Court: New Mexico May Offset Federal Impact Aid to Its Districts

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A school district will appeal a federal appellate-court ruling late last month that affirmed the state of New Mexico’s right to withhold funds to districts based on how much federal impact aid they receive.

A panel of the U.S. Court of Appeals for the 10th Circuit, in Denver, ruled 2-1 on Dec. 30 in favor of the U.S. Department of Education’s interpretation of the federal impact-aid law regarding when states may reduce their funding for districts that receive the federal aid.

Impact aid is federal money paid to school districts whose tax bases are limited by the presence of federal installations, such as military bases or American Indian reservations. In most cases, the federal law prohibits states from offsetting the subsidy by reducing their own aid to those districts.

An exception to the law, however, allows a state to offset the federal aid when its districts are substantially equalized in their per-pupil funding. The principle behind the exception is that when spending is equalized, the burden of the reduced tax base caused by the presence of federal installations in borne across the state. Currently, only three states—Alaska, Kansas, and New Mexico—are considered equalized under the impact-aid law.

At issue in the lawsuit filed against the federal Education Department by the 1,700-student Zuni, N.M., district is the method the department uses for determining whether per-pupil spending in a state is substantially equalized.

Under the law, if the disparity between a state’s highest- and lowest-spending districts is 25 percent or less, the state’s system is considered equalized, and the state may reduce its own aid to offset federal impact aid to individual districts. In making that calculation, which is based on per-pupil spending, the law calls for lopping off the top and bottom 5 percent of districts to eliminate anomalies.

But there are two ways to determine the top and bottom districts.

The federal Education Department’s rules say that those top and bottom percentiles should be calculated using total student enrollment statewide.

The Zuni district argued that the law calls for the calculation to be made merely by cutting off the numberof districts making up the top and bottom 5 percent, regardless of whether the enrollment for each of those groups of districts equals 5 percent of the total state enrollment.

The department’s method led New Mexico to qualify as having an equalized funding system because the spending disparity between the highest and lowest of the remaining districts was just 14.4 percent.

Under the method advanced by the Zuni district, New Mexico would not qualify as equalized and thus Zuni would keep all of its impact aid, which amounted to $8.2 million last year.

In its ruling, the 10th Circuit panel majority said the Education Department was using a “permissible construction” of the law for its method, and that basing the cutoff points on total student enrollment rather than the number of districts “makes sense.”

‘Complex and Mystifying’?

“Basing an exclusion on numbers of districts would act to apply the disparity standard in an unfair and inconsistent manner among states,” U.S. Circuit Judge Stephanie K. Seymour wrote.

In a dissent, U.S. Circuit Judge Terrence L. O’Brien said that the Education Department’s method was “complex and mystifying,” and that the federal impact-aid law plainly called for using the number of districts, not total enrollment, in the cutoffs.

“Quite reasonably, Congress wants the impact-aid payments to be applied for the intended (and expressed) purpose, not merely used as a federal supplement for a state’s general education needs,” the judge said.

New Mexico offsets 75 percent of what districts get in impact aid, said Ronald J. VanAmberg, a lawyer for the Zuni district.

“The school district is very disappointed with the decision,” said Walter Feldman, the superintendent of the Zuni district. “They’re taking money from the poorest students in the state.”

Vol. 24, Issue 18, Page 20

Published in Print: January 12, 2005, as Court: New Mexico May Offset Federal Impact Aid to Its Districts
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