by Marjorie Childress, New Mexico In Depth Legislative Special Edition
January 15, 2017

A gaping revenue shortfall and lack of reserves have New Mexico’s legislators worried about short-circuiting the progress of large investments made in early childhood and safety net programs in recent years.

A steep decline in the price of oil has contracted an industry on which New Mexico relies heavily, leading to broad layoffs, sales of oilfield equipment, foreclosures and bankruptcies.

That, in turn, has gutted the cash from tax revenues state leaders counted on to pay for state operations.

State leaders emptied out the state’s reserve fund to balance last year’s budget. Now they must close this year’s shortfall — projected at $69 million — without a pot of money that has cushioned economic pain in previous economic downturns.

“It’s the first time since I’ve been in the Legislature that we haven’t had any reserves,” said Sen. John Arthur Smith, D-Deming, the longtime chair of the Senate Finance Committee who joined the Legislature in 1989. “We’ll be clawing back and robbing every nook and cranny we can possibly rob to Band-Aid through the rest of the fiscal year.”

But Rep. Javier Martinez, D-Albuquerque, isn’t sure the state will find much money as it hunts for cash.

“It’s very troubling, there’s no meat left on the bone,” Martinez said. “We’re going after the bone now. Anything considered soft money is on the table. Early education is on the table. Medicaid is on the table. Adult education and job training funds will be on table.”

Impact on kids

The difficult budget decisions facing state legislators reside against a backdrop in which 32 percent, or 51,000, of New Mexico’s children under the age of 5 live in poverty.

That percentage has crept downward from 2011, when it was 36 percent, as the state has invested more heavily in programs that benefit children, such as child-care assistance, early education and home visiting programs.

Scientific research shows monetary investment in the early lives of children will pay dividends decades later in a reduction of negative outcomes, including lower incarceration rates and improved economic opportunities.

What scares advocates is that this year’s money woes coincide with agreement that has gelled among policy makers in recent years that investing in programs benefiting children and their families is critical.

Now the “soft money” programs Martinez mentioned may face cuts.

Such programs are called “two-generation” strategies. That is, they target both the child and the parents—two generations—to create healthy learning environments capable of moving the needle on poverty.

The idea is that in order for children to succeed, they need supportive family environments. But parents working one or more low-wage jobs without health care benefits can find it difficult to make ends meet and provide the time their children need for healthy development.

“A good example of a two-generation program is child care assistance,” said Sharon Kayne, communications director for New Mexico Voices for Children, a research and public policy advocacy organization. “Not only does the program give kids a safe, enriching environment to be during the day, it also allows their parents to work, look for a job, or attend school.”

New Mexico spent $84.7 million on child care assistance in fiscal year 2015, which supported 17,042 children. About a third of the program is funded through the state’s general fund, with federal dollars from various sources making up the remainder.

Funding for the state’s home visiting program grew from $2.3 million in 2012 to $15.5 million in 2015.

The home visiting program supports a web of community-based organizations that provide voluntary, free services. Once enrolled, a family receives regular visits in their home for up to three years by an early childhood specialist, or home visitor. The home visitor helps parents with educational information, advice on how to meet parenting challenges, and support in various ways, including screenings for various conditions and associated referrals.

In 2015, the program served 2,789 children, according to the Children, Youth and Families Department annual program report. And because it targets both parent and child, it’s a good example of a two-generation approach.

Other strategies utilize or build on federal money.

For instance, New Mexico provides a “working families tax credit” valued at 10 percent of the federal earned income tax credit, both of which target low-income families. New Mexico also directs federal dollars it receives from the Temporary Assistance for Needy Families, or TANF program, to support child care assistance, pre-K, and home visiting programs, in addition to direct cash assistance to families.

And the federal Medicaid program now provides more than a third of the state’s population with health care insurance, since an eligibility expansion in 2014 to low-income adults led to more than 250,000 new enrollees by end of 2016. For every $1 spent by New Mexico, the federal government spends $3 to $4 in the state on Medicaid services. New Mexico invests about 15 percent of its annual $6 billion operating budget in Medicaid, which leads to a significant infusion of federal healthcare dollars into the state’s economy.

Looming cuts, or new revenue

Once legislators do the dirty business of raiding dark corners in state government to find revenue or making cuts to plug this year’s revenue shortfall, they’ll turn their attention to creating a budget for next year. Smith said new revenue sources are necessary.

But he expects opposition from New Mexico’s Republican governor, Susana Martinez.

“There’s no real easy answer to our revenue problem,” Smith said. “You can’t cut your way to prosperity. The executive branch is trying to do that.”

A centerpiece of the governor’s economic development strategy is tax reduction. She touts in official materials that she’s reduced taxes 24 times, including a package in 2013 that reduced the maximum corporate income tax rate from 7.6 percent to 5.9 percent. And she has consistently vowed to not raise taxes during her tenure.

“The next governor is going to be left in a super mess because I don’t expect any movement,” Smith said about the governor’s stance on taxes. “She’s taken the pledge, regardless of the pain to the state.”

A proposal Smith is pushing is a new 10-cent per gallon tax on gasoline, which would be used to replenish the state’s reserve fund, and then invested in state and local road funds. That investment would in turn lead to jobs, Smith said.

“We have fewer people working now than in 2005,” he said. “We’re going to have to make investments in jobs. Obviously the gasoline tax could do that, create jobs with infrastructure. I’m waiting patiently to see if the governor wants to.”

A spokesman for the governor said she “isn’t going to raise taxes” and that increasing what people pay for gasoline would “penalize New Mexicans.”

“They need to make tough decisions and tighten state government’s belt without gutting classroom spending and slashing important economic initiatives,” Michael Lonergan, press secretary for the governor, said of state lawmakers.

That approach lays a strong foundation for private sector growth, Lonergan said.

“We can’t afford to go back to the days when we relied solely on the federal government and the oil and gas industry to create jobs,” he said. “That very thinking put us where we are today.”

Advocates argue that child welfare investment is possible despite revenue shortfall

There are other options for investing in children and families that don’t require general fund dollars, Kayne argued.

Two big ones that would raise family income, she said, are raising the minimum wage and requiring companies to provide paid sick leave.

“About 20 percent of our kids have one parent who would benefit from raising the wage,” she said. “And require companies with a certain number of employees to offer some kind of paid sick leave. If parents have to stay home with their kids, they lose wages.”

New policies aside, the state could also coordinate services better.

“Many of these programs are offered in isolation,” Kayne said.

Better coordination would ensure more low-income families receiving TANF benefits also received childcare assistance, she said, noting that those two programs are administered by separate state agencies that don’t coordinate well.

Rep. Martinez argued that if New Mexico is serious about changing the status quo of entrenched child poverty, it will need to invest much more in order to tap the potential of programs such as home visiting. And sources exist other than the general fund to do that, he said.

Martinez is one of several lawmakers pushing for a constitutional amendment that would allow 1 percent of the state’s permanent land grant fund to be used for early education programs. About $150 million annually would be raised.

The proposal to tap the permanent fund has been debated for six years now, with strong opinions for and against. Advocates point out that New Mexico has one of the largest land grant permanent funds in the country, if not the world, and should use a small percentage of it in a way that would change the direction of the state.

The idea is that investing significantly more money now will grow a more educated and skilled workforce, which would in turn improve New Mexico’s economy and income levels.

“These last eight years of recession, everything has taken a hit,” Martinez said. “The one thing that has not, and has continued to grow, is the permanent fund. That is the most sustainable and permanent source to fund such a transformative concept, which early education is.”

The value of New Mexico’s land grant permanent fund has increased from $10.7 billion in 2011 to $14.8 billion by the end of 2015.

Opponents fear tapping additional permanent fund dollars will lead to a shrinking fund principle, which would decrease the ability of the fund to generate revenue for the state’s general fund at current or higher levels in the long run.

Smith is one of those opponents. The land grant fund should be thought of as an endowment rather than a “rainy day fund,” he said, with growth in the fund generating more interest income for the state’s annual general fund. The early education proposal would lead to more than 5 percent being drawn down, Smith argued, which over time would hinder the fund’s ability to sustain downturns in the marketplace or inflation.

But advocates took the long term health of the fund into consideration. One constitutional amendment legislators will consider allows for 1 percent of the fund to be drawn down only if the average value of the fund for the preceding five years is $12 billion.

“The longer we wait, the more kids we’ll lose to poverty and what poverty breeds,” Martinez, the lawmaker, said. Since the proposal was first suggested, he said, there has been a generation of babies born “who will start kindergarten this year, their families not engaged in any kind of process, who may be dealing with drug addiction, mental health problems, or food and housing shortage.”

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