NOTE:  As provided in LFC policy, this report is intended only 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 for other purposes.

 

The most recent FIR version (in HTML & Adobe PDF formats) is available on the Legislative Website.  The Adobe PDF version includes all attachments, whereas the HTML version does 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:

Begaye

 

DATE TYPED:

2/22/03

 

HB

483

 

SHORT TITLE:

Cap School District Impact Aid revenue

 

SB

 

 

 

ANALYST:

L. Baca

 

APPROPRIATION

 

Appropriation Contained

Estimated Additional Impact

Recurring

or Non-Rec

Fund

Affected

FY03

FY04

FY03

FY04

 

 

 

 

 

Indeterminate

Recurring

GF

(Parenthesis ( ) Indicate Expenditure Decreases)

 

 

Conflicts with: HB 115, School Funding Formula          

             HB 637, Allow School Districts to Keep Federal Money

 

Relates to Appropriation in the General Appropriation Act

 

SOURCES OF INFORMATION

 

Responses Received From

 

State Department of Education (SDE)

 

SUMMARY

 

     Synopsis of Bill

 

House Bill 483 amends the Public School finance Act ((Section 22-8-25 NMSA 1978) to cap Impact Aid revenue considered as federal revenue for purposes of the State Equalization Guarantee (SEG) distribution at the FY03 level.  Any increases in Impact Aid above the amount received in FY03 by a school district shall be retained by the school district and shall not be considered to be federal revenue for SEG purposes.

 

     Significant Issues

 

Pursuant to the provisions of the New Mexico Public School Finance Act, New Mexico has qualified under federal Impact Aid requirements as an equalized state and has been allowed to consider eligible Impact Aid receipts in determining the amount of state aid to school districts.

 

The SDE reports that HB 483 will increase the funds available for operational expenditures within those districts that qualify for Impact Aid as a result of the cap on Impact Aid credits at the FY03 level.  One of the effects of capping the amount considered as federal revenue for SEG purposes will be to decrease the percent of Impact Aid for which the state takes credit.  Another effect will be a gradual but substantial disequalization among the state’s school districts stemming from the differences in funding available for operational purposes.  Also, the SDE observes, the disequalization would eventually be so disparate that New Mexico would no longer be able to take credit for eligible Impact Aid funds.  At that point, using FY03 as the known amount, the state’s non-P.L. 874 school districts would lose $48.8 million, or the general fund would have to replace the lost credits.  The eventual result of this bill will be substantial disequalization among the state’s school districts.

 

The state provides the lion’s share of funding of New Mexico’s public schools, and the New Mexico Public School Funding Formula is used to distribute state support.  The formula is an equalization formula and considers all available funds to ensure that “equality” of educational opportunity is maintained.  To accomplish this, the formula takes credit for 75% of eligible federal funds including P.L. 874 Impact Aid funds, which in FY03 totaled nearly $48.8 million.  The SDE analysis points out that all P.L. 874 payment to New Mexico school districts totaled $84.5 million in FY03. The state took credit for 57.8% of all funds and only 75% of eligible funds with school districts retaining nearly $35.6 million (See SDE Chart 1).  Of the 25% retained by school districts, 5% may be used for operational purposes and 20% must be used for capital outlay projects. (See OTHER SUBSTANTIVE ISSUES below.)

 

FISCAL IMPLICATIONS

 

The “loss” of Impact Aid credits to the state is indeterminate because future increases, or decreases, in Impact Aid are unknown.  It is anticipated the loss will be nearly $50.0 million in the near future and, it is anticipated, will increase with each subsequent year.  As the ”gap” increases, the equalization of resources decreases among the state’s school district, and the state’s much heralded, model equalization formula will no longer be able to equalize resources among school districts.

 

OTHER SUBSTANTIVE ISSUES

 

Until the early 1950’s, funding of public schools was considered a local responsibility and financing their activities relied almost solely on local resources.  At this point, according to the Education Commission of the States (ECS), states became more actively involved in public school finance although the use of state resources remained minimal in most states.  State participation in funding public schools increased following the early 1970’s Serrrano vs. Priest decision, which held that the quality of a child’s education should not be determined by the accident of his\her birth.  This California court decision led some states, like New Mexico, to take steps to avoid litigation on the quality of education issue and to ensure compliance with provisions of the state constitutions.  Thus was born the New Mexico Public Schools Funding Formula that was enacted in 1975 and was the culmination of a decade-long search for the “most appropriate” mechanism to distribute state support.

 

Twenty years following the Serrano decision, more than 25 states had been sued with the lawsuits claiming violations of state constitutions that required uniform systems of public education.

Not all states sued were found in violation of state constitutions, but state support for public education has increased in most of the nation’s 50 states as has public scrutiny to ensure minimal disequalization among school districts – at least as much as each state’s constitution and public sentiment will allow.

 

POSSIBLE QUESTIONS

 

1.                  Would enacting this bill lead to inequality among the state’s public schools?

2.                  What might P.L. 874 school districts do with the additional funds if this bill were enacted?

3.                  What would happen to the non-P.L. 874 districts?

4.                  Would adopting this bill eventually create legal or constitutional issues for the state?

 

LRB/njw