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F I S C A L I M P A C T R E P O R T

SPONSOR SFCS

DATE TYPED 03/06/05 HB

SHORT TITLE Public School Capital Outlay Amendments

SB 455/SFCS/aHAFC

ANALYST Kehoe

APPROPRIATION

Appropriation Contained Estimated Additional

Impact

Recurring

or Non-Rec

Fund

Affected

FY05

FY06

FY05

FY06

$2,100.0

Recurring

Public School Capital

Outlay Fund

$1,562.0

Public School Capital

Outlay Fund

$284.4

Public School Capital

Outlay Fund

(Parenthesis ( ) Indicate Expenditure Decreases)

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of HAFC Amendments

The amendments adopted by the House Appropriations and Finance Committee include “Provid-

ing Standards for Charter Schools Facilities to the bill’s title, add a new section that lists “Stan-

dards for Charter Schools” and make the following technical corrections: a) clarify that “resi-

dential” property tax rates will be used by the council in determining whether to adjust the school

districts contributions to capital outlay projects (pp. 27 & 28); and b) add the term “education” to

ensure the reference is to the Legislative Education Study Committee (p.40).

Significant Issues

As provided by the HAFC amendments, standards for charter school facilities are outlined be-

low:

"22-8B-4.2. CHARTER SCHOOL FACILITIES--STANDARDS.--

A. The facilities of a charter school that is approved on or after July 1, 2005 and before

July 1, 2010 shall meet educational occupancy standards required by applicable New Mexico

construction codes.

Senate Bill 455/SFCS/aHAFC -- Page 2

B. The facilities of a charter school that is in existence, or has been approved, prior to July

1, 2005 shall be evaluated, prioritized and eligible for grants pursuant to the Public School Capi-

tal Outlay Act in the same manner as all other public schools in the state; provided that for char-

ter school facilities in leased facilities, grants may be used as additional lease payments for

leasehold improvements.

C. On or after July 1, 2010, an application for a charter shall not be approved and an exist-

ing charter shall not be renewed unless the charter school:

(1) is housed in a public building that is:

(a) owned by the charter school, the school district, the state, an institution of the

state, another political subdivision of the state, the federal government or one of its agencies or a

tribal government; and

(b) subject to evaluation and prioritization and eligible for grants pursuant to the Pub-

lic School Capital Outlay Act in the same manner as all other public schools in the state; or

(2) if it is not housed in a public building described in Paragraph (1) of this subsection,

demonstrates that:

(a) the facility in which the charter school is housed meets the statewide adequacy

standards developed pursuant to the Public School Capital Outlay Act and the owner of the facil-

ity is contractually obligated to maintain those standards at no additional cost to the charter

school or the state; and

(b) either: 1) public buildings are not available or adequate for the educational pro-

gram of the charter school; or 2) the owner of the facility is a nonprofit entity specifically organ-

ized for the purpose of providing the facility for the charter school.

D. The public school capital outlay council:

(1) shall determine whether facilities of a charter school meet the educational occupancy

standards pursuant to the requirements of Subsection A of this section;

(2) shall determine whether facilities of a charter school meet the requirements of Sub-

sections B and C of this section; and

(3) upon a determination that specific requirements are not appropriate or reasonable for

a charter school, may grant a variance from those requirements for that charter school."".

Synopsis of SFCS/SB 455

Senate Finance Committee Substitute for Senate Bill 455 proposes amendments to the Public

School Capital Outlay Act, Technology for Education Act, Public School Code, Public School

Insurance Authority Act, Public School Capital Improvements Act, Severance Tax Bonding Act

and other statues related to school district obligation bonds and construction; and makes appro-

priations.

Senate Bill 455/SFCS/aHAFC -- Page 3

Significant Issues

Laws 2004, Chapter 125, recreated PSCOTF to continue its duties of evaluating the progress and

effectiveness of the programs administered pursuant to the Public School Capital Outlay Act

(PSCOA) and the Public School Capital Improvements Act (PSCIA). The task force duties in-

cluded reviewing the condition index and methodology used for ranking public school construc-

tion projects; evaluating existing permanent revenue streams as adequate long-term funding

sources for public school capital outlay projects; and monitoring and assisting the Public School

Capital Outlay Council and the Public School Facilities Authority as they perform functions pur-

suant to PSCOA and PSCIA, particularly implementation of the statewide-based process for

making awards. The following recommendations are the result of the task force’ work during the

interim and are offered for consideration of the Legislature during the 2005 Session:

Section 1, proposes a new section within the Severance Tax Bonding Act requiring that proceeds

of severance tax bonds and supplemental severance tax bonds appropriated for the purpose of

carrying out the Public School Capital Outlay Act be immediately transferred to the public

school capital outlay fund for administration and disbursement by the Public School Capital Out-

lay Council in accordance with the Public School Capital Outlay Act. The provision allows

payment for project costs as expenses are incurred and within 10 days of payment request and

eliminates creation of a special fund.

Section 2, amends the Educational Technology Act to discontinue the offset for direct appropria-

tions for educational technology currently applied to distributions from the education technology

fund. Instead, commencing with 2005 appropriations, the offset will apply against future public

school capital outlay grant awards, including balances from previous educational technology

funds.

Section 3, clarifies and amends existing law requiring all public school construction plans for

construction of public school facilities, including projects funded with insurance proceeds, be

approved by the Public School Facilities Authority (PSFA) to assure plans are in compliance of

the statewide adequacy standards and are integrated into the school district’s master plan. How-

ever, if a contract is funded in whole or in part with insurance proceeds, the cost of settlement of

any insurance claim shall not be increased by inclusion of the insurance proceeds in the construc-

tion contract, and the insurance claims settlements will continue to be governed by insurance

policies, memoranda of coverage and rules related to them. The section further provides that fa-

cilities be constructed pursuant to the Construction Industries Licensing Act building and fire

code standards rather than municipal or county standards except for those structures constructed

as a part of an educational program of a school district. Provisions relating to fire protection are

not effective until the Public Regulation Commission adopts the International Fire Code and all

related standards.

Section 4, in conjunction with Sections 5 and 17, provides authorization and funding for a roof

repair and replacement initiative as follows:

•

PSCOC authorized to allocate up to $30 million annually in fiscal years 2006 and 2007

for a roof repair and replacement initiative for projects identified by PSCOC, and requires

the funds be expended no later than September 1, 2008. (Section 5 describes process;

Section 17 appropriates the funds)

Senate Bill 455/SFCS/aHAFC -- Page 4

•

amends the lease assistance program enacted in 2004 to: 1) allow charter schools to apply

for the lease assistance program if the school district fails to apply on behalf of the char-

ter school; 2) increase the maximum grant award from $300 per member to $600 per

member, but maintains the requirement that the award cannot exceed the actual lease

amount; 3) allow the distribution during the initial year of operation of a charter school to

be based on estimated first-year enrollment rather than prior-year enrollment.

Current law allows PSCOC to allocate up to $4 million a year in fiscal years 2005 through 2009

for grants to school districts for the purpose of making lease payments for classroom facilities.

PSCOC allocated $1.9 million in lease assistance awards, and no federal funds were appropriated

to supplement the program. According to PSCOTF, the changes will provide additional assis-

tance to charter schools and other public schools that lease classroom facilities over the next four

years of the program.

Section 4, further authorizes PSCOC to expend up to one percent of the average grant assistance

for the three previous years to reimburse the State Fire Marshall, the Construction Industries Di-

vision and local jurisdictions, when under contract with PSFA, for permits and inspections they

perform as part of the public school capital outlay process. The estimated cost for fiscal year

2006 is $2,100 million.

Section 5, describes the PSCOC process for applying for funds for the new roof initiative, re-

quires the Council to develop guidelines for the new initiative, requires PSFA to verify the

school district’s assessment of the project and rank the application based on a methodology

adopted by PSCOC, and requires that the costs of repairs or replacement be shared by the state

and the district using the state-share formula that applies to other capital outlay projects.

Section 6, allows PSCOC to complete outstanding deficiencies including serious roof deficien-

cies affecting the health or safety of students and school personnel regardless of the local effort

or percentage of indebtedness of the school district subject to the following provisions: 1) if the

Council determines that the school district has excess capital improvement funds, the cost of cor-

recting the deficiencies will first come from the excess funds, and if the funds are insufficient to

correct the deficiencies, the difference will be paid from the public school capital outlay fund;

and 2) if the school district refuses to pay its share of the cost of correcting deficiencies, future

distributions from the public school improvements fund will not be made to the school district

but will be made to the public school capital outlay fund until the public school capital outlay

fund is reimbursed in full for the school district’s share. All awards for correcting outstanding

deficiencies for roofs must be made no later than September 30, 2005, and the funds must be ex-

pended no later than September 30, 2007.

Section 7, proposes changes to the grant assistance program as follows:

•

Reduce priority funding for continuations projects from three to two years and clarifies

the definition of a continuation project.

•

Revise formula applied to grants by calculating the state-share amount as a three-year av-

erage beginning with 2004.

•

Change date for districts to reject direct legislative appropriations from July 15 to June 1

to coincide with Board of Finance schedule for issuing severance tax bonds.

•

Provide a deadline of May 1 of each year by which PED must calculate the public school

district formula

Senate Bill 455/SFCS/aHAFC -- Page 5

•

Allow school district funds to be considered part of a local match for a project initiated

after the statewide adequacy standards were adopted (September 1, 2002), but before the

standards were first used for making grants (September 1, 2004).

•

Provide that appropriations for education technology made after January 2005 apply

against capital outlay awards and transfer balances of any existing education technology

offsets to apply against future capital outlay awards.

•

Change criteria for determining when to fund the total amount of a project when a school

district has used all of its local resources. The Public School Capital Outlay Council may

adjust the amount of local share otherwise required if it determines a school district has

used all of its local resources, but before making adjustments to the local share must de-

termine the district has met the following factors:

1.

For all districts, criteria would be that district has insufficient bonding capacity

over the next four years to provide the local match necessary to complete the pro-

ject and that the district has imposed at least 10 mills of property taxes for all edu-

cational purposes.

2.

For small districts (districts with fewer than 800 students), would be considered as

having used all their resources if at least 70 percent of their students are eligible

for free or reduced-rate lunch, have a local-share based on the formula of greater

than 50 percent and have imposed at least seven mills of property tax for add edu-

cational purposes.

3.

The school district has: 1) an enrollment growth rate over the previous school

year of at least two and one-half percent; 2) according to its five-year facilities

plan, will be building a new school within the next two years; and 3) for all edu-

cation purposes, has a property tax rate of at least $10.00 on each $1,000 of tax-

able value, as measured by the sum of all rates imposed by resolution of the local

school board plus rates set to pay interest and principal on outstanding school dis-

trict general obligation bonds.

•

Require that school district five-year facilities plan required for submission for grant as-

sistance include the capital needs of charter schools located in the district.

Section 8, requires the Council to develop, implement and maintain a uniform web-based facility

information management system, and within available appropriations, to develop a schedule and

procedure for phasing all school districts into the system, including school districts not applying

for grant assistance. The system will provide a centralized database of maintenance activities for

monitoring, supporting and evaluating school-level and district-wide maintenance efforts; pro-

vide comprehensive maintenance request and expenditure information to the school districts and

the Council; and facilitate training of facilities maintenance and management personnel. School

districts would be required to participate in system to be eligible for a capital outlay award.

Section 9, recreates the PSCOTF as a permanent public school outlay oversight task force;

changes the membership to include: 1) the Speaker of the House or designee; 2) the President

Pro Tempore of the Senate or designee; 3) two minority party members of the House of Repre-

sentatives appointed by the New Mexico Legislative Council; 4) two minority party members of

the Senate appointed by the New Mexico Legislative Council; and 5) a member of the interim

legislative committee charged with the oversight of Indian affairs appointed by the New Mexico

Legislative Council, provided the member rotate annually between a Senate member and a mem-

ber of the House of Representatives. The provision removes the dean of the UNM Law School

as a member; requires two of the three superintendents appointed to the task force be from im-

Senate Bill 455/SFCS/aHAFC -- Page 6

pact aid districts, and requires that two of the three public members be residents of school dis-

tricts that receive grants from the federal government as assistance to areas affected by federal

activity in accordance with Title 20.

Section 10, describes the duties of the task force and directs the task force to name an advisory

committee to look at ways to facilitate the interaction between charter schools and their school

districts on issues relating to facility needs.

Section 11, requirement that employees of PSFA be subject to the State Personnel Act is delayed

until July 1, 2006. PSFA is required to account for all awards made after July 1, 2004 from the

public school capital outlay fund, and to make annual reports to the Public Education Depart-

ment, the governor, the Legislative Study Committee, the Legislative Finance Committee and the

Legislature.

Section 12, requires PSFA to complete an assessment of a public facility that will be provided

for the use of a charter school within 60 days of being notified by the charter school of the pro-

posed use of the facility. The assessment will determine the extent to which the facility meets

the adequacy standards and the costs of bringing the school to those standards. Once assessed,

the proposed facility would be prioritized and eligible for grant awards.

Section 13, clarifies that proceeds from school district general obligation bonds can be used for

the purpose of matching capital outlay awards after consideration of the priorities for the school

district’s capital needs as reflected by the facility assessment database maintained by PSFA

Section 14, increases the state SB 9 guarantee from $50 to $60 per unit per mill commencing in

2006. The proposed increase is recommended for maintenance of school facilities and is consis-

tent with the long-term goal of the task force to raise the state share of funding for maintenance

to approximately one-third of the total. According to PED, the increase in equalization guarantee

amount to $60 would increase the state share of total SB 9 funding from approximately 17 per-

cent to 22 percent in fiscal year 2006, and the estimated increase will result in an additional $6

million for 64 school districts. The provision also allows these funds to be used by school dis-

tricts for the district’s share for the proposed new roof repair and replacement initiative. How-

ever, if a serious deficiency in a roof has been corrected and the school district refuses to pay its

share of the cost, the distribution will be made to the public school capital outlay fund rather than

the school until the public school capital outlay fund is reimbursed by the school district in full.

Section 15, requires all school districts, not just those who apply for state funding, to develop

and implement preventive maintenance plans and to participate in the facility information man-

agement system proposed in Section 8 of this bill.

Section 16, is technical clean-up.

Section 17, requires that a claim for property damage to a school facility be paid directly to the

school district. The section further authorizes the district to expend the insurance funds as long

as the district complies with the procurement code and the expenditure has been approved by

PSFA and determined to be consistent with the state adequacy standards.

Section 18, appropriates $1,562,000 from the public school capital outlay fund to PSFA to de-

velop and implement a uniform, statewide web-based facility information management system;

Senate Bill 455/SFCS/aHAFC -- Page 7

appropriates $284,400 from the public school capital outlay fund to PSCOC in fiscal year 2005

to reimburse charter schools in their first year of operation in the 2004-2005 school year for least

payments.

Section 19, contains an emergency clause.

FISCAL IMPLICATIONS

The appropriation of $1,562 million contained in this bill for expenditure in fiscal years 2005

through 2007 is a non-recurring expense to the public school capital outlay fund. Any unex-

pended or unencumbered balance remaining at the end of a fiscal year shall revert to the public

school capital outlay fund.

The appropriation of $284.4 thousand contained in this bill for expenditure in fiscal year 2005 is

a non-recurring expense to the public school capital outlay fund. Any unexpended or unencum-

bered balance remaining at the end of a fiscal year shall revert to the public school capital outlay

fund.

Section 4 of the bill authorizes PSCOC to expend up to 1 percent of the average grant assistance

during the previous three years, totaling approximately $2.1 million for the purpose of reimburs-

ing the State Fire Marshal, Construction Industries Division and local jurisdictions.

No new revenue sources for the public school grant assistance program are recommended for

fiscal year 2006 in this bill. However, because of the volatility and uncertainty of severance tax

revenues upon which supplemental severance tax bonding capacity is based, the state should

consider, on a year-by-year basis, using severance tax revenues that would otherwise flow to the

severance tax permanent fund for supplemental severance tax bonds for public school capital

outlay purposes.

ADMINISTRATIVE IMPLICATIONS

Section 6 of this bill provides a deadline of May 1 of each year by which PED must calculate the

public school district formula. Information related to prior year land valuations necessary to up-

date the formula is provided by the Taxation and Revenue Department (TRD). Based on past

experience, PED indicates meeting the proposed deadline may be difficult unless TRD is re-

quired to submit the necessary information to PED by a particular date.

OTHER SUBSTANTIVE ISSUES

As of September, 2004, Laws of 2004, Chapter 125, required PSCOC to make public school

construction grant awards compliant with the new standards-based process adopted by PSCOC in

September 2003. PSCOC awarded $198.5 million for statewide public school construction in

FY2004-05. Of the $198.5 million, $124.7 million was awarded for 97 projects out of 100

ranked for schools of greatest need as listed in the New Mexico Condition Index (NMCI) rank-

ings. The allocations included $38.8 million derived from out-year capacity in order to fund pro-

jects in whole rather than by piecemeal. Of the total awarded, $73.8 million was allocated to

complete projects partially funded in the prior award cycle. Although no longer required by law,

the awards provided $109.4 million to Impact Aid districts, including Albuquerque.

Senate Bill 455/SFCS/aHAFC -- Page 8

To ensure adequate space for kindergarten classrooms in time for the September 2004 school

year, PSCOC allocated $12 million from the public school capital outlay fund for the kindergar-

ten initiative. Of the allocation, a $5 million general obligation bond recently approved by the

voters will partially reimburse the fund.

The state has made a substantial commitment to adequately fund infrastructure for public schools

statewide. Bonding capacity levels have increased over the last several years and are now 95

percent of prior year severance tax revenues less up to 50 percent for senior severance tax bonds.

Based on current estimates, supplemental severance tax bond capacity, dedicated for public

school construction will be $135 million for FY06 and projected to be in excess of $115 million

annually for the next five years. Nearly $900 million has been appropriated for critical capital

outlay projects, continuation projects, standards-based projects, deficiency correction projects,

kindergarten facilities, lease payments, and oversight expenses. FY2004-05 was a record-

breaking year for public school capital outlay funding as depicted in the following graph:

Public School Capital Outlay Allocations

State Portion Only

1975 through 2005

(Millions $)

0.0

50.0

100.0

150.0

200.0

250.0

LMK/rs:lg