Lawmakers scrutinize explosive growth of early childhood trust fund

Jan. 17—SANTA FE — New Mexico's revenue bonanza is leading to some unintended windfalls.

Take, for instance, a state early childhood trust fund that was created in 2020 and is now projected to balloon to more than $4 billion by 2025 due to robust tax collections on oil and natural gas production.

That's prompted lawmakers to consider passing legislation during the 30-day session that begins Tuesday to increase next year's distribution from the trust fund and make it easier to use the fund for other child-related programs.

"No one ever imagined the fund would grow as fast as it has," said Legislative Finance Committee Director David Abbey during a remote hearing held the day before the session's start.

The influential panel ultimately voted Monday to endorse the legislation during the upcoming session, though it will still have to advance through the normal process once the session gets underway in order to land on Gov. Michelle Lujan Grisham's desk.

During the 2020 debate over the trust fund's creation, backers of the idea argued it could eventually become a major funding source for home visiting, prekindergarten, child care assistance and other early childhood programs.

The trust fund got a $300 million start-up appropriation and also receives energy-related tax collections in years when total state cash reserves exceed 25% of spending levels.

That scenario has materialized in each of the last two years, as New Mexico revenue levels have surged to record-high levels due to increased oil and gas production and improving consumer spending. The surge has come after revenue levels dropped during the early stages of the COVID-19 pandemic.

As a result, the early childhood trust fund is projected to have a balance of more than $2.1 billion at the end of the current budget year, according to LFC data. It's projected to continue growing rapidly to nearly $4.3 billion by the end of the 2025 fiscal year.

Sen. Steve Neville, R-Aztec, said the explosive fund growth should be scrutinized, especially since a proposal before voters in November would allow even more money to be taken from New Mexico's largest permanent fund — a separate fund — to pay for early childhood programs.

"It's way overfunded for early childhood," Neville said of the early childhood trust fund. "We need to throttle that back."

Under current state law, $30 million is transferred annually out of the trust fund for programs overseen by the Early Childhood Education and Care Department, which was created by lawmakers in 2019 and officially launched a year later.

That would increase to $40 million for the coming budget year under the legislative proposal discussed Monday.

The proposed bill would also allow those distributed funds to be spent on child-focused programs run by other agencies, such as advocacy centers that work with victims of child abuse.

Meanwhile, New Mexico spending on early childhood programs has already increased rapidly in recent years, as Lujan Grisham has set a goal of having "universal" prekindergarten in New Mexico — or at least 85% of 4-year-olds enrolled in private or public programs statewide.

Specifically, recurring early childhood spending has increased from about $140 million in 2012 to nearly $500 million in the current fiscal year.

The 30-day session runs through Feb. 17 and will focus largely on budgetary matters.

However, legislators are also expected to debate bills dealing with crime, voting rights and carbon emissions, as those issues have been added to the session agenda by Lujan Grisham.