SANTA FE, N.M.—New Mexico college students receiving lottery-financed scholarships could avoid reductions in their financial aid next year under a proposal endorsed Friday by a Senate committee.

A measure sponsored by Senate Majority Leader Michael Sanchez, D-Belen, will shore up the state's largest scholarship program temporarily as lawmakers search for a permanent solution to its financial problems.

"We don't have a solvency solution at the moment, and we don't want this to be detrimental to the students of New Mexico," said Sen. Michael Padilla, an Albuquerque Democrat.

If nothing is done by lawmakers during the 60-day session, the state will need to lower scholarship awards to less than the cost of tuition—potentially to about three-fifths of what otherwise would be provided, according to the Higher Education Department.

Nearly 17,300 students at two-year and four-year colleges received a lottery scholarship last year.

The program faces a financial squeeze because costs are growing faster than lottery revenues. In particular, tuition costs have risen significantly in recent years. The program is projected to have a deficit of $16 million next year and about $20 million in the following year, according to the department.

The Senate Education Committee approved Sanchez's proposal to tap into new sources of money for the program, which supporters said could avert scholarship cutbacks in the next three years.

Sanchez proposed using about $10 million a year in earnings from a tobacco settlement permanent fund, which holds money the state receives from tobacco companies as part of a nationwide legal settlement. The state has been using part of the earnings in recent years to plug budget shortfalls but the money is available next year for other purposes, such as the scholarship program.

The legislation also would earmark tax withholdings from lottery winnings to the scholarship program. The amount varies from year to year, but was $1.2 million last year.

The bill would allow up to 1 percent of the state's cash reserves to be tapped for the scholarship program in the next three years. The reserves were more than $600 million at the end of the last budget year, which could mean about $6 million available for scholarships if needed.

To qualify for a scholarship, New Mexico students must enroll in a public college or university in the state, attend full time and maintain a 2.5 point grade point average.

Several proposals for revamping the scholarships have been introduced in the Legislature. Sanchez sponsored legislation in 1996 that established the scholarship program and has been one of its staunchest defenders.

A measure by Sen. William Payne, R-Albuquerque, would restrict scholarship eligibility to students with certain minimum scores on college entrance tests and raise the grade point average that must be maintained. Those who didn't graduate from college within six years would be required to pay back two semesters of assistance. Currently there is no graduation requirement.

To keep the program solvent in the future, Payne said, the scholarships should target students most likely to graduate from college.

The committee declined to act on his proposal. Several lawmakers suggested an analysis of how the changes would affect student access to higher education.

Sanchez's measure goes next before another Senate committee before it can reach the full Senate.

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