1. Financing Early Childhood Care and Education in New Mexico
Presentation by: Kelly O’Donnell, PhD
September 16, 2014

2. Presentation Overview
Core principles
Revenue strategies for ECCE
Using state tax credits to promote quality in ECCE
Possible New Mexico Tax Credits
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3. Principles for Revenue Enhancement
Adequate
Stable
Diversified
Phased in .
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4. NMECDP Principles for Investment in High Quality ECCE
Increase access to high-quality early childhood education and care for low- and moderate-income families
Maximize resources by supporting parent’s work and children’s development and education simultaneously
Recognize and support ECE professionals  
Incentivize quality
Advance learning & development benchmarks
Foster partnerships to support access to high-quality services
Focus on program evaluation and return on investment
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5. Revenue Options for ECCE
Revenue Source
$ Millions
Likelihood of Enactment
Increase TANF transfer to Child Care Assistance Program
$2.2
High
Equalize Emergency School Tax Rates for Oil and Gas
$40
Moderate
Redirect Severance Tax from Bonding Fund
$114
Moderate/Low
Increase the Liquor Excise Tax
$45
Increase the Cigarette and Tobacco Products Taxes
Enact State “Junk Food” or Soda Tax
$20-$50
Social Impact Bonds
Up to $10
Moderate/High
Include ECCE as “Public Infrastructure” for TIDDS
Uncertain
Increase Federal Royalties
$156
Low
State Land Office Proposal to Increase Land Endowment
Increase Land Grant Permanent Fund Distribution
$100
Local Children’s Trusts
$1 or more
Dedicate a Percentage of New General Fund Revenue
$217
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6. Diverse revenue strategies
State funding – severance taxes, excise taxes, “new” general fund revenue
Local funding – Children’s trusts
Federal funding – TANF transfer, royalties
Private funding – Social Impact Bonds
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7. TANF Funds for Child Care Assistance
Increase TANF Transfer to CCDBG
Potential Revenue for ECCE: $2.2 Million
Pros
Cons
Increase in child care assistance funding
Diverts money from the TANF program, which provides a variety of other supports to low income families
Uses federal rather than state or local funds
Provides a relatively small and finite amount of revenue.
Child care subsidies funded by TANF directly are subject to different rules than CCDBG
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8. Equalize Emergency School Tax Rates for Oil and Gas
Redirect Severance Tax Revenue to the State General Fund
Potential Revenue for ECCE: $114 million
Pros
Cons
Does not increase the total tax burden on oil and gas producers
The real value of the Severance Tax Permanent Fund (STPF) has declined in recent years and the STPF will not grow if deposits do not increase
Large investments in public school construction over the last 12 years have greatly improved the condition of the capital stock so spending in this area can now be scaled back and redirected to other uses
Less revenue to the bonding fund decreases funds available for capital improvements, including public school construction
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9. Junk food or “soda tax”
Increase state excise taxes on potentially harmful commodities such as liquor, tobacco ,or “junk food”
A “10 cents per drink” increase in New Mexico’s Liquor Excise Tax would increase revenue to the state general fund by approximately $45 million annually
Pros
Cons
Generates substantial revenue without diverting funding from other programs
Makes the tax system more regressive
Discourages harmful behaviors that impose costs on taxpayers and society
Implementing a new “junk food” tax could impose costs on food retailers
Benefits children and youth because young people are more likely than adults to reduce their consumption in response to a tax increase
Increases tax system complexity and administrative cost.
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10. Royalty rate for on-shore production of oil and gas on federal lands States receive 50 % of federal royalty revenue Federal rate is 12.5%, most western states charge 16.5 to 18.5%
Increase the royalty rate paid for production of oil and gas on federal lands
Potential Revenue for ECCE: $156 to $233 million annually
Pros
Cons
Substantial revenue increase at no cost to the state
Requires federal action, not under the control of state policymakers
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11. Land Grant Endowment
Obtain a federal grant to increase the size of New Mexico’s land grant endowment
Potential ECCE Revenue Impact: Uncertain
Pros
Cons
Could generate substantial revenue without diverting funding from other programs
No modern precedent, would require major change to federal law
Increases state land endowment
Revenue is highly uncertain
Would take at least 7 years to implement
Increased land maintenance costs to the state
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12. Social Impact Bonds Social Impact Bonds
Potential Revenue for ECCE: $10 million
Pros
Cons
Innovative mechanism for public-private partnerships
Unproven, even the European programs have yet to reach the point at which success can be measured and investors compensated.
Increases awareness of ECCE and engages new and non-traditional allies
Complex to administer
Rewards good corporate citizenship
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13. Land Grant Permanent Fund Example: Increasing the distribution from 5 % to 6.5 % and earmark 66 % of the new revenue for ECCE.
Increase the Land Grant Permanent Fund Distribution
Potential Revenue for ECCE: $100 million
Pros
Cons
Generates substantial revenue without diverting funding from other programs in the near term
Reduces Permanent Fund earnings, which will ultimately result in smaller distributions to all beneficiaries
Stable revenue source
Current proposal lacks a transparent spending plan
Voter approval of constitutional amendment ensures buy-in from Legislature and electorate
Requires constitutional amendment and possibly Congressional approval
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14. Local Young Children’s Trusts Children’s trusts are independent local entities that support ECCE and fund children’s programs in specific communities. They are created as voter-approved special districts and funded with a voter-approved local revenue source such as a dedicated property tax levy or sales tax increment.
Local Young Children’s Trusts
Potential Revenue for ECCE: $100 million
Pros
Cons
Enables local jurisdictions to identify and fund priority projects
Location specific
Educates communities about the value of ECCE
Difficult to accomplish in rural and/or low income communities
Children’s trusts are independent local entities that support ECCE and fund children’s programs in specific communities. They are created as voter-approved special districts and funded with a voter-approved local revenue source such as a dedicated property tax levy or sales tax increment.
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15. Tax Increment Financing
Include ECCE in the Definition of “Public Infrastructure” for Purposes of Tax Increment Financing
Potential Revenue for ECCE: $100 million
Pros
Cons
Addresses community-specific demand for quality ECCE
Location specific
Emphasizes the economic significance of ECCE
Limited scope
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16. General Fund Revenue
Dedicate a percentage of new state general fund revenue to ECCE for each of the next several years
Revenue for ECCE: $217 Million
Pros
Cons
Provides a large increase in funding for ECCE
Reduces the funds available for other general fund priorities
Embeds ECCE in the general fund budget with other core state services
Creates a large recurring appropriation that must be sustained over time
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17. Example: 25% of Surplus for 5 years
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18. Incentives Quality bonuses Scholarships -- TEACH®
Wage subsidy INCENTIVES®
Tax credits
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19. Quality Bonuses Link funding to a common set of quality standards
Administered through the Quality Rating Improvement System (QRIS)
Tiered reimbursement rates that partially offset the higher costs of quality programs
Additional grant opportunities
Improves access to quality care for low income families
Less effective for programs with relatively few subsidy kids
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20. Scholarship -- Teacher Education and Compensation Helps (T.E.A.C.H®)
Scholarships to educators taking college courses employed in ECE
Teachers working in private centers, family child care homes, Head Start Centers and NM PreK
A three way partnership
Supports scholars to stay in school
Fluctuating funding
Currently serves more than 700 scholars statewide
168 degrees completed since 2010
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21. Direct Subsidy -- INCENTIVES ®
Education-based salary supplements encourage ECC educators to attend college and remain in early childhood after graduation
Income supplements every six months if they remain with their current employer
Higher education levels = larger supplements
2013 average annual payment = $1,600
Santa Fe pilot – first 2 years - no turnover and more than half completed additional college classes
Albuquerque South Valley Expansion in 2013
$300,000 state appropriation to support expansion of the two existing programs and initiation of one additional statewide program
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22. ECCE Tax Credits New Mexico Dependent Care Tax Credit
Federal Dependent Care Tax Credit
Types of Credits
Credit programs in other states:
Louisiana
Oregon
Colorado
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23. NM Child Day Care Tax Credit
Available to households (of any size) with income (from all sources) that is below 2x federal minimum wage ($7.25*2*2080 = $30,160)
40% of amount paid to caregiver
Maximum $8/dependent/day
Maximum credit is $480/child and $1,200/family
The average credit is about $350
Roughly 4,000 claims for the credit totaling about $1.4 million are made annually
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24. Federal Child and Dependent Care Credit
Maximum is 35% of expenses for Adjusted Gross Income (AGI) under $15k
Maximum expenses: $3,000 for one dependent & $6,000 for two. Maximum per person credit is 35% of $3,000 = $1,050
Credit percentage declines by 1% point for every $2,000 in AGI to a floor of 20% for all AGI above $43,000
Non-refundable
People who qualify for the NMDCC on the basis of income would qualify for a 27%-35% federal credit BUT
Households with children pay no federal income tax until their income exceeds $32,000 for a single person with one child and $38,000 for a married couple with two children.
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25. Types of Tax Credit Consumers/Parents
Charitable contributions to ECCE organizations
Providers -- to offset operations costs for quality programs
Providers -- to encourage investment in facilities, equipment and training
Educators – to retain highly qualified teachers and directors by augmenting their wages
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26. Thank You
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