Funding the Future: An early education trust fund

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A child plays with her toys at a child care center in alamogordo. a proposal to create a new permanent fund would support programs in the newly created Early Childhood Education and Care Department. The department is expected to take over programs and services for children prenatal to age 5. Photo credit / Sylvia Ulloa/New Mexico in Depth

The term “trust fund babies” may evoke millennial hipsters in trendy urban neighborhoods living off wealth stockpiled by their more entrepreneurial parents or grandparents.

It’s a lifestyle most working class New Mexico families perhaps wouldn’t recognize or even aspire to.

But Rep. Doreen Gallegos, D-Las Cruces, sometimes has trouble explaining her proposal to create a revenue source to support the new state Early Childhood Education and Care Department. So she’s marketing the idea as a trust fund for the state’s 123,630 children under age 5. The analogy is a good one. 

The rich grandparents would be the state of New Mexico. The wealth they’re sitting on is the oil and gas underneath state and federal land. And the trust fund they want to create would help pay for the education of their heirs for generations — in this case preschool, home visiting and early intervention programs for children with disabilities.

The new permanent fund envisioned by Gallegos would pay out millions every year for early education programs and services, kick-started with a big chunk of the oil and gas surpluses New Mexico is currently enjoying. 

Gallegos even has the support of a stern, grandfatherly figure — Sen. John Arthur Smith, a fiscal hawk who chairs the powerful Senate Finance Committee. Not to mention that of Gov. Michelle Lujan Grisham, a grandmother herself.

Smith, a Democrat from Deming, has blocked a similar effort to pay for early education using the Land Grant Permanent Fund, a $19 billion pile of cash built on oil and gas money whose proceeds are primarily used for K-12 education.

This year, earnings from the Land Grant fund contributed more than $784 million to the state budget, and lawmakers like Smith argue the stockpile must be protected for future generations when the state can no longer rely on its valuable fossil fuels. Others argue New Mexico will never build an educated workforce and diversified economy less reliant on oil and gas without tapping the fund for early education.

The Gallegos proposal circumvents that debate by creating an entirely new stockpile of cash that generates money each year for early education. 

The proposed Early Childhood Education and Care Fund was announced publicly in October by Finance Secretary Olivia Padilla-Jackson who, along with Children’s Cabinet Director Mariana Padilla and Legislative Finance Committee Director David Abbey, has worked with Gallegos to craft a piece of legislation for lawmakers to consider during the 2020 session. 

Gallegos has promoted the idea of creating a new permanent fund for several years, she said. When she entered the House in 2013, during the Great Recession, she found trimming essential services excruciating. She remembers thinking, “This is terrible. We’re cutting Meals on Wheels. We’re cutting off services to kids, cutting education. It wasn’t because we wanted to, it was because there was no money.”

Setting aside money during flush times dovetailed with Lujan Grisham’s focus on early childhood and legislators’ and administration officials’ desires to soften the financial pain during lean budget years. 

“The bottom line is I’ve been supportive from the get-go,” Smith said of the proposal, but it was a matter of whether the state had the money to bankroll the idea. This year seems like the right time, Smith told New Mexico In Depth. 

The Legislative Finance Committee on Dec. 9 got an updated forecast of expected revenue for 2020, with the state expecting a $797 million surplus. That’s down from $907 million in “new money” forecast in August, but still a large chunk of money to divvy out for things like education, infrastructure and state agencies.

How it would work

Starting in July 2021, excess money from two state revenue sources — the Oil & Gas Emergency School Tax and Federal Mineral Leasing — would go into the Early Childhood trust fund after the state’s total general fund reserve hit 25% of current spending, Padilla-Jackson explained. The bill also asks the Legislature to kick in a one-time $320 million contribution.

That same year, the fund would distribute  $20 million for the new Early Childhood Education and Care Department programs, and every year thereafter the department would receive $30 million or 5% of the three-year average balance of the endowment fund, whichever is greater. The fund will also have a “break glass in case of emergency” provision where lawmakers can tap the fund to pay for essential childhood services during a prolonged budget shortfall, though that would only kick in after the state exhausts its large reserve, Padilla-Jackson said.

The finance secretary said the fund fits into a strategy of creating more reliable revenue streams and flattening out the highs and lows of New Mexico’s budget.

“A really important part of this proposal is that it really builds on the tax stabilization reserve that was created by the late Rep. (Larry) Larrañaga, where he initiated this idea of not utilizing all of the peaks when we have an oil and gas boom,” Padilla Jackson said. 

Padilla Jackson said estimates based on current oil and gas revenue projections are that the Early Childhood fund could reach $1 billion over the next three years, generating about $40 to $50 million per year for early childhood services. The fund would continue to grow through excess oil and gas revenues and profits generated by the State Investment Council.

But the idea, while welcomed, doesn’t allay concerns that the state isn’t doing enough to fund early education. 

Rep. Javier Martinez, a Democrat from Albuquerque who has been pushing to use the Land Grant fund for early childhood education, said he supports any steady funding that provides services for kids, but believes this proposal doesn’t go far enough.

House Majority Whip Doreen Gallegos, D-las Cruces, is sponsoring a bill that would create a new endowment dedicated to early childhood programs such as preK and home visiting.

He plans to renew his fight to tap the Land Grant fund during the 2020 session. From his vantage point on the House Tax and Revenue and Legislative Finance committees, Martinez said he didn’t see any other source of revenue big enough to fund a comprehensive early childhood system.

For Martinez, the early childhood system goes beyond PreK and home visiting programs. It includes behavioral health programs, help for children with disabilities, and decent wages for early childhood educators.

“The true cost of early childhood far exceeds what we currently invest and it will continue to far exceed even what the $1 billion fund will generate,” Martinez said. “So, yeah, we still need to invest from the permanent fund. I think taking all of those sources together, then we really start to make a dent in the unmet need.”

Lori Martinez, the executive director of Ngage NM, a “cradle to career” education nonprofit based in Las Cruces, said she supports tapping the Land Grant permanent fund, but one of her worries has been the multiple hurdles and the prolonged fight to tap it. Changing the rules on what the fund can pay for requires a state constitutional amendment, and in this case, it was the U.S. Congress that made the rules. So, even if Rep. Martinez can get his proposal through the Senate, where it has stalled year after year, it would still need to go before New Mexico voters and potentially the U.S. Congress for approval.

“What are we doing now, you know, not down the road five or six years? Because those kids we’re talking about serving are babies now,” she said. “They’re preschool age now. Do we just keep forgetting about them?”

Lori Martinez liked that the Early Childhood fund could get a governor’s signature in 2020 and start distributing money in 2021. But she also agrees with Martinez, the lawmaker, that the  fund would be just a down payment. Ultimately, more money will be needed, she said, to fully support the Early Childhood department.

Nora Meyers Sackett, the governor’s press secretary, said the administration also sees a new endowment fund as a first step in a larger campaign to provide universal preschool and child care in a state that consistently ranks at the bottom of national rankings on child wellbeing. 

“That’s the vision,” Meyers Sackett said, “to continue expanding these programs, expanding these funds for these programs.”

You know, for New Mexico’s trust fund babies.

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