How New Mexico is trying to stabilize a broken child care market

At Christina Kent Early Childhood Center in downtown Albuquerque, the kids guide the curriculum. Right now, the two- and three-year-olds in the bunny classroom are guiding it in a Jurassic Park kind of direction. 

“Do you know the names of any of these dinosaurs?” asked teacher Danielle Reinertsen as the “bunnies” dug through a basket of toy triceratops and brachiosaurus and made their best dino sounds. 

“It seems they’re most interested in figuring out, why did the dinos die? And, what do dinos eat?” Reiertsen said. 

Some possibilities jotted down on the classroom white board include salad, people and croissants from the coffee shop down the street. 

“We’ll see if there’s a question they want to dig deeper into and if they want to move on to something else, we’ll probably move on to something else,” Reinertsen said. 

Something else like making family portraits or watching real caterpillars transform into painted lady butterflies. 

Reinertsen and two other teachers lead this classroom of 18 toddlers. That’s a pretty low grownup to kid ratio, and one reason why Christina Kent earns a five-star quality rating from the state of New Mexico. High payroll costs compared to tuition are also what make running the center so expensive. 

“Our margins are fairly narrow,” said executive director Sondra Carpenter. “I can tell you that consistently, for a number of years in a row, this center was running in the red.” 

Carpenter said the center was walking a sort of tight rope. It was barely charging enough to keep the lights on. Still, lots of families struggled to make tuition payments. That included families whose incomes far exceeded the cutoff for childcare assistance through the state. Carpenter said center leadership found themselves playing the uncomfortable role of bill collectors. 

“Do we send them to collections? Do we take it as a loss for the year?” Carpenter said. “Then the relationship gets a little strained.” 

But in 2021, New Mexico made some big investments that changed that dynamic. It dramatically expanded eligibility for childcare assistance from 200 to 400% of the federal poverty line. It also boosted the reimbursement rates centers receive for accepting childcare vouchers to a level that the state says actually covers the cost of providing high quality care. 

“It’s allowed child care programs to really focus where we want to focus, which is on the kids,” Carpenter said. 

This started as an experiment paid for using federal COVID-19 pandemic relief funds. In 2022, New Mexicans voted to make the expansion permanent using money from two state investment funds fed mostly by the state’s surplus oil and gas revenue. 

“You can make choices about what’s important, and New Mexico has really decided to go big on early childhood,” said Hailey Heinz, deputy director of the University of New Mexico’s Cradle to Career Policy Institute. 

Heinz said a New Mexican family of four making up to $124,000 a year can now send their kids to day care for free. That’s twice the state’s median income. 

“New Mexico is a pretty low income place, so when you move something up to 400% of federal poverty you get something that starts to almost look and feel like a universal system,” Heinz said. 

Child care in the United States is a classic example of a failing market where the forces of supply and demand don’t produce good outcomes for businesses, workers or consumers. Day care prices are about as high as families can bear. That constraint means many centers are barely scraping by and can’t offer higher teacher salaries, enough slots to meet demand or the quality of care that we know is good for kids’ development. 

Since the pandemic, a couple of state governments have been trying to bring things into balance by helping more households afford care. California, Colorado and Alabama have expanded their free childcare options for three- and four-year-olds. But New Mexico is the only state to offer full tuition waivers to broad swaths of its middle class from birth to age five. 

“The play New Mexico is making is to put a lot of public money into this broken market,” said Heinz. “Could we transform the system that way? Could we make it higher quality? Could we incentivize providers to open new rooms because they know they’re going to have this reliable, higher revenue source?” 

If more families can afford care and providers’ margins are a bit wider, maybe the system could work better for everybody. Easy, right?  

“Right,” said Jessica Brown, an economist studying childcare markets at the University of South Carolina. “If every state could have oil money, maybe we could solve the child care crisis.” 

In 2022, New Mexico was in the unique position of having both the surplus revenue and the political will to make an all-in investment in early childhood education. Brown said the investment funds that pay for the expanded subsidy are innovative but not necessarily replicable in states with tighter budgets. Still, she said other states should be taking notes. 

“Child care serves this dual purpose in facilitating labor force participation of parents, but also being really important for child development,” Brown said, so getting more kids into high quality care should pay short and long term economic dividends. 

“We have a lot of research showing that if early care environments are good we see better outcomes later in life,” Brown said. “We see higher educational attainment, we see higher wages, we see better health and lower crime rates.” 

For now, researchers at the University of New Mexico are finding that the expanded subsidy is helping shift New Mexico’s child care sector toward more center-based, licensed care at higher quality. Between 2019 and 2023, the number of licensed child care slots in the state increased by 7% and the number of centers earning a “five-star” rating grew by 16%. 

In some cases, the stability provided by the expanded subsidy is allowing centers to expand. 

Across the street from Christina Kent Early Childhood Center is a building that the center just purchased and that will soon house five new toddler, pre-K and badly-needed infant classrooms. Director Sondra Carpenter said she knows the center can fill those classrooms now that more families can afford care and the center’s profit margins are a bit wider. 

“Has that set the stage and the foundation for us to be able to say, ‘Yes, let’s take on a loan?’ It has,” Carpenter said. “I don’t think the school ten years ago was in a financial position to make that kind of decision.”