present law base for the quality BASE funding components, calculated under Title 17, chapter 7, part 1, must consist of any enrollment increases or decreases plus the inflation factor calculated pursuant to this section, not to exceed 3% in each year, applied to both years of the biennium.

(3) For the purposes of this section, "consumer price index" means the consumer price index, U.S. city average, all urban consumers, for all items, using the 1982-84 base of 100, as published by the bureau of labor statistics of the U.S. department of labor.

NEW SECTION. Section 17. Duties of board of public education for distribution of quality BASE aid. (1) The board of public education shall administer and distribute the quality BASE aid and state advances for county equalization in the manner and with the powers and duties provided by law. The board of public education:

(a) shall adopt policies for regulating the distribution of quality BASE aid and state advances for county equalization in accordance with the provisions of law;

(b) may require reports from the county superintendents, county treasurers, and trustees as it considers necessary; and

(c) shall order the superintendent of public instruction to distribute the quality BASE aid on the basis of each district's annual calculation for the aid as established by the superintendent of public instruction. In ordering the distribution of quality BASE aid, the board of public education may not increase or decrease the quality BASE aid distribution to any district on account of any difference that may occur during the school fiscal year between budgeted and actual receipts from any other source of school revenue.

(2) The board of public education may order the superintendent of public instruction to withhold distribution of quality BASE aid from a district when the district fails to:

(a) submit reports or budgets as required by law or rules adopted by the board of public education; or

(b) maintain accredited status.

(3) Prior to any proposed order by the board of public education to withhold distribution of quality BASE aid or county equalization money, the district is entitled to a contested case hearing before the board of public education, as provided under the Montana Administrative Procedure Act.

(4) If a district or county receives more quality BASE aid than it is entitled to, the county treasurer shall return the overpayment to the state upon the request of the superintendent of public instruction in the manner prescribed by the superintendent of public instruction.

(5) Except as provided in [section 19], the quality BASE aid payment must be distributed according to the following schedule:

(a) from August to October of the school fiscal year, 10% of the direct state aid to each district;

(b) from December to April of the school fiscal year, 10% of the direct state aid to each district;

(c) in November of the school fiscal year, one-half of the guaranteed tax base aid payment to each district or county that has submitted a final budget to the superintendent of public instruction in accordance with the provisions of 20-9-134;

(d) in May of the school fiscal year, the remainder of the guaranteed tax base aid payment to each district or county; and

(e) in June of the school fiscal year, the remaining payment to each district of direct state aid.

(6) The distribution provided for in subsection (5) must occur by the last working day of each month.

NEW SECTION. Section 18. Duties of superintendent of public instruction for state and county equalization aid distribution. The superintendent of public instruction shall administer the distribution of the state and county equalization aid by:

(1) establishing the annual entitlement of each district and county to state and county equalization aid, based on the data reported in the retirement, general fund, and debt service fund budgets for each district that have been adopted for the current school fiscal year and verified by the superintendent of public instruction;

(2) for the purposes of state advances and reimbursements for debt service, limiting the distribution to no more than the amount appropriated for the school fiscal year to the districts that are eligible under the provisions of [sections 23 through 28] by:

(a) determining the debt service payment obligation in each district for debt service on bonds that were sold as provided in [section 27(3)] that qualify for a state advance or reimbursement for debt service under the provisions of [sections 23 through 28];

(b) based on the limitation of state equalization aid appropriated for debt service purposes, determining the state advance for debt service and the proportionate share of state reimbursement for debt service that each eligible district must receive for the school fiscal year; and

(c) distributing that amount by May 31 of each school fiscal year to each eligible district for reducing the property tax for the debt service fund for the ensuing school fiscal year;