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State of New Mexico Public Education Department v. Zuni Public School District

Supreme Court of New Mexico

February 12, 2018

STATE OF NEW MEXICO PUBLIC EDUCATION DEPARTMENT, and VERONICA GARCIA, Secretary of Education, Respondents-Petitioners,
v.
ZUNI PUBLIC SCHOOL DISTRICT, #89, Petitioner-Respondent.

         ORIGINAL PROCEEDING ON CERTIORARI Grant L. Foutz, District Judge

          Sutin, Thayer & Browne, P.C. Susan M. Hapka Albuquerque, NM State of New Mexico Public Education Department Dawn E. Mastalir Santa Fe, NM for Respondents-Petitioners

          VanAmberg, Rogers, Yepa, Abeita & Gomez, LLP Ronald J. VanAmberg Carl Bryant Rogers, Santa Fe, NM for Petitioner-Respondent

          OPINION

          PETRA JIMENEZ MAES, Justice

         {¶1} The State of New Mexico (State), through the Public Education Department (Department), provides operational funding to public schools in the form of state equalization guarantee distribution payments (SEG distribution payments). Some school districts also receive federal funding under the Impact Aid Act, for which the Department reduces SEG distribution payments to the district in the amount of seventy-five percent of the impact aid received. See Impact Aid Act, 20 U.S.C. §§ 7701-7714 (2017 Supp.); NMSA 1978, § 22-8-25(C)(2), (D)(5), (D)(6) (2017). In this case, we determine when the Department may take into consideration federal impact aid payments a school district receives, or is anticipated to receive, in the Department's allocation of SEG distribution payments to the district during the fiscal year. We hold that the Department may not reduce SEG distribution payments to a district based on anticipated impact aid payments or payments actually received until the State has received certification from the Secretary of the United States Department of Education (DOE Secretary) or the State has obtained permission from the DOE Secretary to consider impact aid prior to certification. Once the State has received its certification from the DOE Secretary, the certification shall apply retroactively to any impact aid payments received by the district during the entire fiscal year.

         I. BACKGROUND

         A. New Mexico Public School Funding Process

         {¶2} Under the Public School Finance Act, NMSA 1978, §§ 22-8-1 to -48 (1967, as amended through 2017), the Department is obligated to ensure that each public school district is provided with enough operating revenue to meet the cost of the district's program each fiscal year.[1] "A key feature of New Mexico's public school operational funding scheme is the state equalization guarantee distribution, which is a formula through which the [s]tate apportions federal and local revenue for schools equitably among the state's school districts." Zuni Pub. Sch. Dist., No. 89 v. N.M. Pub. Educ. Dep't, 2012-NMCA-048, ¶ 3, 277 P.3d 1252, (Zuni I) (alteration in original) (internal quotation marks and citation omitted). The purpose of the formula is to "equalize per-pupil expenditures throughout the State, " and provide every child with an equal opportunity for education in New Mexico. Zuni Pub. Sch. Dist., No. 89 v. Dep't of Educ., 550 US. 81, 85 (2007).

         {¶3} The state equalization guarantee distribution (SEG distribution) is the amount of money provided by the State to the district to cover the district's program cost. See § 22-8-25(A) (defining SEG distribution as "that amount of money distributed to each school district to ensure that its operating revenue, including its local and federal revenues . . ., is at least equal to the school district's program cost"). One hundred percent of a district's program cost is guaranteed by the SEG distribution formula.

         {¶4} A district's program cost is calculated by first establishing an "instructional unit count" for the district. The instructional unit count is based on actual student membership plus consideration of factors related to special categories of needs of the district. Such categories include "early childhood education, grade levels of students, special education students, bilingual students, students considered to be at risk, district size and scarcity, growth factors and . . . instructional staff experience and training." The program cost is calculated by "multiplying the district's instructional units by a set dollar figure per unit . . . ." The unit value is set by the Department Secretary after the New Mexico Legislature appropriates funds for the fiscal year.

         {¶5} School districts provide program cost estimates, including proposed revenues and expenditures, to the Department which in turn submits them to the New Mexico Secretary of Finance and Administration. See § 22-8-12.1(C)(2); 6.20.2.7(A) NMAC. The Secretary of Finance and Administration sends an estimate of the total appropriation for school districts for the upcoming fiscal year to the Legislature.

         Based on the estimate received, the Legislature then appropriates funds for the SEG distributions for the districts. After the legislative session, the Department holds budget workshops to apprise districts of new developments from the session and assist the districts in preparing budgets. Until actual revenue figures are known, the Department uses "budget placeholders" to account for anticipated revenue, including impact aid. An operating budget for each school district must be submitted to the Department by April 15, and each school board must fix its operating budget for the upcoming fiscal year by June 20. See §§ 22-8-6(A), -10(A). The Department must approve a school district's operating budget by July 1; the budget may be amended during the fiscal year. See § 22-8-11(A)(1), -12.

         {¶6} Prior to June 30 of each fiscal year, the Department is required to disburse the SEG distribution, the calculation of which is based on "local and federal revenues . . . received from June 1 of the previous fiscal year through May 31 of the fiscal year for which the [SEG distribution] is being computed." Section 22-8-25(G). Because school districts must budget for each coming fiscal year, the budget process requires estimating the SEG distribution for each district prior to the start of the fiscal year. According to the Department, school districts receive preliminary SEG distribution figures based on estimates obtained through the budget process.

         {¶7} The preliminary SEG distribution figure for each school district is divided into twelve monthly payments that may change based on information obtained from the district throughout the year. Adjustments to a district's preliminary SEG distribution figure may be required due to the addition of a new source of revenue or a change in student counts, for example. Although the Department is not required to distribute SEG funds until the end of the fiscal year (June 30), the Department provides the distribution in monthly payments starting at the beginning of the fiscal year so that school districts may use those funds to operate. The Department refers to these as "progress payments." The Department maintains that the preliminary SEG distribution figure on which the monthly progress payments-that is, SEG distribution payments-are based may not accurately reflect the final SEG distribution amount that the district receives at the end of the year. This, the Department maintains, is because it is not until May 31 that actual local and federal revenues of a district are known and the SEG distribution is calculated. Once the actual revenues are known, the Department provides the district with a final SEG distribution payment that is the difference between the actual SEG distribution to which the district is entitled and the monthly SEG distribution payments that were made to the district over the course of the fiscal year, including any advances.

         {¶8} In addition to state funding, some districts receive supplemental federal money known as "PL 874 funds" or "impact aid" under the Impact Aid Act. See 20 U.S.C. §§ 7701-7714; § 22-8-25(C)(2). The federal impact aid program "provides financial assistance to local school districts whose ability to finance public school education is adversely affected by a federal presence." Zuni, 550 U.S. at 84. This federal funding is provided for school districts "where a significant amount of federal land is exempt from local property taxes, or where the federal presence is responsible for an increase in school-aged children (say, of armed forces personnel) whom local schools must educate, " id. at 84-85, such as military bases and Indian reservation lands. See Zuni I, 2012-NMCA-048, ¶ 4. Generally, a state receiving impact aid is not allowed to reduce state funding to a district based upon the district's receipt of impact aid. See Zuni, 550 U.S. at 85; see also 20 U.S.C. § 7709(a)(2) ("[A] State may not make [State funds] available to [school districts] in a manner that results in less State [funds] to [a school district] that is eligible for [impact aid] than such [school district] would receive if such [school district] were not so eligible.").

         {¶9} Congress created an exception, however, that allows a state to reduce the amount of state funding provided to a district receiving impact aid if the DOE Secretary determines and certifies that the state has a program in effect, such as New Mexico's public school funding formula, that "equalizes expenditures for free public education among [school districts] in the State." 20 U.S.C. § 7709(b)(1). States intending to reduce funding to districts receiving impact aid must apply to the federal government for certification every fiscal year. See 20 U.S.C. § 7709(c)(1)(A) ("Any State that wishes to consider [impact aid payments] in providing State [funds] to [school districts] shall submit to the [DOE Secretary], not later than 120 days before the beginning of the State's fiscal year, a written notice of such State's intention to do so."). Certification from the DOE Secretary allows New Mexico to reduce state funding to a district in an amount equal to seventy-five percent of the impact aid received by the district. See § 22-8-25(C)(2), (D)(5), (D)(6).

         {¶10} The preliminary SEG distribution for an impacted district is the district's estimated program cost, which includes impact aid payments anticipated to be received by the district. The final SEG distribution is the actual program cost calculated at the end of the fiscal year, which includes impact aid payments actually received by the district. Generally, the total SEG distribution payments to which an impacted district is entitled for the fiscal year equals the district's program cost minus a deduction for seventy-five percent of impact aid payments received by the district.

         B. Procedural History

         {¶11} Zuni, located within the Zuni Indian Reservation, also known as Zuni Pueblo, receives federal impact aid for which the State reduces funding to the district in the amount of seventy-five percent of impact aid received. For fiscal year 2010, Zuni's preliminary SEG distribution was estimated at approximately $10.5 million, which, divided into twelve monthly payments, equals $875, 000 a month. From July 2009 through March 2010, the Department provided Zuni with monthly SEG distribution payments typically ranging from $400, 000 to $490, 000, reducing each monthly payment by roughly one-half the amount Zuni was entitled under the preliminary SEG distribution figure. The State was ...


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