NOTE: As provided in LFC policy, this report is intended for use by the standing finance committees of the legislature.  The Legislative Finance Committee does not assume responsibility for the accuracy of the information in this report when used in any other situation.

The LFC is only preparing FIRs on bills referred to the Senate Finance Committee, the Senate Ways and Means Committee, the House Appropriations and Finance Committee and the House Taxation and Revenue Committee. The chief clerks are responsible for preparing and issuing all other bill analyses.

Only the most recent FIR version, excluding attachments, is available on the Intranet. Previously issued FIRs and attachments may be obtained from the LFC office in Room 416 of the State Capitol Building.

(Parenthesis ( ) Indicate Expenditure Decreases)

Relates to SB446, HB124, and SB418

SOURCES OF INFORMATION

State Department of Public Education (SDE)

SUMMARY

Synopsis of Bill

House Bill 558 amends the public school funding formula to reduce the percent of local revenue generated from the .5 mill levy and the forest reserve receipts considered as federal revenue, from 95 percent to 75 percent, in determining the state equalization guarantee distribution and requires that it be expended on capital outlay. The bill also reduces the percent of federal impact aid from 95 percent to 75 percent which the state takes into consideration in calculating the state equalization guarantee, and places a ceiling on the dollar amount of this revenue source that the state may consider in future years. Increases over and above the fiscal year 2000 level that a district may receive in impact aid revenue, will be retained by the district for operational purposes. The bill also eliminates a section of the formula which is no longer necessary.

Significant Issues

Impact Aid - Impact Aid was initially designed and authorized to relieve local education agencies for the loss of local property taxes as a result of federal presence. During reauthorization in 1994, impact aid also recognized students residing on Indian land, students residing in federal low rent housing, and children whose parents live or work on federal property for the purpose of generating impact aid funds. Reauthorization of Impact Aid is currently under consideration by Congress, which may have an effect on this proposal.

In the 1997-98 school year, thirty-eight school districts received impact aid funds and SDE expects that twenty-eight districts will receive funds in 1998-99.

Forest Reserve Funds - Forest Reserve funds are generated as a result of federal forest reserve acreage in New Mexico. The forest reserve funds are received by Department of Finance and Administration, Local Government Division, and are allocated 50 percent to qualifying counties and 50 percent to school districts using the 40^th day student count. According to SDE, fifty seven school districts received forest reserve funds during the 1997-98 school year.

Local Half Mill Levy Funds - Local tax levy funds are the result of a statutorily mandated half-mill levy applicable to all 89 school districts. Taxpayers are assessed a half (.05) mill levy on their property base on their assessed valuation.

Eligible federal impact aid revenues exclude Indian add-on and Special Education set-asides.

FISCAL IMPLICATIONS

The table below indicates total credits budgeted in 1998-99, SDE projections at 95 percent in 1999-2000, SDE projections at 75 percent in 1999-2000 and amounts that would be dedicated to capital outlay under this proposal for the first year.

It should be noted that President Clinton's 2000 budget includes a proposal to reduce impact aid funding for New Mexico by approximately $23.4 million dollars below the current level. This proposal is contrary to the department's projection of $54,150.0 in federal impact aid revenue for 1999-2000 which is a 28.3 percent increase in federal impact aid revenue over the current year level of $42,179.3.

The difference between the projected revenues at 95 percent for FY2000 and projected revenues at 75 percent, is $13,195.6. Both Senate Bill 3/aSEC and House Bill 3/aHEC, consider the credits at 95 percent. If this bill is enacted, an additional general fund appropriation of $13,195.6 would be necessary.

SDE indicates that this bill may have significant fiscal implications in the future, including creating disequalization among school districts. Since this bill requires a ceiling on the level of impact aid that the state may consider in calculating the state equalization guarantee, any amount that exceeds the fiscal year 2000 level, will be retained by school districts receiving impact aid, for operational purposes. SDE indicates that the resulting disparity would at some point disqualify New Mexico from meeting federal criteria that currently allows the state to qualify as an equalized state, thereby removing the State's ability to take credit for any impact aid receipts.

CONFLICT/DUPLICATION/COMPANIONSHIP/RELATIONSHIP

Relates to SB446, HB124, and HB558.

TECHNICAL ISSUES

SDE indicates that the title of the bill should include both local and federal revenue.

CTF/njw:gm