MCKINLEY COUNTY, N.M. – What began last year as a bitter contract dispute between Gallup-McKinley County Schools and virtual education provider Stride/K12 has since grown into one of the most consequential education finance fights in New Mexico, reshaping the 2026 legislative session and raising major questions about how the state funds online learning.
At the center of the controversy is a chain of decisions that left thousands of virtual students in transition, and triggered concerns that GMCS may cause a $35 million funding shortfall for the state, prompted sharp condemnation from lawmakers and ultimately ended with Gallup-McKinley reversing course and restoring its relationship with the same company it had previously accused of fraud and misconduct.
For families, school leaders and legislators across western New Mexico, the episode exposed just how fragile and poorly defined the state’s distance- learning system had become.
The conflict escalated publicly in 2025, when Gallup-McKinley County Schools terminated its contract with Stride/K12, the company behind the district’s Destinations Career Academy of New Mexico. At the time, district leaders accused the company of serious failures, including poor academic performance, staffing problems, special education noncompliance, reporting deficiencies and broader misconduct. Later, the district announced it had filed a verified complaint accusing Stride of fraud, deceptive trade practices and profit-driven abuse at the expense of students, many of them Native American. Gallup-McKinley also argued the company’s practices had contributed to severe academic decline and a collapse in graduation outcomes.
But the story did not stop there.
In December 2025, the issue burst into the state Capitol after Public Education Secretary Mariana Padilla told lawmakers that the state was confronting a major school funding problem tied to virtual enrollment.
The basic issue was this: New Mexico school districts are funded largely based on prior-year enrollment. After Gallup-McKinley ended its Stride contract, roughly 3,000 students who had been enrolled in that virtual program moved into new online programs operated by Santa Rosa and Chama. Because of the way the state equalization guarantee formula works – that is how schools get money per student – Gallup-McKinley was still drawing funding connected to the prior year despite not having those students, while Santa Rosa and Chama also generated growth funding because they now had many of those same students.
Students were being counted twice, once in GMCS and again in another district – but they weren’t enrolled in GMCS.
That meant the state was effectively paying twice in connection with the same enrollment shift – once through the previous year’s formula, and again through current-year growth adjustments.
Padilla told lawmakers PED needed a supplemental appropriation to maintain the unit value and avoid reductions for districts statewide. If that did not happen, the consequences would not be limited to Gallup-McKinley, Santa Rosa or Chama. The effect would spread across New Mexico’s public education system as there would not be enough money to keep New Mexico’s school system funded.
The reaction from legislators was immediate and intense.
At the December Legislative Finance Committee hearing, lawmakers openly questioned whether the system had been abused.
Sen. George Muñoz of Gallup, who also represents Cibola and San Juan counties, in particular, sharply criticized the situation and argued Gallup-McKinley should have returned money rather than leaving the state to absorb the problem. Other lawmakers described the arrangement as unsustainable and demanded closer scrutiny of virtual programs, teacher licensure, student residency, special education compliance and the role of private vendors in publicly funded online learning.
Gallup-McKinley pushed back. In a December statement, district officials argued that PED and lawmakers were mischaracterizing the situation.
The district said it had not simply abandoned online education, but had moved away from Stride after receiving information it believed showed serious misconduct. It also argued that the funding it received was based on services already provided during the prior school year and that PED had long known Santa Rosa and Chama were taking on new virtual students. In Gallup-McKinley’s view, the district was being blamed for problems rooted in the state’s own funding structure.
That dispute – over whether Gallup-McKinley had improperly benefited from the formula, or whether the formula itself had simply exposed a policy weakness – became one of the defining education fights of the legislative session.
Lawmakers, faced with either a hole in state budget or changing the law, responded with legislation.
House Bill 253, which ultimately became law in February 2026, was designed to address both the immediate budget problem and the broader lack of oversight around fulltime distance learning. The bill created new reporting requirements for school districts and charters serving distance-learning students, required programs to comply with existing public school laws, directed PED to evaluate all full-time distancelearning programs, and ordered a broader study of virtual education in New Mexico.
HB253 also included temporary provisions meant to stop the immediate funding distortion, including a prohibition on enrollment-growth-programunits for distance-learning students in fiscal years 2026 and 2027, it established a moratorium on creation of new fulltime distance-learning programs, and revised funding calculations for a large district that lost more than 10 percent of its enrollment between fiscal years 2025 and 2026.
According to the Legislative Education Study Committee analysis, the bill was expected to eliminate approximately $65.1 million in program units in fiscal year 2026 and increase the final unit value for most districts and charters statewide. But the same analysis showed the impact would fall heavily on Gallup-McKinley, which would see a major reduction under the revised calculation.
In many ways, the Legislature’s message was unmistakable: online learning was not going away, but the state could no longer afford to regulate it loosely or fund it as though it functioned exactly like a traditional brick-and-mortar classroom.
Then came another twist.
On March 2, 2026, Gallup-McKinley County Schools announced it had resolved its dispute with Stride and dismissed all complaints against the company with prejudice. Stride did the same.
Gallup McKinley County Schools reinstated a “modified” contract with Stride through June 30, 2026 agreed to a framework for tutoring services, voided Stride’s suspension and ended debarment proceedings. Most strikingly, the district said it was withdrawing and retracting the statements it had made in earlier press releases tied to the dispute.
That reversal added a new layer of confusion to an already turbulent story.
Months earlier, Gallup-McKinley had publicly portrayed Stride as a company that placed profits over children, failed students academically, overloaded teachers, ignored compliance requirements and harmed a majority-Native district.
By March, the district was not only settling with the company but restoring a working relationship with it. For observers across western New Mexico, that raised an unavoidable question: if the original allegations were grave enough to justify a public legal and political crusade, what changed?
The larger consequences, however, remain.
The debate over virtual education is no longer just about Gallup-McKinley or Stride.
The discussion is now about whether New Mexico can build a distance-learning system that is transparent, accountable and financially sustainable. Lawmakers have already concluded the old structure was inadequate. PED’s own data cited during the legislative process also underscored the stakes, showing lower performance among full-time distance-learning students than among students in traditional settings. And Gallup-McKinley’s own most recent publicly cited NM Vistas results remain troubling, with 18 percent math proficiency, 31 percent reading proficiency and 27 percent science proficiency.