Lawmakers attempt to solve PED budget crisis after virtual learning boom

When Fernando Telly moved his family to New Mexico, they chose Rio Rancho because they’d heard the schools there were the best in the state. 

After starting school, Telly said his children began testing below grade level. He switched the three of them to virtual education shortly thereafter, he said, and their test scores went back up.

“It has helped them tremendously,” Telly said.

Telly is one of many New Mexico parents whose children have transferred out of traditional schools and into online education. At a meeting of the House Education Committee last week at the state Legislature, parents packed the room, some testifying about children who were bullied in traditional school, who had to attend class at odd hours because they had to work to support their families, or who didn’t get appropriate accommodations for their disabilities at school.

Nearly 9,000 students across the state are full-time virtual learners, Rep. Joy Garratt, D-Albuquerque, told lawmakers.

The committee was meeting to discuss a controversial bill that would have changed virtual learning across the state. House Bill 253 originally sought to create guardrails for online learning by placing enrollment caps and residency requirements on the programs to help resolve a multimillion dollar hole in the New Mexico Public Education Department’s budget. The bill would have affected access to virtual learning for many students across the state. 

On Friday night, members of the House Appropriations and Finance Committee voted to pass an amended version of the bill without the changes to access for virtual education that would still solve the department’s budgetary woes.

A regulatory loophole meant that two New Mexico school districts would receive a combined $40 million in extra state funding because of an influx of virtual students who do not live in either district.

When Gallup-McKinley County Schools terminated its contract with an online school provider, the approximately 3,000 students who attended classes virtually via Gallup-McKinley transferred to Santa Rosa Consolidated Schools and Chama Valley Independent School District, though they didn’t live in either district. 

Per the state equalization guarantee — the formula the PED uses to distribute funds to schools — if a district grows by more than 1%, it receives more money from the state than other districts with the same population. The students who transferred to Chama and Santa Rosa to attend the online program account for an additional $40 million from the PED.

At the same time, Gallup-McKinley would have received over $40 million in SEG funding for those students because the formula is still based on prior‑year data. The dilemma created a $35 million shortfall in the PED’s budget.

“The idea of 3,000 students suddenly migrating across the district border overnight was never contemplated by the SEG,” Sunny Liu, principal analyst for the Legislative Finance Committee, said at a hearing last week.

Only $1 million each would have gone to the school districts, Rep. G. Andrés Romero, D-Albuquerque, told the crowd, packed with parents and educators concerned about changes to virtual education. The remaining $38 million would go to the online education provider, Stride Inc. 

“I’m seeing some shocked faces,” Romero said. “I think that’s definitely interesting.” 

Stride spokesperson Brooke Gabbert said the framing around the issue is misleading.

“Districts routinely partner with external providers to deliver services — including curriculum, technology, transportation, and other operational support. Virtual learning operates in the same way, with districts choosing partners to provide instruction and student services,” Gabbert said. “There is nothing unique about this structure. It is consistent with how districts across the country deliver virtual educational and operational services.”

The $35 million hole meant every district across the state would have received a smaller share of the $4.5 billion in the SEG. For small districts, the difference might be inconsequential, Liu said. For the state’s largest district, Albuquerque Public Schools, it meant a deficit of about $5 million by the end of the year.

“Any cuts to our district this late in our fiscal year will have a direct and unavoidable impact on the classroom,” APS Superintendent Gabriella Blakey told the committee.

After significant pushback from parents, advocates and virtual educators, lawmakers rewrote the bill to address the shortfall without adding the enrollment caps and residency requirements. 

“My inbox is smoking,” Rep. Harlan Vincent, R-Glencoe, said. “I quit reading them, to be honest with you, because everybody is saying the same thing.”

The new version would create few changes to existing virtual education and would launch a comprehensive statewide study of online school. Virtual students will no longer generate extra “rural population units” in the SEG as they did before. 

Chama, Santa Rosa and Gallup-McKinley have agreed to give up their extra funds so no other schools across the state will lose money, Stan Rounds, executive director of the New Mexico Coalition of Educational Leaders told the House Appropriations and Finance Committee Friday night. 

Lawmakers are adding new reporting requirements for virtual learning to better understand the makeup of distance learning schools across the state in the hopes that a similar situation can be avoided in the future. Enrollment in distance learning programs has surged since the pandemic, and regulations have not kept pace, lawmakers said.

“I think this could have been better handled. This has been brought up for well over a decade, and I’m glad that we’re dealing with it, of course,” said Rep. Tara Lujan, D-Santa Fe. “However, I do think we’re going to need better regulation and oversight for this in the future.”

 Natalie Robbins covers education for the Journal. You can reach her at nrobbins@abqjournal.com.