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

SPONSOR SFL

ORIGINAL DATE

LAST UPDATED

2/5/2006

2/14/2006 HB

SHORT TITLE Education Dept. Charter Schools Division

SB CS/600/SFLS

ANALYST Aguilar/McOlash

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY06

FY07

See Fiscal Implications

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to HB432, HB560, HB630, HB749, HJM48, SB211, SB450, SJM4

SOURCES OF INFORMATION

LFC Files

Responses Received From

Department of Finance and Administration (DFA)

Public Education Department (PED)

Attorney General’s Office (AGO)

Public Schools Facilities Authority (PSFA)

SUMMARY

Synopsis of Bill

The Senate Floor substitute for Senate Finance Committee substitute for Senate Bill 600 makes

substantial changes to current statute to create a Charter Schools Division within PED, expands

chartering authority to the Public Education Commission (PEC), charges PEC with exclusive

responsibility for the authorization of locally autonomous charter schools identified in the bill as

state-chartered schools and designates the duties of chartering authorities.

The Floor substitute also makes changes to fiscal provisions of statute the most significant is the

requirement that before the first year of operation, each state-chartered school must qualify as its

own board of finance under requirements set forth in the bill.

The bill further sets forth requirements for the application and renewal of charter schools, as well

as how charter schools will be operated and governed. The bill also removes provisions allowing

for conversion schools.

Senate Bill CS/600/SFLS - Page 2

FISCAL IMPLICATIONS

It is important to note that provisions contained in this bill are creating two distinctly different

classifications of charter schools with their own management systems, budgeting processes, state

equalization and supplemental distributions. The impact on the State Equalization Guarantee

(SEG) distribution may be significant. It is also important to note that the differences between

the classifications may lead to a disparity in the quality of educational opportunity for students.

•

Distributions to state chartered schools shall include the following parts

o

State Equalization Guarantee distribution

o

Transportation distribution

o

Supplemental distributions

o

Emergency supplemental

o

Program enrichment

The bill generally makes state-chartered school financial operations equivalent to school district

operations and exempts the charter school from school district requirements. The effect of this is

to allow charter schools the same discretion over funds as school districts have.

While the Senate Floor substitute carries no appropriation; however, there are several other fiscal

implications that may arise because of enactment. The General Appropriations Act contains

$500 thousand in the PED budget to fund the charter school division contingent on the passage

of SB600, HB630 or similar legislation of the second session of the forty-seventh legislature.

This is a recurring cost to the general fund.

Beginning in FY 08, and subsequent fiscal years, the budget of every state-chartered school will

be based on the projected number of program units generated by those schools and their students,

using the local district at-risk index and the charter school’s instructional staff training and ex-

perience index.

Budgets for locally chartered schools shall be based on the projected number of program units,

using the district at-risk index and the district training and experience index. Provisions in the

bill make all charter schools eligible for growth units and the charter school student activities

program units. This increase in units statewide is expected to reduce the unit value unless addi-

tional appropriations are included as these units do not currently exist. The additions of certain

categories for funding will increase distributions to the charter schools while decreasing the

amounts to school districts.

An analysis by LESC notes that in school year 2005-2006, 13 school districts with membership

of 200 or fewer were allowed to budget more than $3.5 million in emergency supplemental fund-

ing for operational expenses. At present 35 charter schools have membership of 200 or fewer.

The bill provides for these schools to apply for emergency supplemental distributions at the same

rate as school districts. At the current rate of applications, 28 schools could be expected to apply

for such funds. If small charter schools can justify similar requests the need for additional emer-

gency supplemental funding for school year 2007-2008 could approach $7.6 million.

Section 22-1-2 NMSA 1978 defines "private school" as a school, other than a home school, that

offers on-site programs of instruction and that is not under the control, supervision or manage-

ment of a local school board (emphasis added).

Senate Bill CS/600/SFLS - Page 3

The bill provides for the governing body of a charter school to obtain approval from the Public

Schools Facility Authority (PSFA) prior to the construction or letting of contracts for any school

buildings and to make other construction related requirements applicable to charter schools. Fur-

ther, any facilities provided by a local district shall meet occupancy standards as specified by the

Public School Capital Outlay Council.

The Public School Facilities Authority notes if a state-chartered school is newly created, or is

renewed, it appears to be able to apply for state capital outlay funds independently from a school

district. This may be an unintended and costly proposal for the state. Consider the following:

The state-chartered school application only requires a description of the facilities a charter school

plans to use. Without consideration of the capacity of the physical space or other adequacy re-

quirements currently required of school districts applying for state capital funds, a newly minted

charter school could “jump the queue” of other public schools listed in the Facilities Assessment

Database. A charter could be approved without due consideration to the facilities. If it is later

determined that they are not adequate for the student enrollment levels and other factors, it is

conceivable that the charter school could successfully petition the chartering authority (the state)

to receive funds to bring the facilities up to adequacy.

If charters are required to come up with their own match, charter schools will be at a disadvan-

tage to conventional school districts when applying for state capital funding. To be considered

for capital funding from the PSCOC under the standards-based process, the applicant is to have

or be able to provide the local match for the potential project being applied for. The local match

is usually funded through the passage of a bond election.

The language amending 22-8B-4 .2 provides that all assets of a charter school whose charter is

revoked shall revert to the state. It is unclear whom (PED, PSFA, Property Control Division)

will be the custodian of these new assets. PED is not statutorily authorized under current law to

own assets; the PSFA is only allowed to own portable classrooms. There would be costs associ-

ated with maintaining, insuring and storing new assets as well.

SIGNIFICANT ISSUES

SB:CS/600/SFLS provides for two chartering authorities – the local school district and the state.

The bill allows charter schools to elect their chartering authority between a school district or the

PEC as well as allowing charter schools to change their chartering authority upon charter re-

newal. The bill provides that state-charted schools are independent of school districts and as

such, the state-chartered school governing bodies are generally treated as local school district

boards.

The bill creates the Charter Schools Division within the department.

With regard to local board charter schools, the bill does not require a charter school authorized

by a school district to qualify as a board of finance because it would continue to be a component

unit of the school district for audit purposes. Additionally, charter schools authorized by a

school district would be treated no differently than they currently are relative to transportation;

i.e., local districts must continue to negotiate the provision of transportation to charter school

students eligible for transportation.

Senate Bill CS/600/SFLS - Page 4

The bill requires that state-chartered schools governing bodies must function as boards of finance

and be qualified prior to the first year of operation. Failure of the governing body of a proposed

state-chartered school to qualify as a board of finance constitutes grounds for denial, nonrenewal

or revocation of its charter. Charter schools authorized by the PEC can apply for their own

transportation funds based upon their eligible student membership and are prevented from own-

ing school buses and providing their own transportation system but transportation is funded and

provided in a manner similar to the funded local district bus-contracted services. However it ap-

pears language contained in the bill may allow state-chartered schools to act as their own bus

contractors. While the bill provides for state-chartered schools to contract for transportation and

other services they are prohibited from contracting with a for-profit entity for the management of

the school.

LESC notes during the 2005 interim, PED testified that requiring each charter school to be its

own board of finance may pose a hardship on smaller charter schools because of the financial

expertise and responsibility required of the staff.

Other provisions in the bill:

•

Allow either the locally chartered authorizer or state authorizer to withhold 2 percent of

the school-generated program cost fund for administrative support from each charter

school that they authorize;

•

Provide for charter school student activities program units that will generate 0.1 units for

students who participate in district NMAA activities; funds generated from this unit mul-

tiplier will go to the local district. Although the bill creates the program unit, it does not

include these units in Section 22-8-18 NMSA 1978 which is that portion of statute that

lists the units that are added together to generate program cost. This may be problematic

in that it is not clear if charter school activities program units are intended to be part of a

district’s program cost.

•

Require a charter school organizer to provide written notification to both the PEC or

school district where their proposed charter school would be located and of its intent to

establish a charter school;

•

Provide due process rights if an initial or renewal charter application is denied by either

the locally chartered authorizer or state authorizer, namely, an appeal to the Education

Secretary with further review available in a district court;

•

Provide that state authorized charter schools are exempt from school district require-

ments, but locally authorized charter schools must comply with host school district re-

quirements unless that district waives them;

•

Eliminate new conversion schools after July 1, 2007 but does not eliminate any existing

conversion schools;

•

Require a charter school authorized by a locally chartered authority to establish an

agreement with the local school board for the resolution of disputes;

•

Provide that the Public School Capital Outlay Oversight Task Force, in consultation with

the Public School Capital Outlay Council (PSCOC), the PED and the Public School Fa-

cilities Authority (PSFA), study funding for charter school capital outlay facilities, trans-

portation costs and any other capital outlay issues concerning charter schools; the study

must commence on May 17, 2006 with a reporting date to the LESC, the LFC and the

Governor by November 1, 2006.

Senate Bill CS/600/SFLS - Page 5

Requirements for each charter type differ in that:

•

The state-chartered schools submit charter applications, budgets, reports, etc., to the

Charter Schools Division within PED. Charter applications are approved by the existent

Public Education Commission (PEC). State-charted schools are treated as local districts

for capital outlay funding.

•

Locally chartered schools submit charter applications, school-based budgets, reports, etc.,

to local district school boards and the applications are approved locally.

•

District-chartered schools must submit applications, budgets, reports, etc., to local school

boards and school-based budgets must be approved by the local school board and PED.

Any locally chartered school must negotiate with the local school district for transporta-

tion services. Additionally, locally chartered schools are eligible for capital outlay funds

through the district and must be a part of the districts’ five-year facilities plans.

The effective date of Sections 1 through 57 and Section 59 is July 1, 2007.

OTHER SUBSTANTIVE ISSUES

Provisions in the bill limiting conversion schools to those authorized by a local board prior to

July 1, 2007 removes an important option available to schools in restructuring.

POSSIBLE QUESTIONS

What is the significant difference between state-chartered schools and private schools. Can char-

ter schools still be classified as public schools.

Given the significant differences in resources available between state-chartered and local char-

tered schools, will the quality of facilities, staff and instructional resources be equitable between

the schools.

Will removing the option for conversion schools have a negative impact on schools or districts in

developing and implementing restructuring strategies.

Where will charters applying for state capital funds come up with the required local matching

funds. What will be their match requirement. If the answer is “the state”, this would likely be in

conflict with the requirements of the Zuni lawsuit.

PA/BMC/yr