New Mexico Early Childhood Development What Do We Need, and How Do We Pay For It?

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1 New Mexico Early Childhood Development What Do We Need, and How Do We Pay For It? Early childhood development takes various forms at different ages. It can help new parents when they bring home a baby. Or provide quality child care for toddlers. Or deliver early education programs like PreK or Head Start to get kids ready for school. Programs may be located in homes, centers or schools; they may be nonprofit or for-profit, full-time or part-time. They are funded by the state, the federal government and families. All those variables raise plenty of questions: To what extent do early childhood programs improve kids and families long-term success? Should New Mexico devote more money to these programs and, if so, where should funds be targeted? How might new revenues be raised? This policy brief begins to address these questions for New Mexico business leaders. The New Mexico Early Childhood Development Partnership (NMECDP) and the Association for Commerce and Industry (ACI) will engage the business community in an effort to strengthen the state s early childhood services. Their goal is for the business community to identify and help advance policy options. Impact of Early Childhood Programs Quality early childhood programs can lead to increased family self-sufficiency, improved academic achievement, reduced juvenile criminal activity, and less welfare assistance. 1 A range of studies calculates the return on investment (ROI) for early childhood programs as follows: POVERTY IN NEW MEXICO $2 to $1 (short-term estimate, not tied to a specific curriculum) 2 $3 to $1 in government savings and $7 to $1 in society at large savings (Chicago Child-Parent Center program, longitudinal study of 1,200 children served in the early 1980s) 3 $4 to $1 (Abecedarian Project, longitudinal study based on 52 North Carolina children served in the 1970s) 4 $8 to $1 (forecasted societal return on early learning in general, with half the ROI based on projected future wages of the parents) 5 $16 to $1 (Perry Preschool Project, longitudinal study based on 123 children served in the late 1960s) 6 1 (Legislative Finance Committee, 2014) 2 (Ready Nation, n.d.) 3 (Reynolds, Temple, Robertson, & Mann, 2001) 4 (University of North Carolina) 5 (President's Council of Economic Advisors, 2014) 6 (Schweinhart, 2005) One in five New Mexicans lives in poverty, ranking us the poorest state in the nation. (A family of four lives in poverty if they earn $24,250 a year or less.) In New Mexico, Medicaid finances 71 percent of births. Poverty influences children s readiness for school. One quarter of New Mexico students enter kindergarten unable to read a single letter. SOURCES: U.S. Census Bureau and NM Legislative Finance Committee (LFC).

2 Even the most conservative of these studies shows that early childhood investments pay off. However, research also points to the importance of targeting dollars to high-impact programs for which outcomes can be tracked. Policymakers understandably want to invest in proven programs that deliver the strongest rates of return. Consequently, the NMECDP commissioned a wide array of research reports in recent years, prompting them to recommend that all early childhood activities have strong program fidelity and evaluation. The NMECDP also proposes that our state target new early childhood investments in three areas: Home visiting (evidence-based models) New Mexico PreK Workforce development for early childhood The organization invites input on these priorities, including whether and how to fund them. Home Visiting Programs Home visiting programs are voluntary and take place in the homes of families, often in the first weeks or months after a new baby is born. Trained professionals visit parents, answer questions about the child s development, conduct early screenings to determine if the baby may need extra help, and connect the family with medical or other community resources. This service is particularly useful to young parents who may not have strong family supports. The Children Youth and Families Department (CYFD) manages state and federally funded home visiting programs. Currently there are 24 such programs operating in 26 counties. In addition, several foundation-funded home visiting programs also exist. The impact of home visiting can be significant. One particular home visiting program profiled by the LFC, the Nurse-Family Partnership, demonstrated almost $10 in return on investment for every $1 spent. Another program, First Born, uses a tested curriculum and weekly visits. It is currently the subject of a rigorous study by the Rand Corporation, involving 260 New Mexico families. Preliminary findings are promising, and results will be released later this year. 7 A third program, Parents as Teachers, is already proven nationally as an evidence-based model. These targeted, curriculum-based approaches are the easiest to measure. OTHER PROGRAMS There are other early childhood programs, including: In order to formalize the standards and implement annual reporting for state-funded home visiting, lawmakers passed the Home Visiting Accountability Act in Resulting research is promising, but less clear-cut. The statewide analysis combines results from all the state s two dozen home visiting programs, deploying a range of models. 8 The NMECPD recommends that expansion of home visiting investments target evidence-based models. The Family Infant Toddler (FIT) program, providing early intervention for developmental delays Federally funded Early Head Start, a pre-school program serving low-income children ages birth to three Federally funded Head Start, which is a type of prekindergarten program for four-year-olds 7 (Rand Corporation, 2014) 8 (Center for Education Policy Research, 2015) April

3 HOW MUCH WOULD AN EXPANSION COST? For the purpose of discussion, the April 2015 business leaders meeting will use an analysis commissioned by the NMECDP, which highlighted state funding. This proposal would offer a home visiting program to all first-time parents plus at-risk families when they have additional babies. The expansion would cost an additional $7.5 million per year in state funding, or $37 million over five years. 9 (A different analysis, prepared by the LFC, considered expanding home visiting to half of all low-income first-time parents. Yet another option, proposed during the 2015 legislative session, would offer the program to all Medicaidfunded births in New Mexico. 10 By comparison, Texas recently set a ten-year goal of delivering home visiting services to 50 percent of at-risk families. 11 ) New Mexico PreK New Mexico PreK is a voluntary, state-funded program, which provides half and full-day services for low-income three and four-year-olds. It began in 2005 to ensure that every child in the state has the opportunity to attend a high quality early childhood education program before going to kindergarten. The program is jointly administered by CYFD and PED. Services are provided in a childcare center, or at an elementary school. Our state was recognized by the National Institute for Early Education Research (NIEER) for consistently improving access to PreK over the last decade. 12 The NIEER also conducted our state s program assessment through 2009, when evaluation funding was available. Their data showed that PreK significantly improved children s vocabulary, math and early literacy skills, making them more prepared to succeed in school than children who did not do PreK. The greatest increase was in early literacy. As the researchers noted, These findings are not just statistically significant, but are also practically meaningful because these are important content areas related to children s success in kindergarten and beyond. 13 HOW MUCH WOULD AN EXPANSION COST? The NMECPD commissioned research into the cost of expanding New Mexico PreK to provide universal access to halfday programs for three-year-olds and full-day programs for four-year-olds. These assumptions would roughly triple the number of children in PreK (from 10,150 to an estimated 37,885). Participation would remain strictly voluntary. This expansion would cost $15 million to $17 million per year, or about $82 million over five years. 14 The LFC has also researched various pre-kindergarten expansion, with their analyses combining Pre-K, Head Start and Child Care Assistance. Their work also considered expansion to three-year-olds. Three scenarios produced a cost range of $10 million to $26 million annually (O'Donnell, 2014) The analysis assumes an 80% take-up rate, given that the program is voluntary. 10 (Legislative Finance Committee, 2015), (HB25-Madalena, 2015). Both the LFC and House Bill 25 analyses combined federal and state funds to reach estimates ranging from $37 million to $44 million per year. Federal Medicaid could cover as much as 70% of costs for eligible patients. See bibliography for links to both reports. 11 (Center on Budget and Policy Priorities, 2015) 12 (NIEER, 2013) 13 (NIEER, 2010) 14 (O'Donnell, 2014) The analysis assumes a 75% take-up rate, given that the program is voluntary. 15 (Legislative Finance Committee, 2015, p. 40) April

4 Workforce Regardless which analysis is used, researchers agree that any expansion of early childhood programming will require a corresponding expansion in workforce. Roughly 13,500 New Mexicans work in the early childhood field. 16 The NMECDP analysis recommends active recruitment of new professionals to the field, as well as improvements to preservice education (college), in-service education (on the job) and wage subsidies to help attract a high caliber workforce. The NMECDP report predicts that approximately 9,200 additional early childhood professionals will be needed in coming years, 718 in home visiting and 2,378 in New Mexico PreK. (The report estimates that 6,000 additional workers will be needed in the next five years for child care and workforce development.) The estimated five-year cost to prepare all the professionals is $62 million. Future Revenue Options New Mexico has increased its state appropriations in early childhood by almost $100 million since FY The National Conference of State Legislatures ranked our state among the highest in the nation for increased early childhood funding. That said, if expansions are adopted, additional revenues will be needed. There are several ways to begin to achieve that goal. The NMECDP invites business leader input on three ideas: 1) Sin taxes 2) General fund increase 3) Social impact bonds SIN TAXES Extra taxes on items like liquor, junk food, soda, or tobacco are often called sin taxes. In reality, these are just a type of excise tax, targeted to a specific commodity. Advocates argue that sin taxes have dual benefits: they discourage unfavorable behaviors while generating revenues for social programs. Opponents contend that sin taxes disproportionately affect low-income people and produce conflicting data on behavior change. 18 Regardless, states deploy sin taxes to fund a wide array of social and environmental programs, from smoking prevention to early childhood to watershed restoration. States that fund early childhood with sin taxes include: WHAT IS AN EXCISE TAX? Basically, excise taxes apply to specific commodities (i.e., gas, plane tickets, liquor). They are different from broad-based taxes, such as a general sales tax, because they apply to a narrow item. California, which directs a portion of its tobacco tax to its Children and Families Trust Fund 19 Arkansas, which supports child care for low-income families and pre-kindergarten with a beer tax 20 Arizona, which subsidizes early childhood development and child health with tobacco taxes (O'Donnell, 2014, p. 20) 17 (Legislative Finance Committee, 2015) 18 (George Mason University, 2013) 19 (California Board of Equalization, 2013) 20 (NIEER) 21 (Arizona Department of Revenue, 2013) April

5 Just this month, New Mexicans who live on the Navajo Nation began paying a 2 percent junk food excise tax to support the tribe s health and education programs. The Navajo Nation is the first government within the United States to create an overall junk food tax, although 17 states place an excise tax on candy. 22 New Mexico already charges excise taxes on liquor and tobacco. Increasing those taxes could generate considerable revenue. However, this tax does not apply to tribal lands, but the analysis factored in potential consumers migration to tribal vendors. The state could generate considerable revenue by increasing excise taxes on specific items: Tax Amount Type of change Estimated Annual New Revenue NM Liquor Excise Tax 10 cents per drink Increase to existing tax $45 million NM Cigarette Tax $1 per pack Increase to existing tax $40 million Soft Drink Tax ½ cent per ounce Potential new tax $50 million Candy and Soft Drinks GRT -- Potential change to current state ban on food tax; excluding candy and soda from the definition of food would generate gross receipts tax (NM s sales tax) $20 million SOURCE: O Donnell Economics and Strategy, 2014 GENERAL FUND INCREASE Much of the early childhood conversation in recent years has focused on identifying a new funding source: a new tax, a higher tax, or new distribution from the state s Land Grant Permanent Fund. Another option is to steadily increase revenue from the state s general fund. While not always the case, the general fund often increases year to year. Lawmakers cannot bind succeeding legislatures to future appropriations, but they can classify an expenditure as recurring and establish a more secure place for it in the state budget. The table to the right projects early childhood revenue if the state retained the current base percentage of the general fund, but added 25 percent of the surplus for five years (Tax Foundation, 2011) 23 (O'Donnell, 2014) April

6 SOCIAL IMPACT BONDS Throughout the nation and internationally, governments are exploring different types of public-private partnerships (or P3s) to meet common goals. These types of partnerships have been gaining traction in the U.S. since the 1990s as a tool to complete large-scale infrastructure projects (i.e., water treatment plants, school buildings, pipelines). For example, the community of Silver City, NM has a solar utility financed through a P3. Private funding paid for construction and will be reimbursed over time through utility payments. (Many members of the New Mexico business community followed recent legislation HB 299/Larranaga which would have clarified regulations regarding P3s.) Social impact bonds are a type of P3, except they focus on highimpact social programs instead of physical projects. In 2012, Goldman Sachs was the first financial institution to use this approach, investing in preventive services for youth on New York s Rikers Island. 24 Goldman Sachs became a lead lender/investor in the Utah High Quality Preschool Program, which will pool almost $8 million of private capital to expand access to pre-kindergarten in Salt Lake City. Presuming outcome targets are achieved, the loaned money will be returned via Pay for Success Payments. Program planners expect to finance these payments with savings from the reduced use of special education and other services for children who previously entered school unprepared. Last year, Utah passed enabling legislation to make the program possible, and year-one results will be available this summer. OTHER FUNDING IDEAS In addition to the early childhood funding options described in this report, New Mexicans continue to consider: Changing the law governing the Land Grant Permanent Fund Remove the Gross Receipts Tax from child care providers who deliver PreK Including early childhood as public infrastructure for TIDDS (tax increment development districts) Similar efforts are underway in South Carolina (home visiting), Chicago (early childhood), Massachusetts (criminal reoffender prevention), and New York (employment for released offenders). Of the five social impact bond projects profiled by the Institute for Child Success, two required enabling legislation in advance. All are relatively new and were financed with corporate and/or foundation funding. Future Considerations The needs and options surrounding early childhood investments present New Mexico with an opportunity to advance potentially important changes. With passage in recent years of the New Mexico PreK Act (2005), the Early Childhood Care and Education Act (2011), as well as the Home Visiting Accountability Act (2013), New Mexico has a strong outcomes-driven foundation upon which to build. Attendees at the April 2015 meeting will consider whether our state should pursue new support for home visiting, PreK and the early childhood workforce and if so, which funding options make sense. Equally important, leaders will discuss what role the business community might take. Let s roll up our sleeves and get to work. The New Mexico Early Childhood Development Partnership (NMECDP) selected the financial options presented in this report. Policy information was compiled by the nonpartisan public policy organization New Mexico First, under a contract with the NMECDP. Economist Kelly O Donnell, Ph.D. and education researcher Peter Winograd, Ph.D. provided consultation support. 24 (United Way of Salt Lake) April

7 Bibliography Arizona Department of Revenue. (2013, July). Tobacco Tax Fact Sheet. Retrieved from California Board of Equalization. (2013, August). Cigarette and Tobacco Products Taxes Fact Sheet. Retrieved from Center for Education Policy Research. (2015, January). New Mexico Home Visiting Annual Outcomes Report, Fiscal Year Retrieved from University of New Mexico: Fiscal-Year-2014.html Center on Budget and Policy Priorities. (2015, February). Effective, Evidence-Based Home Visiting Programs in Every State at Risk if Congress Does Not Extend Funding. Retrieved from Department of Health and Human Services. (2015). Poverty Guidelines. Retrieved from George Mason University. (2013, February). Sin Taxes: Size, Growth and Creation. Retrieved from Mercatus Center: HB25-Madalena. (2015). Medicaid Infant Home Visiting Services bill. Retrieved from Legislative Finance Committee. (2014, April). Results First: Evidence-Based Early Education Programs to Improve Education Outcomes. Retrieved from Based%20Early%20Education%20Programs%20to%20Improve%20Education%20Outcomes.pdf Legislative Finance Committee. (2015, January). Special Review: Early Childhood Services Accountability Report Card, Gap Analysis and Spending Plan. Retrieved from %20Gap%20Analysis%20and%20Spending%20Plan.pdf NIEER. (2010, November). Impacts From the Fourth Year ( ) of the State-Funded PreK Program. Retrieved from National Institute for Early Education Research: NIEER. (2013). The State of Preschool 2013: State Profiles. Retrieved from National Institute for Early Education Research: NIEER. (n.d.). More States Find Virtue In Sin Taxes, New Way to Pay for Early Education. Retrieved from National Institute for Early Education Research: O'Donnell, K. (2014). Early Childhood Comprehensive Needs and Cost Analysis. New Mexico Early Childhood Development Partnership. President's Council of Economic Advisors. (2014). The Economics of Early Childhood Investments. Washington, DC: The White House. Rand Corporation. (2014). First Born Program Evaluation Funding Summary. Ready Nation. (n.d.). Early Childhood Overview. Retrieved from Reynolds, A. J., Temple, J. A., Robertson, D. L., & Mann, E. A. (2001, June). Age 21 Cost-Benefit Analysis of the Title I Chicago Child-Parent Center Program. Retrieved from Schweinhart, L. J. (2005). Lifetime Effects: The HighScope Perry Preschool Study Through Age 40. Retrieved from Tax Foundation. (2011, October). Overreaching on Obesity: Governments Consider New Taxes on Soda and Candy. Retrieved from United Way of Salt Lake. (n.d.). Fact Sheet: The Utah High Quality Preschool Program. Goldman Sachs and Pritzker Family Foundation. University of North Carolina. (n.d.). Social Programs that Work: Abecedarian Project. Retrieved from Coalition for Evidence-Based Policy: April