LESC brief flags fiscal risks, oversight gaps as distance‑learning enrollment grows

Daniel, public school finance staff for the Legislative Education Study Committee, told lawmakers the committee’s briefing cataloged how distance learning in New Mexico has outpaced statutory frameworks and created unstable funding and oversight conditions.

The presentation said the state counts roughly 9,700 full‑time distance‑learning students (about 3% of enrollment) and that program enrollment and demographics vary widely by provider. Daniel said some large statewide charter programs and a handful of small rural programs together drive much of the variation. He said the brief found female students are overrepresented among distance learners (54% vs. 49% statewide) and that Hispanic and Black students are overrepresented relative to in‑person programs, while English learners are underrepresented in many distance programs.

LESC staff outlined three dominant program models: district‑run online programs, third‑party contractor models and distance‑learning charter schools. Daniel said the contracts between Chama, Santa Rosa and Stride K12 organize a program (Destination Career Academy) that is overseen by a company‑employed principal and largely staffed by contractor employees, while the districts remit 95% of broadly defined “program revenues” to the provider. The brief warned that the contract’s 95% clause covers SEG (state equalization) revenue, federal categorical funds, state facility funding and “other revenues obtained on behalf of the program,” creating indeterminate liabilities because no per‑student or per‑year dollar amount was specified in the agreement.

The presentation traced the recent fiscal disruption that prompted legislative action: Gallup McKinley’s prior Stride contract grew to about 4,000 students and produced significant enrollment growth units; Gallup later terminated the contract and litigated, then settled and retracted certain public statements as part of that settlement. Staff said a similar program arrangement then served about 3,174 students in fiscal year 26 and produced roughly $42.8 million in unanticipated enrollment growth units on top of prior funding. LESC’s fiscal table estimates repeals of FY26 growth units of about $75.1 million across three districts.

Daniel told the committee that before HB253 there was only a narrow Statewide Cyber Academy statute and little other distance‑learning law; House Bill 253, passed last session, created definitions, annual reporting, a requirement that distance programs comply with the public school code, and a mandate that PED evaluate all distance programs by the end of school year 2029 and every five years thereafter. HB253 also authorized PED to withhold funding up to 100% for noncompliant programs and included temporary restrictions on growth units and rural population funding.

Committee members pressed staff on oversight and accountability: whether contracts include proficiency benchmarks (LESC said Chama/Santa Rosa contracts lack specific success benchmarks), whether teacher employees are certified and contributing to the state retirement system (staff said teachers are required to be certified but many contractor employees live out of state and, as contractor hires, may not be contributing to ERB or retiree healthcare), and whether emergency district funding could flow to private contractors under current contract language (staff called the breadth of the contract language a problem and said it is unclear).

Staff recommended an interim collaborative study with PED and the LFC to examine student outcomes and the operating costs of distance programs. LESC told members it has already met with PECO Cyber Academy and New Mexico Connections and will pursue additional data from Stride K12 and districts; staff said Stride has been asked to provide program cost data but the committee had not yet received complete material from the company. Daniel said PED will begin distributing prior‑year SEG funding in July and that Stride intends to invoice districts monthly in alignment with those payments.

Why it matters: The brief links program growth and interstate contractor arrangements to large, rapidly materializing fiscal impacts on the SEG. Lawmakers said HB253 addressed some immediate statutory gaps, but they pressed for more precise contract language, stronger accountability terms, and better data on student outcomes before the next session. The committee directed staff to continue the study through the interim and report back with recommendations for statutory and budgetary changes.

Sources: LESC staff presentation by Daniel; committee Q&A.