Childcare is expensive. But in New Mexico, the Early Childhood Education and Care Department provides subsidies to help contractors meet the needs of many families. All programs that provide the same services in the same type of facility for the same age groups get the same amount, but for-profit providers pay tax on those state dollars that nonprofit and government programs do not. Private providers are now asking the state Legislature to change that.
Angela Garcia, owner of the Toy Box Early Learning and Childcare Centers in Las Cruces, told the House Taxation and Revenue Committee Monday that all of the families she serves qualify for state subsidies, and they can’t afford to pay tax on the full cost of the care her business provides.
“I have a mother of four who comes in, and her co-pay’s $15 because that’s what the state determined her income could support. But I’m expected to turn around and now tell her, ‘I also need $400 dollars in gross receipts tax, here’s your bill,’” she said. “I don’t do that. But that does mean that I have to find ways to take that out of my budget.”
Garcia said some childcare providers do pass that cost along to their customers. "So, this is — in some areas — creating a burden on those families,” she said. “And, a lot of times, a barrier to care.”
House Bill 137 would eliminate the tax private childcare businesses pay on their state-subsidized services. Nonprofit and government providers are already exempt.
In communities like Las Cruces, where Garcia runs her business, the gross receipts tax is over 8%. Bill sponsor Democratic Rep. Micaela Lara Cadena argued that means nonprofit providers have that much more to work with.
“When we reasonably expect — as we should — that these privately-operated businesses meet the same standards, the same outcomes, then they should be able to do that with the same dollar,” said Lara Cadena.
David Craig, deputy division director of the Early Childhood Education and Care Department, told the panel's lawmakers that the agency incorporated the GRT tax when it set its most recent for-profit provider rates so it wouldn’t eat into their budgets.
“And we did additional offsets for not-for-profit and government providers for the same amounts,” Criag said. “Which is why the rates don't reflect differences for for-profit or not-for-profit and government entities.”
Department spokesperson Micah McCoy told KUNM in an email that those offsets include costs that for-profits do not have, like board expenses and audits, and the more limited flexibility nonprofits have in how they spend their funding.
The agency noted to legislative analysts that, if the bill were to pass, it would need to revise its rates for private childcare providers to reflect their newly reduced costs.
The Legislative Finance Committee estimates the tax deduction would cost state and local governments approximately $10 million annually, a representative told lawmakers Monday, though its Fiscal Impact Report still needs to be updated to reflect the new estimates. Some lawmakers expressed concern that doing away with that tax revenue would put a strain on the budgets of small municipalities.
Other lawmakers questioned whether passing the deduction for childcare and pre-K providers would set a precedent for other industries where the state contracts with both for-profit and nonprofit service providers. Lara Cadena argued that early childhood education is a unique service, like healthcare, and one in which the state has prioritized investing.
The bill has been temporarily tabled in the House Taxation and Revenue Committee and will be considered for inclusion in that committee’s eventual package of tax reforms.
