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

SPONSOR HEC

ORIGINAL DATE

LAST UPDATED

2/6/06

2/9/06 HB 432/HECS/aHAFC

SHORT TITLE Public School Capital Outlay Omnibus Bill

SB

ANALYST Aguilar

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

$2,500.0

Non-Recurring Public School Capital

Outlay Fund

$300.0 Non-Recurring Public School Capital

Outlay Fund

$50.0

Non-Recurring

Legislative Cash

Balances

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SECS 450

Relates to SB-95; SB-211; SB-247; SB-600; HB-301; HB-405;

SOURCES OF INFORMATION

LFC Files

Responses Received From

New Mexico Finance Authority (NMFA)

Public Education Department (PED)

Public School Insurance Authority (PSFA)

Attorney General’s Office (AGO)

Department of finance and Administration (DFA)

SUMMARY

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee amendment to the House Education Commit-

tee substitute for House Bill 432 provides for the creation of a fund for new school start-up costs,

increases the membership threshold for eligibility of school districts to receive assistance in de-

veloping and updating five-year facilities plans, provides for the correction of deficiencies at the

New Mexico School for the Blind and Visually Impaired and the New Mexico School for the

Deaf if funds are appropriated, provides for the accrual of interest on amounts advanced to

school districts for the district share of projects, authorizes a charter authority study, removes all

general fund appropriations and changes funding sources for other appropriations.

House Bill 432/HECS/aHAFC – Page

2

SIGNIFICANT ISSUES

HB432/HECS/aHAFC provides for interest to be accrued on the amount of money unrecouped

from funds advanced for the district share of qualified high priority projects. The interest rate

will be a fixed rate equaling the tax exempt interest rate at the time of the advance, for a compa-

rable general obligation bond with similar maturity.

The Attorney General’s Office notes that when a project is approved, the grant amount (State

share of the cost of an approved project) is determined under a statutory formula that takes into

account (i) the district’s property tax wealth and (ii) the extent to which a school district has ex-

hausted its local revenue generating abilities. Capital improvements for schools in districts that

have utilized all their local revenue generating resources are eligible for a greater state share of

the funding of capital outlays than projects in districts that have not utilized all their local re-

sources. NMSA 1978, § 22-24-5(B)(5).

The AGO further notes the act contains an enforcement provision that empowers the Public

Schools Capital Outlay Council to sue recalcitrant school districts that fail to bring schools up to

the constitutionally required adequacy standard to force them to do what is necessary to meet the

standard. The enforcement provision provides that the Court may order the Council to pay for

the project and order the recalcitrant district to pay its local share under the funding formula as

well as attorneys’ fees and costs. The court may also order the “imposition of a property tax on

all taxable property allocated to the school district at a rate sufficient to pay the judgment, with

accrued interest, within a reasonable time as determined by the court.”

The AGO further notes Section 7 of the Bill would modify the current law by allowing the Coun-

cil to make grants of both the State share and the district share for “qualified high priority pro-

jects” as defined in the bill. The HAFC amendment contains a recoupment provision under

which a district advanced funds for a “qualified high priority project” would not receive the state

share to which it would be entitled on future projects until the amount advanced has been offset

by the amounts withheld. Section 7 appears to address critical needs required to meet the ade-

quacy standard in a uniform manner even though some of the districts where “qualified high pri-

ority projects” are apparently located have a relatively low district bonding level. This is be-

cause under the recoupment provision, a district in which a “qualified high priority project” is

located will ultimately receive only its state share for the project.

A question which remains to be answered is whether the provision requiring interest to be as-

sessed amounts to the district incurring debt without the approval of the voters.

Synopsis of Original Committee Substitute

The House Education Committee Substitute for House Bill 432 is an omnibus public school capi-

tal outlay bill making changes to the public school capital outlay (PSCO) program, requiring

school district master facilities plans and providing for capital outlay fund local match assistance

for qualified high priority projects, increases statutory caps on school district cash balances, and

creates a fund to pay for new school one-time costs.

The bill also provides funding to fully implement the lease payment assistance program, provides

for use of PSCO funds to demolish abandoned buildings, changes the method with which high

growth school construction is addressed, and provides funding to correct deficiencies at the New

House Bill 432/HECS/aHAFC – Page

3

Mexico School for the Blind and Visually Handicapped and the New Mexico School for the

Deaf.

Also included in the bill are provisions increasing the SB-9 guarantee from $60.00 to $90.00 per

unit, continuing the exempt status of Public School Facilities Authority (PSFA) employees, pro-

viding for PSFA to act as its own purchasing agent and creating a study committee and making

appropriations.

The bill declares an emergency.

FISCAL IMPLICATIONS

The House Education Committee substitute for House Bill 432 appropriates $343.4 million from

the general fund to various agencies and funds to implement the various provisions indicated.

House Bill 432 includes the following appropriations for expenditure beginning in 2006:

$40,000.0 To the public school capital outlay fund (PSCOF) to correct deficiencies at

the at the New Mexico School for the Blind and Visually Handicapped and the New Mex-

ico School for the Deaf. Funds remaining at the end of FY11 shall not revert but shall re-

main in the public school capital outlay fund.

$2,500.0 To PSFA for continued development and implementation of a uniform,

statewide web-based facility information management system. Funds remaining at the end

of FY08 shall revert to the general fund.

$2,000.0 To PSCOF for demolition of abandoned school buildings. Funds remain-

ing at the end of FY10 shall not revert but shall remain in PSCOF.

$290,000.0 To PSCOF for making grants for both the state and local share for quali-

fied high priority projects. Funds remaining at the end of FY10 shall not revert but shall

remain in PSCOF.

$1,000.0 To the New School Development Fund to pay costs unique to the first year

operation of new schools. Funds remaining at the end of a fiscal year shall not revert.

$7,500.0 To PSCOF to be used for the lease assistance program. Funds remaining

at the end of FY07 shall not revert but shall remain in PSCOF.

$300.0 To PSFA for making grants to improve indoor air quality. Funds remain-

ing at the end of FY07 shall revert to the general fund.

$50.0 To the Public Education Department for a feasibility study of alternative

chartering authority related to the establishment of charter schools. Funds remaining at the

end of FY07 shall revert to the general fund.

$50.0 To the Legislative Council Service for mileage and per diem to members

House Bill 432/HECS/aHAFC – Page

4

of the district revenue impact group. Funds remaining at the end of FY07 shall revert to

the general fund.

SIGNIFICANT ISSUES

The bill requires all school districts to have submitted a five-year facilities plan which includes

enrollment projections, a current preventative maintenance plan, the capital needs of charter

schools located in the district, and projections of facility needs to maintain a full-day kindergar-

ten program prior to PSFA approving school construction or a district letting contracts for school

construction. PSFA notes this is consistent with requirements currently in effect for districts ap-

plying for grant assistance.

Provisions contained in the bill increase the current 3 to 9 percent caps currently in place on the

amount of operational cash balances a public school district may retain to 5 to 15 percent de-

pending on total program cost. School districts have complained the caps currently in place are

unfair and are causing undue pressure with regard to expenditures which require the district to

expend funds prior to requesting reimbursement.

The committee substitute also provides for the secretary of education to waive all or a portion of

reductions for excess cash balances if the funds are needed to provide a local match or to reduce

the districts share of amounts granted for qualified high priority projects.

HB432/HECS creates the New School Development Fund to be used to supplement district

funds to pay for supplies, equipment and operating costs unique to the first year of operation.

New school construction funding generally funds facility construction only and does not include

funding for articles such as desks, chairs, and laboratory equipment. In FY06, the Public School

Funding Formula distributed $17.5 million for enrollment growth at $3,035.16 per unit. At this

time, there is no clear differentiation between operational and capital outlay and this would ap-

pear to be double funding. Other sources of revenue already available for start-up costs include

enrollment growth, the SB-9 mill levy and district operational cash balances.

The bill extends the lease payment assistance program through 2010, appropriates $7.5 million to

fund the current assistance amount of $600 dollars per MEM.

Further, the bill authorizes the Public School Capital Outlay Council (PSCOC) to make distribu-

tions from the PSCOF to assist certain school districts in developing and updating five-year fa-

cilities plans. Assistance is focused on small districts with limited financial resources. The

PSCOC may waive the district match in certain circumstances, but is limited to schools with

fewer than 800 MEM enrolled on the 80

th

and 120

th

day. Limiting the council to assisting

smaller school districts causes concern with regard to a “uniform system”. Not allowing larger

school districts access to this funding may be problematic with regard to issues involved in the

Zuni lawsuit.

The bill provides for awards to be made by PSCOC for the demolition of abandoned public

school buildings when certain conditions are met. It is anticipated such costs will be defrayed by

insurance premium savings accruing to the school district. PSCOC may enter into agreements

with school districts to reimburse the PSCOF with these savings.

The bill addresses health, safety and infrastructure deficiencies at the New Mexico School for the

House Bill 432/HECS/aHAFC – Page

5

Blind and Visually Impaired (NMSBVH) and the New Mexico School for the Deaf (NMSD).

While these two schools serve a kindergarten to 12

th

grade population, because of their unique

governance structure they were excluded from the original deficiency corrections program. The

bill includes these institutions as eligible for public school capital outlay projects and authorizes

PSCOC to correct serious deficiencies at these two schools. It is important to note NMSBVH

and NMSD are constitutionally established institutions that are funded quite differently from

public schools. Special distributions to these schools reduce the funding available to public

schools.

The committee substitute includes new local match provisions for qualified high priority pro-

jects. If appropriations are available and a district requests assistance, funds may be utilized to

pay both the state share and the district share of such projects. Payment of the district share is

conditioned upon the following:

•

The district’s share of a project as well as direct appropriations made to the district and

not rejected is combined to determine the total district share to be recouped by the

PSCOF.

•

Recouping of funds is accomplished by offsetting future allocations from the fund for the

state share of projects qualifying for a grant award.

•

Until the entire district share is recouped, no standards-based grant awards from the fund

will be made to the district and the district will be solely responsible for using local re-

sources to bring those facilities that would be eligible for allocations from the fund to the

statewide adequacy standards.

•

The committee substitute provides for the district to use cash balances to reduce the

amount to be recouped.

While the bill generally provides for no more than one project at a time per district to be funded

under this method, provisions are included for two projects in the same district in very specific

circumstances. These include:

•

Both projects qualify during the same awards cycle, beginning on or after July 1, 2006.

•

Both projects were approved for a grant award during the 2004-05 or the 2005-06 award

cycles and the school district has not obtained funding for the district share as of July 1,

2007; and

•

Are located in a high growth area; or

•

Is a project the council has determined that the cost or bringing the facility up to state-

wide adequacy would be equal or more than the cost of replacing the existing facility;

The committee substitute also provides criteria under which the PSCOC may designate high-

growth areas.

The Eleventh Judicial District Court ordered the state to establish and implement a uniform fund-

ing system for capital improvements of New Mexico school districts. In response to the judge's

order, New Mexico changed the way in which the state funds public school capital outlay expen-

ditures by making extensive amendments to the Public School Capital Outlay Act. One of the

changes was to implement a state-share formula based upon a local school district's property tax

wealth and its local effort. Provisions contained in this bill appear to minimize the local effort

component. Whenever a subset of districts or district projects is created for the purposes of spe-

House Bill 432/HECS/aHAFC – Page

6

cial funding, the equity and uniformity of the funding system may be in jeopardy. Since the

court has not completed its oversight, HECS-432 could potentially reopen the entire case.

The bill continues the exemption of PSFA staff from provision of the State Personnel Act and

further excludes PSFA from central purchasing through the state purchasing agent. This exclu-

sion permits PSFA to establish price agreement with vendors selected through a competitive bid

process. The price agreements may be utilized by school districts and PSFA for various products

and services related to construction, design professional services, roof consulting services and

master planning.

The bill increases the state SB-9 distribution amount from $60.00 to $90.00 per program unit.

The proposed increase is recommended to be used for maintenance of school facilities. Addi-

tionally, the bill expands the definition of capital improvements to include payments for con-

tracts for maintenance support services. Currently, the SB-9 distribution equals $17.7 million

annually, increasing the distribution to $90 will increase annual costs to $44.7 million.

The bill further creates the School District Revenue Impact Study Group. The group whose

membership is delineated in the bill is created for one year. The group will meet during calendar

2006 to examine various issues related to real estate development and the resulting public use

infrastructure demands. Emphasis of the work of the study group will be on the impacts on

school district revenues and expenditures, the costs of building and maintaining school facilities

and associated infrastructure and existing and alternative cost sharing mechanisms, including

impact fees

OTHER SUBSTANTIVE ISSUES

High Growth Schools. The provision to deal with “qualified high priority projects” comes at a

critical time for some school districts. The governor, in January called for $290 million in addi-

tional funding to assist high growth areas, notably: Albuquerque, Deming, Las Cruces, Los Lu-

nas, Gadsden Independent Schools and Rio Rancho Public Schools. The governor’s proposal

would utilize senior severance tax bonds ($145 million in FY06, $145 million in FY07) to pro-

vide funding for the program as opposed to general fund revenue. The following tables illustrate

the district wide growth rates for these select districts and the preliminary 2006-2007 NMCI

rankings.

Historical 40 Day MEM Counts

District 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Change 01-05 %

A lb uq u erqu e 85,276

87,152

87,939

90,214

93,338

8,062

9.5%

De min g 5,325

5,315

5,384

5,471

5,443

118

2.2%

Gad sd e n 13,100

13,254

13,454

13,796

14,089

989

7.5%

Las Cru ce s 22,185

22,414

22,778

23,101

23,717

1,532

6.9%

Lo s Lu na s 8,569

8,528

8,421

8,590

8,613

44

0.5%

Rio Ra n ch o 10,219

10,566

11,138

11,776

12,532

2,313

22.6%

Compiled by PSFA 01/25/06 from data provided by the Public Education Department.

DISTRICT

SCHOOL

2004-2005

NMCI Ranking

2005-2006 NMCI

Ranking

2006-2007 Pre-

liminary NMCCI

Ranking

STATE

SHARE

DISTRICT

SHARE

House Bill 432/HECS/aHAFC – Page

7

Albuquerque Northwest High School 1

752

47% 53%

Albuquerque Southwest High School

2

751

47% 53%

Deming Columbus Elementary School

16

721

76% 24%

Gadsden South Elementary School

Not included as

a proposed

school

87% 13%

Las Cruces Southwest High School

85

698

67% 33%

Las Cruces Southwest Mid School

Not included as

a proposed

school

67% 33%

Los Lunas Westside Elementary School

Not included as

a proposed

school

77% 23%

Rio Rancho Northwest Elementary School

Vista Grande ES

ranked #1

65% 35%

Rio Rancho Northeast Elementary School

Colinas del

Norte ES ranked

#30

65% 35%

As reported in the Albuquerque Journal, Albuquerque Public School staff recommended to their

school board a 1 mill increase which would have generated significant funding for the new high

schools, however the school board decided against placing it for consideration on the general ob-

ligation bond election.

Is should be noted that an individual schools attendance growth may be caused by immigration

or by population shifts within the district boundaries. Population shifts may not be evident in

district wide attendance figures but only at the school level of detail. The PSFA in FY05 con-

tracted with the Bureau of Business and Economic Research (BBER) to study and begin devel-

oping a model to forecast school district growth. One requirement of the project is to have avail-

able on-line, demographic and other data of the district available to school districts to perform

scenarios in order to assist districts in responding to growth issues that may be on the horizon.

The first phase of the study is almost complete and the second phase will be considered, subject

to funds being available to proceed further with the work.

It should be noted that funding increases in the Lease Assistance program and the Capital Im-

provements Act (SB-9) distributions will reduce the amount of funds available for PSCOC Grant

Awards. The table below illustrates the relationship of the programs as competing uses of a sin-

gle source of funding.

PSCOC FUNDING SOURCES AND USES SCENARIO

SOURCES:

FY06 YTD FY07 est. FY08 est. FY09 est.

Supplemental STB’s

$162.8 $138.5 $153.1 $153.7

TOTAL: $162.8 $138.5 $153.1 $153.1

House Bill 432/HECS/aHAFC – Page

8

USES:

PSCOC Grant Awards

$132.3

$78.3

$93.2 $94.2

Capital Improvements Act (SB-9)

$20.0

$44.7

$44.7 $44.7

Lease Payment Assistance

$4.0

$7.5

$7.5 $7.5

PSFA Operating

$4.4

$5.7

$5.8 $6.0

Earmark for CID &SFMO Inspection Costs

$2.1

$2.3

$1.9 $1.3

TOTAL: $162.8 $138.5 $153.1 $153.7

Provisions in the committee substitute require the district to utilize local resources to bring facili-

ties ineligible for allocations from the fund as a result of the “qualified high priority projects” to

state adequacy standards. It is unclear whether a district would have the resources to accomplish

this given the districts inability to fund the local share of the priority project. The result may be

that schools high on the PSCOC list for allocations may not receive the funding necessary to

meet adequacy.

ALTERNATIVES

A number of alternatives have been suggested by Secretary Jimenez in a presentation to the Pub-

lic School Capital Outlay Taskforce in December. These include:

•

Consider retroactive awards to APS for projects that APS did not previously apply.

•

Consider waiver of match on 2005 awards for high growth schools or for APS.

•

Create a moratorium on offsets, for a period of time, for awards related to “significant

growth.” Significant growth criteria would be developed by PSCOC.

•

Prescribe that growth dollars cannot be considered from PSCOC unless; the district has

implemented a policy that any school that enrolls its first student over design capacity,

will at the next school year, become a “year around school.” Year around school in-

creases student capacity at a school by 20 percent.

•

Prescribe that growth dollars cannot be considered from PSCOC unless; the district has

first implemented all options including boundary changes that would spread students

across available facilities.

•

PSCOC impose a tax upon APS to raise needed match for high needs schools or projects.

•

Adjust growth awards by reducing local match by 20 percent (.8 x calculated required lo-

cal match amount) conditional upon a district having a certain minimum indebtedness

relative to a community “doing its best.”

•

PSCOC loan funding to districts for match dollars and require repayment by a certain

date.

•

Increase outside input of capital into schools such as from developers.

•

Impact fees for school construction

•

Lease purchase option

•

Review the 3X weighting of the growth factor within the NMCI ranking formula which

would de-magnify growth issues so that analysis of space would be simply reactive to

present need.

Other alternatives which may be considered:

•

Exempt direct appropriations for high growth schools and districts so they aren’t affected

in the formula, or

•

Prohibit direct appropriations for districts with high growth schools.

PA/nt

Attachment

House Bill 432/HECS/aHAFC – Page

9