NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Suite 101 of the State Capitol Building North.

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates SB 517

Relates to HB-365, HB-563, SB-451, and SB-547

SOURCES OF INFORMATION

LFC Files

State Department of Education (SDE)

SUMMARY

Synopsis of Bill

House Bill 808 amends the Public School Finance Act, Section 22-8-25 NMSA 1978. The bill proposes to:

- Change the percent of federal impact aid receipts the state takes into consideration in calculating the State Equalization Guarantee (SEG) from 75% to 50% from July 1,2001 to June 30, 2002;

- Change the percent of federal impact aid receipts the state takes into consideration in calculating the State Equalization Guarantee (SEG) from 50% to 25% from July 1,2002, to June 30,2003;

- Change the percent of federal impact aid receipts the state takes into consideration in calculating the State Equalization Guarantee to 0% July 1,2003, and in subsequent years.

- Require districts receiving impact aid to budget 20% of those funds for capital outlay purposes; and

- Allow districts to retain the remaining funds for operational expenditures.(SDE projects that impact aid districts would retain over $70,000.0 to use at their discretion)

Significant Issues

According to SDE, with the reduction from 75% to 50% , the bill would affect the state's ability to qualify as an equalized state for the purposes of taking credit for impact aid fund in calculation of the SEG because the state would no longer be able to meet the disparity test set forth in federal law.

The statutory provisions of New Mexico's public school funding formula, New Mexico has, in prior years qualified under federal impact aid requirements as an equalized state and has been allowed to consider eligible impact aid receipts in determining the amount of state aid to public school districts.

Currently, the state takes 75% credit of all local and federal revenues as required in the Public School Finance Act( Section 22-8-25 NMSA 1978). The state takes credit for only the operational portion of the Impact Aid funds, which translates to 58.5% of total impact aid payments. The districts retain 41.5 % of total impact aid payments.

FISCAL IMPLICATIONS

According to SDE, the enactment of HB-808 would require the 2002 Legislature to consider appropriating $45,900.0, which is the projected loss in impact aid credits, in general fund to the

SEG to maintain current unit value. Otherwise, the unit value for all school districts would have to be reduced proportionally to make up the loss to the SEG.

OTHER SUBSTANTIVE ISSUES

The Department of Education indicates that if HB 808 is enacted, New Mexico would no longer qualify under federal law to take credit for eligible impact aid revenues, because the state no longer meet the disparity test required by federal law. If the 50% impact aid had been in effect when the state submitted its disparity calculation for 2000-2001, the state would not have been certified to take credit for impact aid receipts. As a result, the state could no longer mandate or legislate utilization of the impact aid receipts by local school districts. Therefore, the state requirement that 20 % if impact aid funds by designated for capital outlay would not be applicable. As a result of New Mexico's failure to qualify as an equalized state, each impact aid recipient district would by able, according to federal law, to expend its impact aid for any legally permissible purpose.

RS/njw:ar