Whitefish School District is one of three school districts that will be affected by House Bill 114 that was signed into law in May.

The new law restricts how school districts use tax increment financing money.

Whitefish, Bozeman and Anaconda districts now must use the money to reduce taxes or designate it as operating reserve, meaning depositing it into funds such as the general fund, for example.

The concern for Whitefish is that a school district has a limited budget authority and a maximum amount it can place in the general fund. So even if the school district puts tax-increment money in the general fund, it can’t spend beyond its budgeting authority.

The district can grandfather in existing contracts to allocate tax-increment money toward projects such as facility assessments on Muldown Elementary or paving a school parking lot.

But the majority of the tax-increment money — $600,000 per year in Whitefish — now will go toward tax reduction, according to district Clerk Danelle Reisch.

Previously, the district earmarked 52 percent of tax increment money for facility maintenance and improvements. Twenty-eight percent was placed in a leadership and professional development account while 20 percent was deposited into a research and development account to “ensure ongoing pursuit of improved educational delivery in keeping with SD #44’s strategic plan.”

The school district used $2.5 million in tax-increment money for construction of the high school.

Whitefish School District has benefited from the city’s tax increment financing district through a unique interlocal agreement with the city of Whitefish. The financing district was established in 1987 and is slated to go through 2020.

Tax-increment money is one of the reasons the district has not had to ask voters for building reserve levy approval in many years.

In this respect, the legislation doesn’t have an upside for the district because it eventually will need to ask taxpayers to approve building reserve levies, essentially increasing taxes, Reisch said.

To align with the new law, on Monday the Whitefish School Board rescinded a policy it had adopted in 2012 outlining where to use money from the city tax increment financing district.

School board chairman Shawn Watts expressed concern about the new law’s impact on the district.

“We’ve been very aggressive over the last few years in professional development to find new ways to teach,” Watts said, adding that the hire of new Superintendent Heather Davis Schmidt, with her background in the International Baccalaureate and dual-language immersion programs, as an example of the district’s commitment to improving curriculum and programming.

Reporter Hilary Matheson may be reached at 758-4431 or by email at hmatheson@dailyinterlake.com.