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School Funding Primer

By Gabriela C. Guzman
Journal Capitol Bureau
    Editor's note: State funding for public schools in New Mexico breaks down into two general categories.
    Operational money appropriated by the state to local districts is used to pay teachers, utility bills and the like. It is basically allocated on a per-pupil basis, with various program costs factored in.
    The other category is capital outlay to pay for construction, renovation and repairs.
    Distribution of the capital outlay money is much more complicated, and districts receive widely varying amounts.
    The capital outlay issue came to the forefront earlier this year when attempts to provide substantial money to fund new schools in Albuquerque were unsuccessful.
    The Journal set out, through interviews and reviewing documents, to answer some of the basic questions on how public money is allocated to pay for construction in public schools.
    SANTA FE— The first part of this story is a test. A word problem, actually. So, before considering the questions and offering answers, several facts must be taken into account.
    Ready? Here goes.
    1. The state is flush with cash, racking up huge windfalls from record oil and gas prices.
    2. The state's largest public school district, with nearly 90,000 students, is bursting at one of its seams. It is in desperate need of two new high schools.
    3. The governor and some legislators want to use some of the state's recent revenue windfalls to help fast-growing districts build new schools.
    Q: Can they do it? Explain your answer.
    A: No. Under a formula developed in response to a lawsuit by a tiny, rural school district, the state cannot simply allocate the money to the overcrowded districts. It doesn't matter how much it's needed or how much the governor or legislators want to do it. At best, a council set up to administer the formula could "loan" the district some of the money, which would be repaid in the form of offsets from future allocations.

  •     As you probably surmised, the state is New Mexico. The district that needs the two new schools on its West Side is Albuquerque Public Schools. (There are others with similar situations, such as Rio Rancho and Las Cruces).
        The lawsuit that brought about the changes was filed in 1998 by the Zuni School District in western New Mexico.
        With some of the basics out of the way, the rest of this exercise will attempt to show what led up to the Zuni lawsuit and how the resolution of the case has changed capital funding for New Mexico public schools.
        Here are answers gathered from reports and interviews with officials at Public School Capital Outlay Council, Public School Facilities Authority and the Legislative Finance Committee.
        Q: What was the Zuni lawsuit all about?
        A: The case brought by Zuni, one of the state's poorest districts, and later joined by other districts, challenged how the construction of schools was funded in New Mexico. Before the lawsuit, the amount of money districts could receive for school construction and renovations was limited to each district's total assessed property value and direct appropriations from legislators.
        Q: Why was this a problem?
        A: The plaintiffs said the system was unfair to poor districts. For example, districts with a lot of public land, like Zuni, and smaller tax bases said they couldn't raise enough money to build basic school facilities while richer districts were able to add indoor swimming pools, football stadiums and performing arts centers. The disparity, the plaintiffs argued, was unfair and unconstitutional.
        Q: Did the court agree?
        A: Yes. In 1999, District Judge Joseph Rich of Gallup ruled that New Mexico's system for awarding capital outlay money to public schools was unfair and unconstitutional. He told the state to draft a more equitable system.
        Q: How did the state respond?
        A: The state came up with a uniform system for distributing construction money. It is based on various factors, including need, how much local tax potential existed and how much of that potential was being tapped. The system was designed to equalize opportunity statewide when it came to building projects, rather than penalize or reward kids depending on where they lived.
        Q: How much state school construction money are we talking about?
        A: In 2005, $274 million was awarded for all school construction. In 2004, the amount was closer to $250 million. We'll have a better idea how much will be available for this coming year later in the summer.
        Q: Where does it come from?
        A: New Mexico's natural resources provide money to build and improve public schools. The state sells supplemental severance tax bonds and the proceeds go into the Public School Capital Outlay Fund. The bonds are paid off by revenue generated from taxes imposed on the extraction of natural gas, oil and other minerals.
        Q: Who decides how this money is allocated?
        A: The state Public School Capital Outlay Council, a nine-member board, is charged with identifying critical construction and renovation needs and decides which schools will receive awards from the capital outlay fund. Awards are based on districts' applications and district visits. The council's administrative arm, the Public School Facilities Authority, runs the day-to-day operations of the capital outlay program. The authority has construction managers around the state to help keep projects on track.
        Q: How does the council decide which districts will receive awards?
        A: Every year, staffers visit a certain percentage of the state's approximate 750 schools to assess construction and renovation needs. The facilities authority maintains a list in which every school is ranked according to construction need. Late in the school year, districts submit applications to the council, then make presentations before the council early in the summer. If a project the district is requesting money for ranks high on the priority list, then chances are fairly good it will be approved. In 2005, the council approved the top 98 projects on the list.
        Once the council agrees to fund a project, a formula devised by the Public School Capital Outlay Task Force is used to determine how much money the district will receive and how much the district must pay.
        Q: What kinds of things are considered in the formula for distributing the money?
        A: State and district student population, the previous year's taxable value for the entire state and the district, and the property tax mill levy in the district are all factors considered in the formula. The formula determines how much of their own money districts must contribute for a construction project in order to receive state funding. For example, Zuni is the only school district that receives 100 percent funding from the state under this formula. There are 15 districts that must pay for 90 percent of their construction projects. APS is required to pay 53 percent of its construction.
        Q: Does everyone think this formula is fair?
        A: No. Albuquerque Public Schools officials and some Bernalillo County residents say as a whole, taxpayers pay more in taxes there than those in more rural counties. These complaints have not fallen on deaf ears. State legislators have discussed taking into account a county's entire tax burden for the school construction formula.
        Meanwhile, residents say that while Bernalillo County residents do pay more in taxes, they also benefit from many more public services than residents in more rural counties.
        Q: Where do districts get money to pay their share of capital improvement projects?
        A: The primary source is local property taxes. In Albuquerque, for example, the total property tax rate is 8.27 mills. A home valued at $150,000 now pays $413 a year in taxes to APS. Some districts also use income from investments, rents and sale of property or equipment to build new schools.
        Q: Are there other factors working against APS when it requests money from the state?
        A: Yes. When APS builds new schools, the district includes amenities the state doesn't pay for. In the wake of the Zuni lawsuit, the state crafted a list detailing what it felt was necessary for a teaching environment. For example, the state criteria do not include performing arts spaces, but APS deems theaters as being central to its curriculum for high schools. If APS wants to construct a performing arts space, it must use district funds to do so.
        Q: Where else can school districts seek capital outlay money?
        A: The Legislature recently approved a new funding program called the High Priority Project Grant Assistance Program. Districts that are experiencing high levels of growth are able to receive large awards to construct new schools. But while the program's title implies a grant, districts have to pay back what is a loan.
        Q: After all the political brouhaha about money for new West Side high schools in Albuquerque, what did APS actually get through this process?
        A: APS officials said it hoped for the full $90 million available in the new program. What it got was $67 million, of which it must pay back $52 million.
        Q: What about special appropriations made to school districts around the state during the annual legislative session?
        A: For every special appropriation a district accepts, a percentage will be deducted from any award that district receives from the Public School Capital Outlay Council. Districts can reject special appropriations. Some districts have declined them specifically because they do not want their awards from the council decreased. Deducting special appropriations is also a direct result of the Zuni lawsuit.
        Q: What's next in Zuni?
        A: Earlier this year, Judge Rich approved the Zuni district's request for a full hearing on the lawsuit. It is set to begin this fall.
        Q: Is this system for allocating school construction set in stone?
        A: No. The council is often looking for ways to improve the system and to make it more comprehensive. Also, the districts involved in the Zuni lawsuit requested a hearing on the evidence set to begin next fall. Depending on the judge's decision, the current system could be tweaked.

    E-MAIL writer Gabriela C. Guzman