In response to a Montana School Boards Association (MSBA) resolution, this report develops alternatives and recommendations on school district reorganization for submission to the Montana state legislature. The first section examines the history of school district establishment and consolidation in Montana, and points out public opposition to reorganization and the legislature's failure to act on dozens of reorganization proposals over the years. In the early 1990s, a state budget crisis focused taxpayer attention on the cost of education in Montana, and school consolidation quickly became a hot political issue. Next, sections of the report: discuss who's in charge of Montana's public schools, particularly with regard to the consolidation issue; recognize that the goal is to improve a good system, not replace a failed one; describe the current structure of Montana's 503 school districts; examine seven reorganization options that range from doing nothing to creating a single statewide district; discuss the generally higher costs but potential educational benefits of small schools; and portray the fiscal impact of selected reorganizations of the past 20 years. Recommendations to the legislature include measures that encourage elementary and coterminous high school districts to form K-12 districts, that establish a minimum acceptable size for nonisolated high schools, and that encourage the use of distance learning technology and cooperative agreements. Contains 36 references and school district information in tabular form. A supplementary page, titled "School District Reorganization: A Retrospective" and dated September 1993, describes dissemination of the draft report to MSBA members and their responses and provides corrections to the report. (SV)