Legislative study committee flags $20–$35M SEG exposure after surge in virtual enrollments; staff proposes temporary moratorium and funding language

Staff for the Legislative Education Study Committee told lawmakers that an unexpected shift of roughly 3,000 students into district‑run virtual programs in Chama and Santa Rosa has created a potential $20 million to $35 million supplemental need for the State Equalization Guarantee (SEG).

"We have a need for a supplemental in an amount anywhere between 20 and $35,000,000 to shore up the SEG," Daniel, LAAC public school finance staff, told the committee. He said the immediate budget issue stems from the state’s prior‑year funding rule, which currently means Gallup is paid for students it no longer enrolls while the new districts begin to generate growth units.

Why it matters: Committee members said the supplemental could force a lower unit value for all districts unless lawmakers appropriate money to maintain current funding levels. That in turn could reduce funding for programs lawmakers previously prioritized, including compensation increases and targeted initiatives for vulnerable students.

Policy options presented: LAAC staff outlined several draft approaches being placed into Section 4 language for House Bill 2 and related bills: a one‑year moratorium on authorizing new full‑time virtual programs; an executive proposal to prohibit new students from enrolling in virtual programs if they were not enrolled the prior year; and a LESC staff recommendation to temporarily revise the SEG so that districts would not generate membership growth units for students enrolled in for‑profit full‑time virtual instruction. Daniel said the LESC language would eliminate roughly $42–$43 million in membership growth funding for Chama and Santa Rosa.

Technical details: Staff told members the current unit value is about $6,801.35 and explained the enrollment growth mechanics that increase cost sharply when a district’s membership jumps: a district that grows at least 1% generates 0.5 units for each student within that 1%, and 1.5 program units for each student above 1%. Those multipliers were cited as a key reason the districts’ jumps produce large fiscal impacts.

Lawmakers’ reactions: Senator Mamie Stewart pressed the committee to act, arguing earlier investments should be preserved and criticizing what she called poor outcomes in some virtual programs. "These virtual programs don't graduate students. I think their graduation rate is, like, 5 percent," Stewart said, urging stronger oversight and policy action. Other members said they support studying virtual options in depth during the interim to avoid unintended consequences while preserving valuable online offerings.

Next steps: LAAC staff said they are drafting statutory and budget language in coordination with PED and finance committee staff and that some language may be included both in House Bill 2 budget language and in standalone legislation. The committee flagged virtual education for focused interim work, including exploring guardrails for district‑run virtual programs, oversight roles for PED and the Public Education Commission, and options to avoid a large supplemental payment that would lower the unit value for all districts.