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2/9/06 HB 432/HECS/aHAFC
SHORT TITLE Public School Capital Outlay Omnibus Bill
APPROPRIATION (dollars in thousands)
or Non-Rec
Non-Recurring Public School Capital
Outlay Fund
$300.0 Non-Recurring Public School Capital
Outlay Fund
Legislative Cash
(Parenthesis ( ) Indicate Expenditure Decreases)
Relates to SECS 450
Relates to SB-95; SB-211; SB-247; SB-600; HB-301; HB-405;
LFC Files
Responses Received From
New Mexico Finance Authority (NMFA)
Public Education Department (PED)
Public School Insurance Authority (PSFA)
Attorney General’s Office (AGO)
Department of finance and Administration (DFA)
Synopsis of HAFC Amendment
The House Appropriations and Finance Committee amendment to the House Education Commit-
tee substitute for House Bill 432 provides for the creation of a fund for new school start-up costs,
increases the membership threshold for eligibility of school districts to receive assistance in de-
veloping and updating five-year facilities plans, provides for the correction of deficiencies at the
New Mexico School for the Blind and Visually Impaired and the New Mexico School for the
Deaf if funds are appropriated, provides for the accrual of interest on amounts advanced to
school districts for the district share of projects, authorizes a charter authority study, removes all
general fund appropriations and changes funding sources for other appropriations.
House Bill 432/HECS/aHAFC – Page
HB432/HECS/aHAFC provides for interest to be accrued on the amount of money unrecouped
from funds advanced for the district share of qualified high priority projects. The interest rate
will be a fixed rate equaling the tax exempt interest rate at the time of the advance, for a compa-
rable general obligation bond with similar maturity.
The Attorney General’s Office notes that when a project is approved, the grant amount (State
share of the cost of an approved project) is determined under a statutory formula that takes into
account (i) the district’s property tax wealth and (ii) the extent to which a school district has ex-
hausted its local revenue generating abilities. Capital improvements for schools in districts that
have utilized all their local revenue generating resources are eligible for a greater state share of
the funding of capital outlays than projects in districts that have not utilized all their local re-
sources. NMSA 1978, § 22-24-5(B)(5).
The AGO further notes the act contains an enforcement provision that empowers the Public
Schools Capital Outlay Council to sue recalcitrant school districts that fail to bring schools up to
the constitutionally required adequacy standard to force them to do what is necessary to meet the
standard. The enforcement provision provides that the Court may order the Council to pay for
the project and order the recalcitrant district to pay its local share under the funding formula as
well as attorneys’ fees and costs. The court may also order the “imposition of a property tax on
all taxable property allocated to the school district at a rate sufficient to pay the judgment, with
accrued interest, within a reasonable time as determined by the court.”
The AGO further notes Section 7 of the Bill would modify the current law by allowing the Coun-
cil to make grants of both the State share and the district share for “qualified high priority pro-
jects” as defined in the bill. The HAFC amendment contains a recoupment provision under
which a district advanced funds for a “qualified high priority project” would not receive the state
share to which it would be entitled on future projects until the amount advanced has been offset
by the amounts withheld. Section 7 appears to address critical needs required to meet the ade-
quacy standard in a uniform manner even though some of the districts where “qualified high pri-
ority projects” are apparently located have a relatively low district bonding level. This is be-
cause under the recoupment provision, a district in which a “qualified high priority project” is
located will ultimately receive only its state share for the project.
A question which remains to be answered is whether the provision requiring interest to be as-
sessed amounts to the district incurring debt without the approval of the voters.
Synopsis of Original Committee Substitute
The House Education Committee Substitute for House Bill 432 is an omnibus public school capi-
tal outlay bill making changes to the public school capital outlay (PSCO) program, requiring
school district master facilities plans and providing for capital outlay fund local match assistance
for qualified high priority projects, increases statutory caps on school district cash balances, and
creates a fund to pay for new school one-time costs.
The bill also provides funding to fully implement the lease payment assistance program, provides
for use of PSCO funds to demolish abandoned buildings, changes the method with which high
growth school construction is addressed, and provides funding to correct deficiencies at the New
House Bill 432/HECS/aHAFC – Page
Mexico School for the Blind and Visually Handicapped and the New Mexico School for the
Also included in the bill are provisions increasing the SB-9 guarantee from $60.00 to $90.00 per
unit, continuing the exempt status of Public School Facilities Authority (PSFA) employees, pro-
viding for PSFA to act as its own purchasing agent and creating a study committee and making
The bill declares an emergency.
The House Education Committee substitute for House Bill 432 appropriates $343.4 million from
the general fund to various agencies and funds to implement the various provisions indicated.
House Bill 432 includes the following appropriations for expenditure beginning in 2006:
$40,000.0 To the public school capital outlay fund (PSCOF) to correct deficiencies at
the at the New Mexico School for the Blind and Visually Handicapped and the New Mex-
ico School for the Deaf. Funds remaining at the end of FY11 shall not revert but shall re-
main in the public school capital outlay fund.
$2,500.0 To PSFA for continued development and implementation of a uniform,
statewide web-based facility information management system. Funds remaining at the end
of FY08 shall revert to the general fund.
$2,000.0 To PSCOF for demolition of abandoned school buildings. Funds remain-
ing at the end of FY10 shall not revert but shall remain in PSCOF.
$290,000.0 To PSCOF for making grants for both the state and local share for quali-
fied high priority projects. Funds remaining at the end of FY10 shall not revert but shall
remain in PSCOF.
$1,000.0 To the New School Development Fund to pay costs unique to the first year
operation of new schools. Funds remaining at the end of a fiscal year shall not revert.
$7,500.0 To PSCOF to be used for the lease assistance program. Funds remaining
at the end of FY07 shall not revert but shall remain in PSCOF.
$300.0 To PSFA for making grants to improve indoor air quality. Funds remain-
ing at the end of FY07 shall revert to the general fund.
$50.0 To the Public Education Department for a feasibility study of alternative
chartering authority related to the establishment of charter schools. Funds remaining at the
end of FY07 shall revert to the general fund.
$50.0 To the Legislative Council Service for mileage and per diem to members
House Bill 432/HECS/aHAFC – Page
of the district revenue impact group. Funds remaining at the end of FY07 shall revert to
the general fund.
The bill requires all school districts to have submitted a five-year facilities plan which includes
enrollment projections, a current preventative maintenance plan, the capital needs of charter
schools located in the district, and projections of facility needs to maintain a full-day kindergar-
ten program prior to PSFA approving school construction or a district letting contracts for school
construction. PSFA notes this is consistent with requirements currently in effect for districts ap-
plying for grant assistance.
Provisions contained in the bill increase the current 3 to 9 percent caps currently in place on the
amount of operational cash balances a public school district may retain to 5 to 15 percent de-
pending on total program cost. School districts have complained the caps currently in place are
unfair and are causing undue pressure with regard to expenditures which require the district to
expend funds prior to requesting reimbursement.
The committee substitute also provides for the secretary of education to waive all or a portion of
reductions for excess cash balances if the funds are needed to provide a local match or to reduce
the districts share of amounts granted for qualified high priority projects.
HB432/HECS creates the New School Development Fund to be used to supplement district
funds to pay for supplies, equipment and operating costs unique to the first year of operation.
New school construction funding generally funds facility construction only and does not include
funding for articles such as desks, chairs, and laboratory equipment. In FY06, the Public School
Funding Formula distributed $17.5 million for enrollment growth at $3,035.16 per unit. At this
time, there is no clear differentiation between operational and capital outlay and this would ap-
pear to be double funding. Other sources of revenue already available for start-up costs include
enrollment growth, the SB-9 mill levy and district operational cash balances.
The bill extends the lease payment assistance program through 2010, appropriates $7.5 million to
fund the current assistance amount of $600 dollars per MEM.
Further, the bill authorizes the Public School Capital Outlay Council (PSCOC) to make distribu-
tions from the PSCOF to assist certain school districts in developing and updating five-year fa-
cilities plans. Assistance is focused on small districts with limited financial resources. The
PSCOC may waive the district match in certain circumstances, but is limited to schools with
fewer than 800 MEM enrolled on the 80
and 120
day. Limiting the council to assisting
smaller school districts causes concern with regard to a “uniform system”. Not allowing larger
school districts access to this funding may be problematic with regard to issues involved in the
Zuni lawsuit.
The bill provides for awards to be made by PSCOC for the demolition of abandoned public
school buildings when certain conditions are met. It is anticipated such costs will be defrayed by
insurance premium savings accruing to the school district. PSCOC may enter into agreements
with school districts to reimburse the PSCOF with these savings.
The bill addresses health, safety and infrastructure deficiencies at the New Mexico School for the
House Bill 432/HECS/aHAFC – Page
Blind and Visually Impaired (NMSBVH) and the New Mexico School for the Deaf (NMSD).
While these two schools serve a kindergarten to 12
grade population, because of their unique
governance structure they were excluded from the original deficiency corrections program. The
bill includes these institutions as eligible for public school capital outlay projects and authorizes
PSCOC to correct serious deficiencies at these two schools. It is important to note NMSBVH
and NMSD are constitutionally established institutions that are funded quite differently from
public schools. Special distributions to these schools reduce the funding available to public
The committee substitute includes new local match provisions for qualified high priority pro-
jects. If appropriations are available and a district requests assistance, funds may be utilized to
pay both the state share and the district share of such projects. Payment of the district share is
conditioned upon the following:
The district’s share of a project as well as direct appropriations made to the district and
not rejected is combined to determine the total district share to be recouped by the
Recouping of funds is accomplished by offsetting future allocations from the fund for the
state share of projects qualifying for a grant award.
Until the entire district share is recouped, no standards-based grant awards from the fund
will be made to the district and the district will be solely responsible for using local re-
sources to bring those facilities that would be eligible for allocations from the fund to the
statewide adequacy standards.
The committee substitute provides for the district to use cash balances to reduce the
amount to be recouped.
While the bill generally provides for no more than one project at a time per district to be funded
under this method, provisions are included for two projects in the same district in very specific
circumstances. These include:
Both projects qualify during the same awards cycle, beginning on or after July 1, 2006.
Both projects were approved for a grant award during the 2004-05 or the 2005-06 award
cycles and the school district has not obtained funding for the district share as of July 1,
2007; and
Are located in a high growth area; or
Is a project the council has determined that the cost or bringing the facility up to state-
wide adequacy would be equal or more than the cost of replacing the existing facility;
The committee substitute also provides criteria under which the PSCOC may designate high-
growth areas.
The Eleventh Judicial District Court ordered the state to establish and implement a uniform fund-
ing system for capital improvements of New Mexico school districts. In response to the judge's
order, New Mexico changed the way in which the state funds public school capital outlay expen-
ditures by making extensive amendments to the Public School Capital Outlay Act. One of the
changes was to implement a state-share formula based upon a local school district's property tax
wealth and its local effort. Provisions contained in this bill appear to minimize the local effort
component. Whenever a subset of districts or district projects is created for the purposes of spe-
House Bill 432/HECS/aHAFC – Page
cial funding, the equity and uniformity of the funding system may be in jeopardy. Since the
court has not completed its oversight, HECS-432 could potentially reopen the entire case.
The bill continues the exemption of PSFA staff from provision of the State Personnel Act and
further excludes PSFA from central purchasing through the state purchasing agent. This exclu-
sion permits PSFA to establish price agreement with vendors selected through a competitive bid
process. The price agreements may be utilized by school districts and PSFA for various products
and services related to construction, design professional services, roof consulting services and
master planning.
The bill increases the state SB-9 distribution amount from $60.00 to $90.00 per program unit.
The proposed increase is recommended to be used for maintenance of school facilities. Addi-
tionally, the bill expands the definition of capital improvements to include payments for con-
tracts for maintenance support services. Currently, the SB-9 distribution equals $17.7 million
annually, increasing the distribution to $90 will increase annual costs to $44.7 million.
The bill further creates the School District Revenue Impact Study Group. The group whose
membership is delineated in the bill is created for one year. The group will meet during calendar
2006 to examine various issues related to real estate development and the resulting public use
infrastructure demands. Emphasis of the work of the study group will be on the impacts on
school district revenues and expenditures, the costs of building and maintaining school facilities
and associated infrastructure and existing and alternative cost sharing mechanisms, including
impact fees
High Growth Schools. The provision to deal with “qualified high priority projects” comes at a
critical time for some school districts. The governor, in January called for $290 million in addi-
tional funding to assist high growth areas, notably: Albuquerque, Deming, Las Cruces, Los Lu-
nas, Gadsden Independent Schools and Rio Rancho Public Schools. The governor’s proposal
would utilize senior severance tax bonds ($145 million in FY06, $145 million in FY07) to pro-
vide funding for the program as opposed to general fund revenue. The following tables illustrate
the district wide growth rates for these select districts and the preliminary 2006-2007 NMCI
Historical 40 Day MEM Counts
District 2000-2001 2001-2002 2002-2003 2003-2004 2004-2005 Change 01-05 %
A lb uq u erqu e 85,276
De min g 5,325
Gad sd e n 13,100
Las Cru ce s 22,185
Lo s Lu na s 8,569
Rio Ra n ch o 10,219
Compiled by PSFA 01/25/06 from data provided by the Public Education Department.
NMCI Ranking
2005-2006 NMCI
2006-2007 Pre-
liminary NMCCI
House Bill 432/HECS/aHAFC – Page
Albuquerque Northwest High School 1
47% 53%
Albuquerque Southwest High School
47% 53%
Deming Columbus Elementary School
76% 24%
Gadsden South Elementary School
Not included as
a proposed
87% 13%
Las Cruces Southwest High School
67% 33%
Las Cruces Southwest Mid School
Not included as
a proposed
67% 33%
Los Lunas Westside Elementary School
Not included as
a proposed
77% 23%
Rio Rancho Northwest Elementary School
Vista Grande ES
ranked #1
65% 35%
Rio Rancho Northeast Elementary School
Colinas del
Norte ES ranked
65% 35%
As reported in the Albuquerque Journal, Albuquerque Public School staff recommended to their
school board a 1 mill increase which would have generated significant funding for the new high
schools, however the school board decided against placing it for consideration on the general ob-
ligation bond election.
Is should be noted that an individual schools attendance growth may be caused by immigration
or by population shifts within the district boundaries. Population shifts may not be evident in
district wide attendance figures but only at the school level of detail. The PSFA in FY05 con-
tracted with the Bureau of Business and Economic Research (BBER) to study and begin devel-
oping a model to forecast school district growth. One requirement of the project is to have avail-
able on-line, demographic and other data of the district available to school districts to perform
scenarios in order to assist districts in responding to growth issues that may be on the horizon.
The first phase of the study is almost complete and the second phase will be considered, subject
to funds being available to proceed further with the work.
It should be noted that funding increases in the Lease Assistance program and the Capital Im-
provements Act (SB-9) distributions will reduce the amount of funds available for PSCOC Grant
Awards. The table below illustrates the relationship of the programs as competing uses of a sin-
gle source of funding.
FY06 YTD FY07 est. FY08 est. FY09 est.
Supplemental STB’s
$162.8 $138.5 $153.1 $153.7
TOTAL: $162.8 $138.5 $153.1 $153.1
House Bill 432/HECS/aHAFC – Page
PSCOC Grant Awards
$93.2 $94.2
Capital Improvements Act (SB-9)
$44.7 $44.7
Lease Payment Assistance
$7.5 $7.5
PSFA Operating
$5.8 $6.0
Earmark for CID &SFMO Inspection Costs
$1.9 $1.3
TOTAL: $162.8 $138.5 $153.1 $153.7
Provisions in the committee substitute require the district to utilize local resources to bring facili-
ties ineligible for allocations from the fund as a result of the “qualified high priority projects” to
state adequacy standards. It is unclear whether a district would have the resources to accomplish
this given the districts inability to fund the local share of the priority project. The result may be
that schools high on the PSCOC list for allocations may not receive the funding necessary to
meet adequacy.
A number of alternatives have been suggested by Secretary Jimenez in a presentation to the Pub-
lic School Capital Outlay Taskforce in December. These include:
Consider retroactive awards to APS for projects that APS did not previously apply.
Consider waiver of match on 2005 awards for high growth schools or for APS.
Create a moratorium on offsets, for a period of time, for awards related to “significant
growth.” Significant growth criteria would be developed by PSCOC.
Prescribe that growth dollars cannot be considered from PSCOC unless; the district has
implemented a policy that any school that enrolls its first student over design capacity,
will at the next school year, become a “year around school.” Year around school in-
creases student capacity at a school by 20 percent.
Prescribe that growth dollars cannot be considered from PSCOC unless; the district has
first implemented all options including boundary changes that would spread students
across available facilities.
PSCOC impose a tax upon APS to raise needed match for high needs schools or projects.
Adjust growth awards by reducing local match by 20 percent (.8 x calculated required lo-
cal match amount) conditional upon a district having a certain minimum indebtedness
relative to a community “doing its best.”
PSCOC loan funding to districts for match dollars and require repayment by a certain
Increase outside input of capital into schools such as from developers.
Impact fees for school construction
Lease purchase option
Review the 3X weighting of the growth factor within the NMCI ranking formula which
would de-magnify growth issues so that analysis of space would be simply reactive to
present need.
Other alternatives which may be considered:
Exempt direct appropriations for high growth schools and districts so they aren’t affected
in the formula, or
Prohibit direct appropriations for districts with high growth schools.
House Bill 432/HECS/aHAFC – Page