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

SPONSOR Nava

ORIGINAL DATE

LAST UPDATED

2/7/2007

HB

SHORT TITLE Public School Facility Opportunity Fund

SB 403

ANALYST Aguilar

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

$515.5

Recurring

General Fund

$387.9

Recurring

Severance Tax Bonds

(Parenthesis ( ) Indicate Expenditure Decreases)

Duplicates HB-322

Relates to HB-328, SB-395

Conflicts with HB-145

REVENUE (dollars in thousands)

Estimated Revenue

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

FY09

($19,700.0)

($19,700.0) Recurring General Fund

$20,603.4

$20,603.4 Recurring

Public School

Facility Oppor-

tunity Fund

(Parenthesis ( ) Indicate Revenue Decreases)

SOURCES OF INFORMATION

LFC Files

Responses Received From

Public Education Department (PED)

Attorney General’s Office (AGO)

Public School Facilities Authority (PSFA)

Senate Bill 403 – Page

2

SUMMARY

Synopsis of Bill

Senate Bill 403 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;

provides that unexpended balances in certain capital project appropriations will revert to the new

fund, and provides that a portions of annual general fund appropriations shall revert to the new

fund.

The bill also provides that 2 percent of all direct legislative appropriations to schools be directed

to the fund; and that 2 percent of the gross receipts received from school construction projects be

directed to the new fund.

FISCAL IMPLICATIONS

The decrease in revenue of $19.7 million contained in this bill is a recurring expense to the gen-

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

shall not revert to the general fund.

This bill creates a new 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.

Senate Bill 403 decreases revenue to the general fund by $19.7 million and directs it to the Pub-

lic 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 $387 thousand is directed to the fund from severance tax bonds used for direct leg-

islative appropriations.

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

•

A distribution equal to two percent of the taxable receipts attributable to public school

construction;

•

One-half 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;

•

Unspent capital project appropriations for fiscal years 2003 through 2006 are amended to

provide for reversion to the new fund instead of the general fund;

•

Unspent capital project appropriations that would otherwise revert to the general fund

shall instead revert to the new fund; and,

•

A two percent set aside of all special appropriations for school construction and transfers

the amounts to the new fund

SIGNIFICANT ISSUES

The bill includes provisions for awarding additional grant assistance to approximately

eight school districts to fund projects above the currently adopted adequacy standards.

The current standards-based awards process was developed to make certain that all stu-

Senate Bill 403 – Page

3

dents 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 pro-

jects are funded using random criteria.

Under the provisions of this bill and at present, only eight school districts, Cuba, Dexter,

Gadsden, Gallup, Grants, Hagerman, Hatch and Zuni would be eligible for these funds

This bill diverts 2 percent of the taxable gross receipts attributable to the sale of school construc-

tion services to school districts or the PSFA to the opportunity fund. Based on information pro-

vided by PSFA, state spending on public school construction averages about $120 million annu-

ally. This amount is matched by local spending, bringing average state and local public school

construction spending to about $240 million per year. In addition to this $240 million from the

state and local matching, local districts also pay about $125 million more per year for projects

separate from the Public School Capital Outlay Council for a grand total of $365 million per

year. Two percent of $365 million is $7.3 million

SB 403 provides that 2 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 ap-

propriations totaled $25.8 million and appropriations from severance tax bonds totaled $19.4

million resulting in approximately $903 thousand identified for transfer to the fund.

The bill also provides that one-half 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-403 would require half of

that amount, or $12.4 million, to go to the adequacy fund.

ADMINISTRATIVE IMPLICATIONS

A separate application process would need to be developed by the PSCOC which would be ad-

ministered by the Public School Facilities Authority. Criteria to evaluate and prioritize the ap-

plications would need to be developed. The additional responsibilities and oversight by the

PSFA should be able to be accomplished with existing staff.

PA/sb