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.
Current FIRs (in HTML & Adobe PDF formats) are a vailable on the NM Legislative Website (legis.state.nm.us).
Adobe PDF versions include all attachments, whereas HTML versions may not. Previously issued FIRs and
attachments may be obtained from the LFC in Suite 101 of the State Capitol Building North.
F I S C A L I M P A C T R E P O R T
SPONSOR Stewart
ORIGINAL DATE
LAST UPDATED
1/24/2008
2/11/2008 HB 241/aHEC/aHAFC
SHORT TITLE Public School Funding Formula Changes
SB
ANALYST Aguilar
APPROPRIATION (dollars in thousands)
Appropriation
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
None
See Narrative
(Parenthesis ( ) Indicate Expenditure Decreases)
Relates to HJR8, HJR10, HB229, HB51, HB311, HB398, HB414
Relates to Appropriation in the General Appropriation Act
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY08
FY09
FY10
($1,000.0)
Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
SOURCES OF INFORMATION
LFC Files
Responses Received From
Attorney General’s Office (AGO)
Department of Health (DOH)
Public Education Department (PED
SUMMARY
Synopsis of HAFC Amendment
The House Appropriations and Finance Committee amendment to House Bill 241 as amended
removes references to funding sufficiency in legislative findings, removes inflationary factors in
determining funding, provides for a set aside account for funds dedicated to funding the new
formula and changes the effective dates for implementation of provisions of various sections.
pg_0002
House Bill 241/aHEC/aHAFC – Page
2
SIGNIFICANT ISSUES (HAFC Amendment)
Provisions contained in the amendment set up a separate account within the Public School Fund
to hold revenues received for the purpose of implementing the funding formula until such time as
sufficient funding to implement the funding formula is accrued. The amendment further
provides that these funds shall not be counted as part of the state reserve for bonding or any other
purposes other than to implement the funding formula.
The amendment removes references to inflation factors leaving only legislative appropriation as
the annual adjustment to the base student cost. The calculator provided by the contractor
includes an inflation factor that will no longer apply. It appears that this portion of the calculator
should be removed as it provides a comparison between legislative appropriation and a
calculated sufficiency cost which will no longer exist with the removal of inflation language in
the amendment.
HB-241/aHEC/aHAFC provides that the funding formula will not be implemented until
approximately $322 million is available to fund the formula. The amount set aside in the public
school fund combined with appropriations to SEG excluding “legislatively determined inflation
and salaries", akin to opening the door costs, will count toward this amount. If a sufficient
amount is not available by the beginning of FY12, the funding formula will not be implemented.
According to LFC projections, available new recurring funding is projected to decline
significantly beginning in FY10 considerably affecting the Legislature’s ability to meet opening
the door costs, providing salary increases and setting aside funds to implement the formula. The
baseline expenditure scenario does not explicitly provide for compensation increases or new
initiatives. In order to meet these needs it may be necessary to cut spending elsewhere or raise
taxes. (See Table below)
Establishing a hard to meet spending target for implementation of the new formula may place the
legislature in the hard position of either under funding core programs like Medicaid, raising taxes
significantly or inviting litigation.
Prelim Op. Bud. LFC Rec.
Expenditures:
FY07 FY08 FY09 FY10 FY11
FY12
Legislative
17.3
18.8
19.9
20.3
20.7
21.0
Judicial
180.8
205.8
212.1
218.6
225.2
231.9
General Control*
165.9
197.7
222.6
226.8
231.0
235.2
Commerce and Industry
51.6
58.4
60.0
61.1
62.2
63.3
Ag, Energy & Nat. Resources
75.4
86.6
91.8
93.6
95.3
97.0
Health and Human Services
1,234.1
1,393.4
1,513.3
1,599.0
1,689.6
1,786.2
Medicaid
629.0
707.0
790.0
853.2
921.5
995.2
Other Health and Human Services 605.0
686.4
723.3
745.8
768.1
791.0
Public Safety
333.3
383.3
408.2
424.5
441.1
459.7
Corrections
240.7
277.4
294.7
307.5
320.6
335.6
Other Public Safety
92.5
105.9
113.5
117.0
120.5
124.1
Higher Education
763.9
846.3
882.8
910.3
937.5
965.5
Public Education
2,293.5
2,484.7
2,608.8
2,668.6
2,728.9
2,792.4
Total
5,115.7 5,674.9 6,019.5 6,222.7 6,431.4
6,652.2
Spending Increase
408.3 559.2 344.6 203.2 208.7 220.9
Spending Growth Rate
8.7% 10.9% 6.1% 3.4% 3.4% 3.4%
*In FY09, General Control includes $20.9 million for compensation.
5) Sources for economic growth, inflation, and demographics include Global Insight, UNM, and
JFA Associates.
Notes
4) All other agencies grow at the expected rate of inflation.
Baseline Forecast
1) Medicaid spending grows according to CBO projections of federal medicaid spending.
2) Corrections spending grows at inflation plus projected corrections population growth rate
3) Public schools grow at inflation plus projected age 5-19 population growth rate.
pg_0003
House Bill 241/aHEC/aHAFC – Page
3
ALTERNATIVES (HAFC Amendment)
It may be desirable to provide a method to implement the formula with phased-in funding
increases.
TECHNICAL ISSUES (HAFC Amendment)
HAFC amendments #2 and #4 to HB-241 provides that revenue dedicated to funding the
marginal or incremental cost of the new funding formula shall be credited to a separate account
in the Public School Fund. This fund receives revenues from a number of sources. An
alternative to avoid a general fund income loss would be to deposit these funds in the separate
account of the appropriation contingency fund dedicated for the purpose of implementing and
maintaining educational reforms created in Section 12 of Chapter 114 of Laws 2004 (the
lockbox). By definition, this fund is part of the general fund which would receive interest
income from account proceeds.
HAFC amendment #4 to HB-241 refers to “$322 million in recurring revenue". To be clear, this
should read “recurring general fund revenue".
To clean-up language to HAFC amendment #4, the following is recommended:
•
strike “increases in recurring general revenue over the prior year" and replace with “and
appropriations to the state equalization guarantee above the prior year, excluding
legislatively determined inflation and salaries."
The amendment does not assign the duty to any agency to calculate the “legislatively
determined" costs or appropriations that count toward meeting the $322 million but are not
deposited as provided in the new Section “O". This could become problematic if the different
entities making recommendations do not agree on how to book funding.
Amendment two inserts a new section “D" providing for a separate account in the Public School
Fund and that all revenue dedicated to public school purposes by a law that is enacted or
constitutional amendment that is approved after January 1, 2008 shall be credited to the account.
It appears this could include the current and future House Bill 2 which contains $2.3 billion for
public school purposes. The Legislature may wish to add “other than a general appropriations
act" after the word “law".
Page 35, line 5 provides for the public school fund to become a non-reverting fund. This results
in an earmarked fund to receive funds from a number of revenue bills as well as transfers from
the common school fund and from the federal Minerals Land Leasing Act which account
annually for amounts well over the $322 million threshold.
OTHER SUBSTANTIVE ISSUES (HAFC Amendment)
The $322 million marginal cost of implementation noted in the HAFC amendment takes into
consideration $22 million contained in the General Appropriation Act for one additional
instructional day and second year funding for elementary physical education. To further reduce
this amount without adversely affecting the educational program contained in the formula, the
legislature may wish to consider reducing the expansion of professional development days
contained in the bill and funding them in the future as funds become available. This could
reduce the amount needed for implementation by as much as $40 million.
pg_0004
House Bill 241/aHEC/aHAFC – Page
4
The LESC in October reported that over $45 million would be spent on educator professional
development in FY08 alone. The LESC notes this amount is most likely underestimated since
significant amounts of federal funds, state operational and other funds spent for professional
development through contractual services could not be easily identified because the chart of
accounts does not specifically track professional development.
According to LESC, the National Commission on Teaching and America’s Future issued a report
in 1996 which reported that traditionally organized professional development – either in the form
of reimbursement for courses that may not be directly related to school needs or classroom
responsibilities, or district-determined “hit-and-run" workshops – is not often well suited to
helping teachers with the most pressing challenges they face in strengthening their subject matter
knowledge, responding to the diversity of student learning needs, or teaching more effectively.
More effectively implementing existing professional development days with considerable
existing funding should be considered.
Synopsis of HEC Amendment
The House Education Committee amendment to House Bill 241 makes a number of significant
changes to the bill as well as a number of technical changes.
The HEC amendment changes the requirement for the secretary to appoint a hearing officer to an
“impartial person" to recommend to the secretary whether an original budget, a modified budget
submitted by a district or a revised budget prepared by the department should be accepted when
an original budget is not approved. The secretary will have the final decision.
The amendment changes the date PED will have a budget approved from June 30
th
to July 1
st
of
each year.
The amendment changes the date for PED to submit the public school support budget from
November 30
th
to November 20
th
of each year.
Provisions contained in the original bill for districts with identified special education rates above
16 percent to reevaluate its special education population to determine if ethnic or racial
considerations played a part in the identification as well as whether the most appropriate
education and related services are being provided.
The amendment provides for bilingual endorsement training to be provided by districts.
The amendment provides that physical education classes must be taught by properly endorsed
teachers.
The HEC amendment expands membership in the Funding Formula and Accountability
Assistance Committee to include the chair of the IDEA advisory committee, and a representative
of a statewide parent organization.
SIGNIFICANT ISSUES
Previously, the Attorney General’s Office noted that it was unclear if the formula met the test for
disparity. Although not part of the amendment, PED in testimony to the House Education
Committee noted that it is unknown whether the new funding formula will meet the federal test
for disparity until such time as an enacted bill is provided to the U.S. Department of Education
for evaluation. This has implications to the credits taken against federal impact aid funds.
pg_0005
House Bill 241/aHEC/aHAFC – Page
5
Changes in the appointment of an impartial person in place of a hearing officer may be
problematic in that most people do not have a basic understanding of the EPSS process or public
school finance. Accurate determinations may be difficult.
With the change in the approval date, it appears that a school district could begin the fiscal year
on July 1
st
without an approved budget in place.
At present, PED is required to submit the Public School Support request to DFA no later than
November 30 of each year. This allows little time for analysis of the request before
recommendations to the LFC are presented. Moving this date up provides the additional time
necessary.
With regard to special education rates above 16 percent, reevaluation of students can be very
expensive; however it will be important for districts to examine their student evaluations
carefully to make sure that students are being identified properly and that proper early
interventions are taking place prior to identification.
It is unclear if it is necessary for the secretary to recommend a representative of a parent group to
the Legislative Council. The Council is knowledgeable for the various parental organizations.
Other changes made in the amendment appear to be technical in nature to clean up the bill.
TECHNICAL ISSUES
The Legislature may wish to consider the following change:
Strike HEC Amendment #1 and replace therein with On Page 18, line 9, strike “a hearing
officer" and insert in lieu thereof “an impartial person with knowledge of educational
programming and public school finance"
Strike HEC Amendment #2 and replace therein with On Page 18, line 5, strike “a hearing
officer" and insert in lieu thereof “an impartial person with knowledge of educational
programming and public school finance.
Synopsis of Original Bill
House Bill 241 provides for a new public school funding formula and the maintenance and
periodic recalibration of the formula. The bill provides for a longer school year for students, a
longer work year for teachers, and codifies the Educational Plan for Student Success (EPSS) as
the accountability instrument to be used to verify appropriate programs of instruction are
provided. HB 241 also provides for a census-based special education identification rate, clarifies
financial responsibility for special education, changes reporting times to specific dates, creates
the Department of Health (DOH) Education Fund in the state treasury, and makes technical
changes to statute.
FISCAL IMPLICATIONS
While the bill does not provide an appropriation, the funding formula contractor has identified a
need of approximately $350 million to meet full sufficiency. With the three year phase-in
proposed in the bill and with annual inflation considered, the total cost is projected to be
approximately $575 million. Funding issues are not considered in this bill but are addressed in a
number of revenue bills that have been introduced in the 2008 session.
pg_0006
House Bill 241/aHEC/aHAFC – Page
6
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.
Provisions contained in the bill to increment the base sufficiency cost tied to legislative
appropriations including inflation for compensation and using the Consumer Price Index for the
remainder of costs would obligate future legislatures to specific annual appropriations and
weakens the Legislature’s power of appropriation.
The Attorney Generals Office notes it is unclear as to the effect this bill would have on New
Mexico’s designation by the United States Secretary of Education as an “equalized" state,
thereby allowing the New Mexico State Department of Education to “take credit" or reduce
operational state funding to an impacted district by the amount of the Federal Impact Aid
subsidy. That designation has been the subject of litigation against the United States Secretary of
Education, which was ultimately decided by the United States Supreme Court on April 17, 2007
in favor of the Secretary, resulting in the continuation of New Mexico’s status as an “equalized"
state. Zuni Public School District No. 89 v. Department of Education, No. 05-1508.
PED notes that based on different analyses run by the contractor in conjunction with PED staff,
this new formula does not appear to meet the disparity test (revenue per student between the
highest and lowest LEA) in order to be classified as an equalized state by the United States
Department of Education. To attain an equalized state classification, all of the special cost
differentials allowed by the federal impact aid office need to be excluded in the calculation of
revenue per student. The equalized classification is important because it allows the state to take
credit for the basic Impact Aid payments in determining a district’s state equalization guarantee
distribution. If the state is precluded from taking these credits, the cost to the state would be
approximately $42 to $46 million annually.
Because of the identified equalization issue, the Legislative Council Service is working with a
law firm to research the state’s ability to exclude all of the special cost differentials when
calculating the revenue per student so that the disparity test can be met. If only some of the
special cost factors are excluded, whether the state can meet the disparity test will depend on
how the revenues are distributed among the various districts throughout the state in any given
year. The amount of the credit at stake for the basic Impact Aid payment is approximately $42-
$46 million per year. In addition, if the state is unable to meet the test and take credit, it may
place the state in a vulnerable position for districts to sue the state and force the state not to take
credit for their local taxes.
SIGNIFICANT ISSUES
The bill aligns the definition of special education to the federal Individuals with Disabilities
Education Act (IDEA) and includes three and four-year-old developmentally disabled children
enrolled in public schools.
Instructional days are increased from 180 to 185 for students and one professional development
day for instructional staff is included.
District demographic reporting dates are changed from the traditional 40
th
, 80
th
, and 120
th
day
membership counts, which varies widely between districts and charter schools, to the second
pg_0007
House Bill 241/aHEC/aHAFC – Page
7
Wednesday in October, December and February.
HB-241 provides for an Educational Plan for Student Success (EPSS) to be developed that
implements and assesses a student centered long-range strategic plan to improve student
achievement. The EPSS must be specific, reasonable, attainable and must include input from all
stakeholders in the district to include parents, staff, business persons, higher education, tribal
governments and any interested citizen. Districts must identify those areas that must be
addressed to ensure students are meeting educational benchmarks and align their budgets
accordingly.
Should a school district choose not to submit or approve a revised EPSS, the secretary must
appoint a hearing officer to hold a public hearing within 20 days after the revised educational
plan was due. The hearing officer must make a recommendation to the Secretary within 10 days
of the public hearing. The final decision is the Secretary’s to either accept the district’s original
plan, the revised plan or a department-developed educational plan.
Provisions are included in the bill for the department to verify, monitor and evaluate educational
plans during the budget approval process and throughout the year. It appears this is the method
by which PED will insure districts spend increasing dollars in an effective way to meet the needs
identified by the districts to improve student success and achievement.
The EPSS must implement the PED’s standards for excellence. Educational programming for
the EPSS must include bilingual and multicultural education, physical education, career-
technical education, visual and performing arts, gifted education, advanced placement and
honors programs. Special education and distance educations programs must also be included.
Provisions in the bill give authority to the secretary of public education to disapprove educational
plans if they do not meet the requirements set forth in the bill.
The bill lays out the foundation for a new formula projecting the sufficient per-student cost
calculation for school districts and charters schools. It contains definitions and cost factors
consisting of: poverty, English language learners, special education, mobility, percent of district
enrollment by set grades and the weighted index of staff qualifications. It identifies the sufficient
per-student cost multiplier and guidance about how to complete the sufficient per-student cost
calculation. Methodologies are identified for factoring in growth; new school demographics;
special education; implementation of intervention strategies related to lowering special education
identification rates; annual updates of cost factors; and annual adjustment of the base per-student
cost based on appropriations. By using a simplified method, the formula is intended to minimize
“formula chasing" by some districts. The LFC notes the since FY07 the unit value has been
diluted by as much as $30 million as a result of a rapid increase in related services units being
generated at a limited number of districts.
As noted above, the bill provides for PED to determine, prior to approving a district or charter
school budget, that the budget is aligned with the EPSS. How this is to be accomplished is
unclear as the department’s budget staff does not assess educational programs as a part of the
budget approval process. The bill also eliminates provisions requiring school districts to include
charter school budgets within their total operating budget, and enacts a new section placing that
responsibility with the charter school board.
pg_0008
House Bill 241/aHEC/aHAFC – Page
8
The bill provides for the Public School Fund to become a non-reverting fund. The LFC has
concerns with including continuing appropriations in the statutory provisions for funds which
reduces the ability of the legislature to establish spending priorities.
A significant consideration in the bill is the use of a census based special education (SpEd)
percentage to determine special education funding. Currently the statewide average SpEd
population is approximately 14 percent. Some districts are at 9 percent while others are as high
as 34 percent. The bill provides for a census average of 16 percent for all districts. Those
districts above 16 percent in FY09 will be required to reassess there special education students to
determine whether the high identification rate is due to ethnic or racial background and whether
these student are receiving the most appropriate education and related services.
Charter schools because of their unique populations will use actual SpEd percentages in
determining their program cost. PED is tasked in the bill to assist school districts to implement
response to intervention strategies to lower their SpEd identification rates.
The bill provides for a reassessment of the formula every 10 years or sooner if the secretary or
Legislature determines a need.
Provisions that a sufficient per-student cost is based on a comprehensive instructional program
the includes the cost of core academic programs, career-technical education, gifted programs,
bilingual programs, arts and music, health and physical education and special education and
appropriate staff. Within this description, local boards are expected to determine priorities that
best serve the needs of the community.
Provisions contained in the bill require the Legislature and the department to use the new
funding formula as the method for determining the appropriation for and the distribution of the
state equalization guarantee. The LFC is concerned with the use of language requiring the
legislature to use the funding formula to determine appropriations. The Legislature reserves the
right to determine spending priorities and to make appropriations as it determines appropriate.
The bill limits the phase-in period to three years and provides for implementation of the formula
to be delayed if the FY10 appropriation is less than one-third of the difference between the
projected program cost for FY10 and the actual program cost for FY09 inflated to FY10. Again,
LFC is concerned that this requires the Legislature to make specific appropriations.
To account increased costs related to higher levels of experience and training of instructional
staff, the formula implements an Index of Staff Qualifications (ISQ) aligned to the three-tier
licensure structure for teachers. Two matrices are provided, one for teachers and a second for
instructional support providers who are not on a tiered licensure structure. As with the current
T& E index districts are held harmless to an ISQ of 1.0 if the fall short. In addition to the ISQ,
provisions are included to continue the national board certification stipend at current levels and
adjusting it every year by the same percentage as salary increases.
Cash balance limits are removed for districts and cash can be used for programs aligned with the
EPSS or can be used for meeting the districts share of standards based capital outlay projects.
Districts are precluded from budgeting current year cash balances without prior approval of the
secretary.
pg_0009
House Bill 241/aHEC/aHAFC – Page
9
The bill creates the Special Education Catastrophic Aid fund to assist districts with costs
associated with ultra-high needs students. In general these students may require a respirator, a
full time assistant, a nurse, or other item of this nature. A fund currently is available at PED
funded with federal funds but is relatively small and would not go very far. Again 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.
The bill continues to account for the credit taken against federal impact aid, local 0.5 mill levy
and forest reserve. It is unclear at this time whether the new formula meets the disparity test.
Department attorneys are looking into this and are expected to have an answer from the U.S.
Department of Education soon.
The bill clarifies and aligns state special education law with current federal law. Gifted
education is specifically addressed in current statute and these provisions are left intact. The bill
also addresses responsibility for providing special education services to students enrolled in state
institutions. The bill provides that a state institution in which a school-age person is detained or
enrolled is responsible for providing educational services. The amendment also provides that a
school-age person who is a client as defined in the Mental Health and Developmental Disabilities
Code in a state institution under the authority of the Secretary of Health has the right to attend
public school in the school district in which the state institution is located if recommended for
placement by the school district’s educational appraisal and review committee or as a result of
the appeal process.
The institutions remain responsible for educating their students; however provisions are in place
to allow students to attend school in the district where the institution is located under certain
circumstances. The bill also addresses the issue of “resident" school district for students
attending private training or residential treatment centers if residency is based solely on a student
enrolled at the facility that would otherwise not be considered a resident of the state. Other
clarification is offered for students attending treatment centers when placed by a school district,
parents or other agencies. The bill also provides for districts to contract for educational services
for student placed in treatment centers and details district responsibilities and contract
requirements.
The funding formula implementation assistance taskforce is created to advise and assist school
districts and PED in the implementation of the funding formula and other provisions in the bill.
The committee is comprised of the funding formula taskforce and other educators and
representatives of concerned associations. Staff is to be provided by LFC, LESC, :LCS, the
Office of Educational Accountability and PED.
The bill also makes technical changes to statute to align other sections of statute with the new
formula.
The bill provides for PED to continue to use the current funding formula if the State Legislature
does not appropriate a sufficient amount to begin using the new funding formula.
PERFORMANCE IMPLICATIONS
The bill does not include provisions for actions if a school or district does not achieve goals and
targets identified in the EPSS. What are the implications of not meeting these targets.
pg_0010
House Bill 241/aHEC/aHAFC – Page
10
TECHNICAL ISSUES
The Legislature may wish to consider the following amendments:
Page 42 Line 7 & 8 strike “determining the appropriation for and"
Page 31 Line11 strike “30" and replace with “20" This would allow more time for the LFC to
analyze the public school support request before making recommendations.
PED suggest the following for consideration by the Legislature:
Section 12, Page 29, Line 23 to Page 30, Line 1. Strike because this could lead to an incorrect
interpretation of statute in which a district would argue for additional resources beyond its state
equalization guarantee to meet EPSS requirements.
OTHER SUBSTANTIVE ISSUES
The Department of Health notes the fund created in HB 241 would only affect Sequoyah
Adolescent Treatment Center (SATC) and New Mexico Behavioral Health Institute (NMBHI).
They are the only two DOH facilities that serve school-age persons and qualified students. From
the new fund, these facilities would receive funding for educational services, such as the internal
school program operated by SATC.
Each facility would be required to submit a yearly estimate for education services that will be
provided by October 15. This estimate is done through a formula determined by HB 241. The
facilities would forward this information to the Department Secretary for their review and
approval. The Department Secretary would than forward the overall departmental estimate to the
Department of Finance and Administration for approval. Each fiscal year the department would
distribute funds from the General Fund to the facilities for the services provided
PED notes a number of technical and language concerns with HB-241. The department is
expected to work with LCS to address these issues.
PED is recommending alternative language for the implementation assistance taskforce and is
requesting an appropriation of $250 thousand to pay for the expenses of the taskforce.
PA/mt