Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance

committees of the NM Legislature. The LFC does not assume responsibility for the accuracy of these reports

if they are used for other purposes.

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

SPONSOR SFC

ORIGINAL DATE

LAST UPDATED

3/5/2007

3/17/2007 HB

SHORT TITLE

Public School Capital Outlay Omnibus Bill

SB

CS/395/aHEC/aHTRC/

aHAFC

ANALYST Aguilar/Schardin

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($2,650.0) Recurring General Fund

$1,355.2

$4,005.2 Recurring

Public School

Facility

Opportunity

Fund

(Parenthesis ( ) Indicate Revenue Decreases)

ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT (dollars in thousands)

FY07

FY08

FY09 3 Year

Total Cost

Recurring

or Non-Rec

Fund

Affected

Total

$5,000.0 $5,000.0 $10,000.0 Recurring SB9 State

Match

($5,000.0) ($5,000.0) ($10,000.0) Recurring Standards

Based

Awards

(Parenthesis ( ) Indicate Expenditure Decreases)

** See Fiscal Implications

Relates to HB 328

Conflicts with HB 322, HB 328, HB 323, SB 159

SOURCES OF INFORMATION

LFC Files

SUMMARY

Synopsis of HAFC Amendment

The House Appropriations and Finance Committee amendment to the Senate Finance Committee

Substitute for Senate Bill 395 strikes a House Education Committee amendment that would have

CS/Senate Bill 395/aHEC/aHTRC/aHAFC – Page

2

required facilities to meet or exceed statewide adequacy standards before the facility is

purchased by a school district or charter school.

The amendment changes the effective dates for the diversion of reverting funds to the end of

FY09 through the end of FY13 and reinstates changes made to the general provisions of the 2006

General Appropriation Act that were eliminated in the House Education Committee amendment.

The amendment increases the number of members of the public school capital outlay task force

from 24 to 26. The two additional members will be a representative and a senator representing

districts with school districts receiving “PL 874" federal funds or “impact aid."

The amendment inserts a July 1, 2013 repeal date for sections seven and eight of the bill, which

pertain to supplemental grant funding for public school capital outlay projects and create the

public school facility opportunity fund. Money remaining in that fund on July 1, 2013 will revert

to the severance tax bonding fund and the general fund.

Synopsis of HTRC Amendment

The House Taxation and Revenue Committee amendment to the Senate Finance Committee

Substitute for Senate Bill 395 changes from twenty percent to ten percent the amount of the

unreserved undesignated balances in reverting funds and accounts transferred to the Public

School Facility Opportunity Fund at the end of fiscal year 2008 through fiscal year 2012.

Synopsis of HEC Amendment

The House Education Committee amendment to the Senate Finance Committee Substitute for

Senate Bill 395 makes changes to language requiring that prior to the purchase of a facility by a

school district or charter school the facility must meet or exceed the statewide adequacy

standards.

The amendment changes the requirement that a school district “shall use" its portion of a project

cost for lease payments as they come due to “may use" giving the district the option of using

these funds for this purpose. It appears this may be problematic if a district or charter school

runs short of funds because they were spent on other projects.

The amendment changes the effective dates for the diversion of reverting funds to the end of

FY08 through the end of FY12 and removes changes made to the general provisions of the 2006

General Appropriation Act.

The amendment also provides for a delayed repeal of the diversion of reversions of July 1, 2012

and provides for the distribution of funds remaining in the Public School Facility Opportunity

Fund.

Synopsis of Original Bill

The Senate Finance Committee Substitute for Senate Bill 395 exempts certain construction

projects from state oversight, changes criteria used for determining offset amounts, provides for

the consideration of space utilization in determining grant awards, provides for additional grants

to specific school districts, increases grants to schools for lease payments, allows for the

CS/Senate Bill 395/aHEC/aHTRC/aHAFC – Page

3

purchase of certain facilities using state grants and extends the time for deficiency corrections

funds to be expended.

The bill further increases the state match, authorizes the use of SB 9 monies for project

management which includes personnel salaries, and increases the tax imposition period.

SB 395/SFCS also provides for school districts to enter into lease-purchase agreements, provides

for these agreements to be funded by state grants and tax revenues, and provides for the direct

distribution of property tax proceeds to charter schools.

SB 395/SFCS creates the Public School Facility Opportunity Fund; authorizes grants from the

fund to certain districts so that the facilities in these districts may exceed adequacy standards;

and provides that a portion of annual general fund appropriations shall revert to the new fund.

The bill also provides that 3 percent of all direct legislative appropriations to schools be directed

to the fund.

FISCAL IMPLICATIONS

The Senate Finance Committee substitute for Senate Bill 395 makes a number of changes to the

Public School Capital Outlay Act, which provides for increased allocations from the Public

School Capital Outlay Fund. It is important to note that absent appropriations from the general

fund, the revenue source for this fund is finite on an annual basis and that any distributions from

the fund for initiatives other than school building construction reduces the amount available for

grants to school districts. With a statewide need of more than $4 billion for repair and

renovation, any reduction in the amount available for standards-based awards lengthens the time

required to meet the statewide need.

SB 395/SFCS provides for 3 percent of all direct legislative appropriations to schools be directed

to the Public School Facility Opportunity Fund. The impact to individual districts varies with

appropriations; however as a rule, for every $100 thousand appropriated to district projects, $3

thousand will be diverted to the fund. This is estimated to increase revenue to the fund by $1.3

million annually. An unintended consequence of this is that district projects may not be fully

funded.

As noted, the bill increases the state SB-9 state match to school districts to $70 in FY08 and

adjusted annually at a rate tied to the consumer price index. PED reports the guaranteed match

amount is currently calculated by multiplying the school districts’ total 40

th

day program units by

$62.04 and further multiplying this amount by the tax rate approved by the local voters (the

$62.04 includes the FY07 increase based on a CPI of 3.4 percent. The increase in the guarantee

match amount will result in approximately $5 million in additional funding to school districts

who qualify for state matching funds. Again, the Legislature should remember this $5 million

will reduce the amount available for standards based awards.

SB 395/SFCS increases the per student allocation for lease payments from the current $600 to

$700 limited to no more than $7.5 million in FY07. Provisions for per student allocation

increases beginning in FY09 and increases in the total amount available for this purpose

beginning in FY08 are contained in the bill. Both adjustments are tied to percentage increase of

the next to last and immediately preceding calendar year of the consumer price index. This is a

CS/Senate Bill 395/aHEC/aHTRC/aHAFC – Page

4

further expenditure from the fund that will result in reduced funds for grant awards.

The bill provides for the use of lease payments to be used for lease-purchase agreements of real

property and extends the period of time lease payments may be made from 2010 to 2020.

This bill provides for continuing appropriations from the public school capital outlay fund. The

LFC has concerns with including continuing appropriation language in the statutory provisions

for funds, as earmarking reduces the ability of the legislature to establish spending priorities.

SB 395/SFCS extends the period of time for the Public School Facilities Authority (PSFA) to

complete deficiencies corrections projects through the end of FY08 and for roof deficiency

corrections to the end of September 2008. The extension for deficiencies corrections projects

may be made upon the determination that a project requires additional time because existing

buildings need to be demolished or due to other extenuating circumstances.

SB 395/SFCS makes a number of changes to the existing methodology used in calculating the

state share of approved projects. These include:

•

Charter schools receiving grant assistance will use the participation factor of the school

district where the charter school is physically located;

•

Offset calculations will no longer include previous direct legislative appropriations that

have been reauthorized to another entity;

•

Future offsets will be calculated at 50 percent of direct legislative appropriations made

after January 1, 2007 for projects ranked in the top 150 in either the current or preceding

funding cycle; and,

•

All appropriations made after January 1, 2007 to a state-chartered school shall be

excluded form the offset of the school district. The offset will be excluded whether the

charter is a state charter at the time of the appropriation or becomes a state charter at a

later date.

SB 395/SFCS also provides for the financing of a lease purchase agreement to be considered a

project eligible for grant assistance as follows and provides criteria for determining eligibility.

The bill also provides that the cost of the project may not exceed the cost of the lease-purchase

payment agreement.

SB 395/SFCS provides for the purchase of a private built and owned facility to be considered

eligible for grant assistance. Based on testimony over the interim, schools to be located in Santa

Teresa and Mesa del Sol would be primary candidates for this option. The bill contains specific

criteria which must be met to be eligible. These are:

•

the facility to be purchased equals or exceeds the statewide adequacy standards and

building standards for public school facilities;

•

attendance at the facility is at 75% or greater of design capacity and that attendance

at other schools in the district that students at the facility would otherwise attend is

greater than 85% of design capacity

•

The school district and the capital outlay project meet all the requirements for grant

assistance.

CS/Senate Bill 395/aHEC/aHTRC/aHAFC – Page

5

Of note in this requirement is the provision noting that when determining deviations from the

statewide adequacy standards for the purpose of evaluating and prioritizing the project, the

students using the facility shall be deemed to be attending other schools in the school district.

The bill includes provisions for awarding additional grant assistance to approximately ten school

districts to fund projects above the currently adopted adequacy standards. The current standards-

based awards process was developed to make certain that all students are taught in facilities

meeting a certain level of adequacy to provide a sufficient education. This provision appears to

be moving beyond the original intent of the Public School Capital Outlay Act and targeting

funding outside of the adequacy process. This may set an undesirable precedent where the

standards-based process is set aside and projects are funded using random criteria.

The decrease in revenue of $5 million contained in this bill is a recurring expense to the general

fund. Any unexpended or unencumbered balance remaining at the end of any fiscal year shall

not revert to the general fund.

This bill creates the Public School Facility Opportunity Fund and provides for continuing

appropriations. The LFC has concerns with including continuing appropriation language in the

statutory provisions for newly created funds, as earmarking reduces the ability of the legislature

to establish spending priorities.

SB 395/SFCS decreases revenue to the general fund by $5 million in the first year and directs it

to the Public School Facility Opportunity Fund for the purpose of making grants to specific

districts so that the facilities in these districts may exceed adequacy standards.

An additional $581.9 thousand is directed to the fund from severance tax bonds used for direct

legislative appropriations.

The bill provides the following funding sources for the public school facility opportunity fund:

•

Twenty percent of unexpended agency and fund balances that would otherwise revert to

the general fund are transferred to the new fund for the next five fiscal years;

•

A three percent set aside of all direct legislative appropriations made to school districts or

other governmental entities for the purpose of passing the money directly to a school

district or public school for non-operating purposes and transfers the amounts to the new

fund

SB 395/SFC expands the use of SB 9 (2 mill levy) revenues to include payments for the lease-

purchase of real property. At present, these funds can only be used for lease payments for

education technology equipment, construction and renovation of school buildings, providing

equipment for or furnishing public school buildings, maintenance of school buildings,

purchasing activity vehicles and purchasing computer hardware and software. The increase in

deferred maintenance in schools is an ongoing problem. The authorization to use these funds for

financing payments may have the effect of reducing expenditures on maintenance.

SB 395/SFCS provides for charter schools to be included as a political subdivision as a revenue

recipient and provides for the direct distribution of property tax revenues to charter schools. This

appears to give district chartered schools status as a separate political subdivision although the

schools are already under the control of a political subdivision. Further, the distribution of

property tax revenues directly to district chartered charter schools appears to circumvent local

CS/Senate Bill 395/aHEC/aHTRC/aHAFC – Page

6

board control over decisions made regarding the schools within a school district.

The bill deletes language preventing school districts from charging rent to charter schools and

adds new language allowing school districts to lease space to a charter school as long as the lease

payments do not exceed the amount the charter school receives from the lease-payment

assistance program. Further, the bill provides that revenue received from these lease agreements

will not be considered as cash balances in the calculation of cash balance credits. This provision

may be in conflict with current statute regarding the calculation of cash balance credits as the

funds would generally be classified as unrestricted, unreserved cash balances.

The bill provides for the district in preparing ballot resolutions for tax imposition shall include

charter schools provided that the charter schools provide necessary information to the district in a

timely manner that identifies the capital improvements of the charter school for which the

revenue proposed to be produced will be used and the capital improvements are included in the

five-year facilities plan. This provision includes both district and state chartered schools to be

included on the ballot question as well take part in sharing revenue received. This appears to

again bring into question a local school boards authority to make decisions for their districts.

And including state chartered schools, which are not under the control of the local board, raises

further concern.

SB 395/SFCS expands the purposes for which funds generated from the Public School Buildings

Act also known as HB-33 revenues. Currently the use of these funds is restricted for lease

payments for education technology equipment, construction and renovation of school buildings,

and purchasing or improving public school grounds. The bill expands the use of these funds to

be used for administering projects noted above including expenditures for facility maintenance

and project maintenance software, project oversight and district personnel specifically related to

administration of projects funded by this act but may not exceed 5 percent of total project costs.

SB 395/SFCS provides for the Public School Capital Outlay Council (PSCOC), by rule, to

exempt certain types of construction from oversight. This in will generally apply to minor repair

projects that have little or no impact on the facilities assessment database. The bill specifically

exempts projects of less than $200 thousand from the review and approval process. In general

this should help speed up the construction process for small projects; however some projects of

this size are complex and could have a significant impact on overall facility condition.

The committee substitute also provides that prior to submitting a bid or proposal for a state or

local public works project, if it is determined that there is only one source for a specific service,

construction or item of tangible personal property, the responsible bidder, offeror or central

purchasing office may require a separate bid or offer be made.

The bill adds the efficient and flexible utilization of space as a priority for funding to be used by

the council in determining grant awards.

The bill also directs the Public School Capital Outlay Oversight Task Force to continue to work

toward an equitable and fair system to address facility inequities between school districts.

This bill also includes a temporary provision recompiling the New School Development Fund as

part of the Public School Finance Act. The effect of this provision is unclear.

CS/Senate Bill 395/aHEC/aHTRC/aHAFC – Page

7

SIGNIFICANT ISSUES

The bill includes provisions for awarding additional grant assistance to approximately ten school

districts to fund projects above the currently adopted adequacy standards. The current standards-

based awards process was developed to make certain that all students are taught in facilities

meeting a certain level of adequacy to provide a sufficient education. This provision appears to

be moving beyond the original intent of the Public School Capital Outlay Act and targeting

funding outside of the adequacy process. This may set an undesirable precedent where the

standards-based process is set aside and projects are funded using random criteria.

SB 395/SFCS provides that 3 percent of all direct appropriations made to a school district or

another governmental agency for the purpose of passing money to a school district shall be

transferred to the public school opportunity fund. In FY06, appropriations from the general fund

for direct appropriations totaled $25.8 million and appropriations from severance tax bonds

totaled $19.4 million resulting in approximately $1.355 million identified for transfer to the fund.

The bill also provides that 20 percent of all unreserved and undesignated balances in reverting

funds and accounts at the end of each fiscal year from FY07 through FY11 shall not revert but be

transferred to the public schools facility opportunity fund. The consensus revenue estimate for

recurring reversions to the general fund in FY08 is $24.8 million. SB 395/SFCS would require

20 percent of that amount, or approximately $5 million, to go to the adequacy fund.

CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP

PED notes that Section 5 of this bill is proposing to implement a program to fund above the

statewide adequacy standards. This may conflict with House Bill 322 and Senate Bill 403 which

are proposing to enact the same exact program to be funded from other sources.

Senate Bill 159 makes reference to unrestricted and unreserved cash balances in determining a

districts cash balance credit. Provisions in this bill regarding revenue received by the district

from lease payments by charter schools may be in conflict with SB 159.

PA/SS:mt