OPERATIONAL FUNDING:

 

WHERE DOES THE MONEY COME FROM?

 

Nearly all state-level school district operational funds are distributed through the Public School Fund.  Revenues are derived from the following sources:  the General Fund, the Current School Fund, and the Federal Mineral Leasing Revenue.  Only one significant state appropriation is not distributed through the Public School Fund, the Free Textbook appropriation, which is made from Federal Mineral Leasing revenue.  The remainder of the Federal Mineral Leasing revenue is deposited to the Public School Fund.  The Free Textbook allocation is made on the basis of the 40^th day membership [22-15-9 NMSA 1978].

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

HOW IS THE MONEY DISTRIBUTED?

 

The Public School Fund is currently appropriated in the following three separate distributions:

 

State Equalization Guarantee Distribution (SEG):  Accounting for more than 90 percent of school districts’ operational revenue, the SEG is the largest state distribution.

 

Transportation Distribution:  Allocated to each school district according to a statutory formula, the Transportation Distribution  makes payments to each school district to pay for to-and-from school transportation costs for students in grades K-12 attending public schools within the district.

 

Supplemental Distributions:  The Secretary of Education is authorized to make the following supplemental distributions:

 

·        Out-of-State Tuition: Provides for the payment of out-of-state tuition for New Mexico students subject to the Compulsory School Attendance law who are attending school outside the state because of the unavailability of school facilities in the school district in which they live.

 

·        Emergency: Provides for emergency distributions to districts in financial need.  School districts requesting emergency distributions must not have cash and invested reserves or other resources or any combination thereof equal to five percent or more  of their respective net operational budgets.

 

·        Emergency Capital Outlay:  Provides for emergency capital outlay distributions to school districts that have experienced an unexpected capital outlay emergency demanding immediate attention.

 

 

 

THE NEW MEXICO PUBLIC SCHOOL FUNDING FORMULA

 

History:  The New Mexico public school funding formula is based on a model developed by the National Education Finance Project (NEFP) in the late 1960s and early 1970s.  One of the projects of the NEFP was to develop a computer model to simulate the fiscal consequences of alternative decisions in regard to the financing of public elementary and secondary education.  As a tool for better decision making, the model had great potential because of the variety of data that could be accommodated and the ease with which new data could be added and new decision options made available.  And after adapting the NEFP model to construct a computer model matching conditions in New Mexico, the “tools” were available to begin a detailed study of public school in New Mexico and, subsequently, to develop a proposal for a new school finance plan.

 

Appointed by the Governor in the summer of 1973, the Advisory Committee on School Finance was composed of a broad cross section of educational interests, including parents, teachers, administrators, and legislators.  The committee established the basic philosophy and direction of the project and met monthly to review progress and to give direction for future work.

 

The committee’s initial task was to define educational need.  Committee members discussed many elements, including some already included in statute, such as the additional costs associated with secondary schools, which had been recognized in public school funding in New Mexico since the 1930s; the differential weighting of students by grade level and size of school, which had been recognized since 1960s; and the necessity of supporting adequate staffing patterns.

 

The committee’s second task was to devise a school finance formula based upon a comprehensive definition of educational need that would equitably fund this need throughout the state.  The committee’s guiding philosophy was the equalization of educational opportunity for all children in New Mexico.

 

Past school funding methods, however, had created a high degree of disequalization among districts because of differences in local wealth.  The gap between rich and poor districts was enormous, and the revenue that would be required to reach full equalization with the richest districts was staggering.  Thus, while it was unreasonable and impracticable to equalize at the highest level, any lower level would result in certain districts’ losing revenue.  The goal of the new formula, therefore, was clear:  to equalize educational opportunity at the highest possible revenue level while minimizing the financial loss to the richest districts.

 

As the result of the committee’s work, the 1974 New Mexico Legislature enacted the Public School Finance Act, which has been widely acclaimed as one of the most innovative of the school finance plans currently being used across the country.

 

The formula is designed to distribute operational funds to school districts objectively and in a non-categorical manner while providing for local school district autonomy.  Formula dollars received by local districts are not earmarked for specific programs.  Within statutory and regulatory guidelines, school districts have the latitude to spend their dollars according to local priorities.

 

In place for more than two decades, the public school funding formula has been under constant analysis.  For the most part, the results of these analyses have supported statutory data-based refinements to the structure of the formula while maintaining the philosophical concept of educational equity for all students.

 

In recent years, however, some individuals have questioned the credibility of the formula citing as unfair the fact that some districts receive less revenue per pupil compared to others.  Some districts have attempted to make arguments for additional factors to meet their particular needs such as increasing revenues for cost-of-living adjustments, at-risk students, or specific types of teacher training.  In response to these concerns, the State Board of Education, the Legislature, and the Executive in 1995 made commitments to support an independent, comprehensive study of the funding formula.

 

Completed in 1996, the principal finding of the study concluded the following:  “When evaluated on the basis of generally accepted standards of equity, the New Mexico public school funding formula is a highly equitable formula. . . .  [S]pending disparities are less than in other states and statistically insignificant.”

 

STATE EQUALIZATION GUARANTEE

 

Goals:  The intent of the 1974 Public School Finance Act [22-8-17 through 25 NMSA 1978] is to equalize financial opportunity at the highest possible revenue level and to guarantee each New Mexico public school student equal access to programs and services appropriate to his or her educational needs regardless of geographic location or local economic conditions.  Through the absence of categorical funding and fund “tracking,” the act also seeks to encourage local school district initiatives in seeking more efficient and effective means of achieving desirable educational goals.

 

Program Cost:  The formula uses cost differentials to reflect the costs associated with providing educational services to students all of whom have differing needs.  For example, research indicates that educating high school students costs more than educating first graders and that additional funding is required for the provision of bilingual education and special education services. 

 

A program cost for each school district is determined by multiplying the student full-time equivalency in a particular grade or a program full-time equivalency by the respective cost differential to generate units. (The full-time equivalency to be used in the calculation of program units is the prior year average of district membership on the 40^th, 80^th, and 120^th days.)  All of the program units are then added together and multiplied by the district’s training and experience index to produce the adjusted program units.  The following are then added to the adjusted program units:

 

·        Units generated by students served in nonprofit special education institutions;

·        Units generated for teachers certified by the National Board for Professional Teaching Standards

·        Units generated by the various size adjustment factors in the formula for small and rural schools and districts;

·        Units generated by growing districts;

·        Units generated by any newly created districts; and

·        Save harmless units generated to protect very small districts from a too precipitous decline in revenue.

 

The grand total of all the units is then multiplied by the unit value for that school year resulting in the district’s program cost, which is then adjusted to determine the district’s state equalization guarantee.

 

State Equalization Guarantee:  Program cost is the amount of money assumed under the formula to be necessary for a given district with a particular configuration of students and educational programs to provide educational services.  A district’s state equalization guarantee is the amount of money the State of New Mexico “guarantees” to provide to the district to defray most of the program cost.  The exact amount is determined by

 

·        Adding together revenue coming into the district as the result of a required half-mill property tax levy; and revenue generated under Impact Aid  (formerly called PL 874), except that revenue generated specifically for special education; and any revenue generated through Forest Reserve funds;

 

·        Multiplying the result by 75 percent[1] to determine the revenue for which the state takes credit; and

 

·        Subtracting the 75% credit amount from program cost.

 

·        Determine the excess cash balance as defined in Sec. 22-8-41 NMSA 1978.

 

·        Calculate the cash balance credit in accordance with Sec. 22-8-41 NMSA 1978.

 

·        Subtract the cash balance credit from the program cost. (The cash balance credit was applied for one year in FY04 and will be effective FY06 and thereafter.)

 

 

Districts participating in the Utility Conservation program will have an additional amount subtracted from the program cost; that amount is held in a separate fund to be used solely for that program.

 

 

 

 

 

 

 

 

 

 

 

STATE EQUALIZATION GUARANTEE COMPUTATION

 

	TOTAL PROGRAM UNITS

 

                                                                                   

            T&E INDEX MULTIPLIER                                                Times Value from 1.00-1.500

	ADJUSTED PROGRAM UNITS

 

                                                                                                                                   

PLUS

	D-Level NPTC

 

                                                           

                                                                                                                                                                                                                                                                                                PLUS

National Board for Professional Teaching Standards

           

Elem./Jr. High Size Units Senior High Size Units District Size Units Rural Isolation Units At-Risk Units Enrollment Growth Units

                                                                                               

                                                                               

	TOTAL UNITS

 

                                                                                                        

 

       + Save Harmless Units =

	GRAND TOTAL UNITS

 

 

 

 

Grand Total Units × Unit Value = Program Cost

 

Program Cost

-75% (Noncategorical Revenue Credits) **

-Utility Conservation Program Contract Payments

         State Equalization Guarantee

 

 

*The cost differential for fine arts education will increase to 0.0332 for FY 05 and to 0.05 for FY 06 and succeeding fiscal years.

** A cash balance credit was applied for one year in FY04 and will be effective FY06 and thereafter.

 

CAPITAL OUTLAY FUNDING

 

 

WHERE DOES THE MONEY COME FROM?

 

Public school capital outlay financing is both a local and state responsibility in New Mexico.  Qualifying districts can generate state revenues through two statutory measures, one of which provides funding for critical needs and a second one that guarantees a level of funding based on a district’s ability to support its capital needs through local property taxes.  Locally, districts can generate capital outlay revenues from the sale of bonds, direct levies, earnings from investments, rents, sales of real property and equipment, as well as other miscellaneous sources.

 

STATE SUPPORT

 

The following are state sources of support for public school capital outlay:

 

Public School Capital Improvements Act:  Also called “SB 9” or the “two-mill levy,” this funding mechanism allows districts, with voter approval, to impose a levy of up to two mills for a maximum of six years.

 

Participating districts are guaranteed a certain level of funding, supplemented with state funds if the local tax effort is unable to generate the guaranteed amount.  The “program guarantee” is based on school district 40^th day total program units multiplied by the matching dollar amount (currently $50) multiplied by the mill rate stated in the voter- approved resolution.  The total revenue generated by the two-mill levy is subtracted to determine the amount of “matching” funds the district will receive from the state.  (See also Public School Capital Improvements Act under “Local Support.”)  For fiscal year 2004 and thereafter, the amount of state “matching” funds shall not be less than an amount equal to $5 multiplied by the school districts first forty days’ total program units and further multiplying the product obtained by the approved tax rate.

 

Public School Capital Outlay Act:  Enacted in 1975 and often called “critical capital outlay,” this funding mechanism provides for state funding of critical school district capital outlay needs that cannot be met by school districts after they have exhausted other sources of funding.  The Public School Capital Outlay Council (PSCOC) reviews all requests for assistance from the capital outlay fund and allocates only for those capital outlay projects that meet the criteria of the Public School Capital Outlay Act.  Provided for in statute, the PSCOC’s membership consists of the following representatives or designees:  the Secretary of the Department of Finance and Administration, the Secretary of the Public Education Department, the Governor, the President of the New Mexico School Boards Association, the Director of the Construction Industries Division, the President of the Public Education Commission, the Director of the Legislative Education Study Committee, the director of the Legislative Finance Committee, and the Director of the Legislative Council Service.

 

For allocation cycles beginning after September 1, 2003 the following provisions apply:

1.      All districts are eligible to apply regardless of percentage of indebtedness.

2.      Funding must be determined by using the statewide adequacy standards and the PSCOC  must apply the standards to charter schools to the same extent.

3.      The PSCOC must establish criteria to be used in the PSCOC projects that receive grant assistance from Public School capital Outlay Act.

4.      No more than 10% of the combined total grants in a funding cycle shall be used for retrofitting existing facilities for technology infrastructure.

5.      A formula will be used to determine the percentage participation of the state and the districts in the standards-based capital outlay process for projects approved by the council must be funded within available resources in accordance with the funding formula.

6.      Capital outlay grant awards made by the Public School Capital Outlay Council (PSCOC) will be reduced by a percentage of direct appropriations for capital outlay projects received by a school district.  The amount of the reduction will be determined by the state-local match formula, and will equal the direct legislative appropriation percentage amount for the school district multiplied by the amount of the direct appropriations for individual school projects.

7.      “Subject school district,” means the school district that has submitted the application for funding in which the approved PSCOC project will be located.

8.      In those instances in which a school district has used all of its local resources, the council may fund up to the total amount of the project.

9.      No application for grant assistance from the fund will be approved unless the council determines that:

A)    The capital outlay project is needed and is included in the school districts five-year facilities plan among it’s top priorities

B)     The school district has used it’s resources in a prudent manner

C)    The school district has provided insurance for building of the district according to provisions of section 13-5-3 NMSA 1978

D)    The district has submitted a five-year facilities plan that has been approved by the council pursuant to section 22-24-5.3 NMSA 1978 and projections for enrollment and facilities needed in order to maintain a full-day kindergarten are included.

E)     The district is willing and able to pay any portion of the project that is not funded with grant assistance from the fund.

F)     The application includes charter schools or the district has shown that charter schools meet the statewide adequacy standards.

G)    The district has agreed, in writing, any reporting requirements imposed by the council pursuant to sections 22-24-5.1 NMSA 1978.

 

During the 2001 legislature, the Deficiencies Correction unit was created to identify and correct all serious deficiencies in public school buildings and grounds, including charter schools that may adversely affect the health or safety of students and school personnel.  Since the creation of the DCU the PSCOC has developed a methodology for prioritizing projects and has begun approving allocations from the fund.  It was legislative intent to identify and make awards no later than June 2004 and that the funds be expended by June 30, 2006 (22-24-4.1 NMSA 1978).

 

The “Public School Facilities Authority” (PSFA) was also created under the PSCOC during the 2003 legislative session.  The new authority is to serve as staff to the PSCOC.  School districts are also required to secure approval from the PSFA prior to the construction or letting of contracts for construction of any school building or related school structure or before reopening an existing structure that was formerly used as a school building that has not been used for that purpose during the previous year.  The cabinet secretary of the Public Education Department must certify that all construction will support the educational programs of the school districts.  Legislation also provided that effective July 1, 2003, all personnel of the Deficiencies Correction Unit of the PSCOC be transferred to the PSFA (22-24-9 NMSA 1978).

 

The Technology for Education Act provides funding to all New Mexico districts to implement technology plans that enhance learning opportunities for students.  Statute requires that every school district receiving Technology for Education funds “file a report with the department of education regarding distributions received, expenditures made and educational technology obtained by the district and other related information as may be required by the department of education” (22-15A-10 NMSA 1978).

 

 

Direct Legislative Appropriations:  Sponsored by individual legislators, direct legislative appropriations are capital outlay project funding targeted for specific projects within the school district.  Revenue sources can include the General Fund, severance tax bonds, or statewide general obligation bonds.  The Legislature appropriates approximately 400 projects that entail more than $12 million.

 

 

LOCAL SUPPORT

 

In New Mexico, public school capital outlay funding is primarily a local responsibility and, as a result, is based primarily on the property wealth of individual local school districts.  The following are the methods districts may use to finance their respective capital outlay needs:

 

General Obligation Bonds:  This funding mechanism allows local school districts to seek voter approval to issue general obligation bonds to erect, remodel, make additions to, and furnish school buildings, to purchase or improve school grounds, purchasing computer software and hardware for students in public schools or any combination of these purposes.  Each district’s issuance of bonds is subject to the constitutional (Article 9, Section 11, Constitution of New Mexico) limit of six percent of the assessed valuation of the district.   Prior to issuing of the bonds, the district must request that the Public Education Department verify the district’s remaining bonding capacity.

 

If the election is successful, the local school board, subject to the approval of the Attorney General, may begin to issue the bonds.  The authorized bonds must be sold within four years of voter approval (6-15-9 NMSA 1978).

 

Public School Capital Improvements Act:  Commonly referred to as “SB 9” or the “two-mill levy,” this funding mechanism allows districts to ask voters to approve a property levy of up to two mills for a maximum of six years.

 

Funds generated through imposition of the two-mill levy must be used to

·        Erect, remodel, make additions to, provide equipment for, or furnish public school buildings;

·        Purchase or improve public school grounds;

·        Maintain public school buildings or public school, excluding salaries; and/or

·        Purchase student activity buses for transporting students to and from extracurricular activities.

·        Purchase computer software and hardware for student use in public school classrooms.

 

The Public School Buildings Act:  Often referred to as HB 33, the Public School Buildings Act allows districts to ask voters to improve the imposition of up to 10 mills for a maximum of five years on the net taxable value of property in the district.  HB 33 funds may be used to erect, remodel, make additions to, provide equipment for, or furnish public school buildings and to purchase or improve school grounds.

 

A limitation to the use of HB 33 requires that the voter-authorized HB 33 tax rate, when added to the tax rates for servicing the debt of the school district and the rate authorized under the Public School Capital Improvements Act (SB 9), cannot exceed a total of 15 mills.  If so, the HB 33 rate would be adjusted downward to compensate.  This funding mechanism is most useful for districts with high-assessed valuation and low bonded indebtedness.

 

Education Technology Equipment Act:  Enacted in 1997, the Educational Technology Equipment Act provides a statutory basis for the implementation of a constitutional amendment approved by voters in the 1996 general election.  Passage of the amendment allows school districts to create debt without submitting the question to voters to enter into a lease-purchase agreement to acquire educational technology equipment.  The purpose is to acquire tools used in the educational process that constitute learning resources. The Act was amended during the 1999 session of the New Mexico legislature to remove certain restrictions, which limited the acquisition of certain tools. 

 

 

MISCELLANEOUS SOURCES 

 

Districts can also derive capital outlay funds from such sources as donations, earnings from investments, rent, and sale of real property and equipment.  The Legislature also appropriates limited funds for capital outlay emergencies to the Public Education Department for distribution to public school districts based upon need.  (See page 2.)

 

 

FEDERAL SUPPORT OF PUBLIC SCHOOLS

 

State education agencies and local school districts receive a variety of federal assistance funds.  School districts place some of these funds into a Special Revenue Fund and are not part of the operational budget.

 

Impact Aid Funds:  The federal government provides certain funds to school districts in lieu of local property taxes for children residing on federal lands or children having parents working on federal property.  A school district is eligible to receive these funds if at least three percent of its average daily attendance (ADA), with a minimum of 400 ADA, are federally connected.  Formerly called P.L 874 funds, these Impact Aid funds are now produced through provisions of Title 20, Section 7703 (b), USC. 

 

School districts in New Mexico receive substantial Impact Aid payments because of the large numbers of federal military installations, Indian lands, federal public domain, and national forest lands within their boundaries.

 

The federal government allocates these Impact Aid funds directly to school districts on the basis of an average per capita cost of education, calculated on either a state or national basis, whichever is larger.   The state takes credit for 75 percent of all Impact Aid revenues flowing to local districts (except for special education and Indian set-aside funds) when calculating the state equalization guarantee.  Of the remaining 25 percent that is not taken credit for, the districts must expend an amount of state equalization guarantee equal to 20 percent of those funds for public school capital outlay purposes.   Districts may expend the remaining 5 percent for operational purposes.

 

Forest Reserve Funds:  Twenty-two New Mexico counties receive Forest Reserve funds.  These counties receive 25 percent of the net receipts from operations (primarily timber sales) within their respective reserve areas.  Distributions are divided equally between the County Road Fund and the school district.  The state takes credit for 75 percent of the Forest Reserve funds in calculating the state equalization guarantee.  As in the case of Impact Aid funds, the districts must expend an amount of state equalization guarantee equal to 20 percent of those funds for public school capital outlay purposes, and districts may expend the remaining 5 percent for operational purposes.

 

Department of Energy:  Los Alamos Public Schools receives funds from the Department of Energy in lieu of property taxes on federal property located within the district.

 

Department of Defense:  Some school districts receive funds from the Department of Defense for an increase in district membership related to the presence of military personnel within their respective districts.