New Mexico's chief legislative finance economist told state lawmakers this week that the trust fund bankrolling the state's free, no-income-limit child care program could run out of money by 2048 unless officials change course. Ismael Torres delivered the warning to the Interim Economic and Rural Development and Policy Committee, saying two recent withdrawals have put the fund's long-term health at risk.
A Pioneering Program Built on a Trust Fund
New Mexico became the first state in the nation to offer no-cost Universal Child Care, launching the program statewide on Nov. 1, 2025, according to the Early Childhood Education & Care Department. The program has no income limits and no copays for eligible families, a structure that has driven rapid enrollment growth since launch. As Source New Mexico reports, the program is funded through the Early Childhood Education and Care Fund, which was created in 2020 with an initial appropriation of approximately $300 million and has since grown to around $11 billion through surplus oil and gas tax revenue deposits.
The fund's growth has been dramatic by any measure. Governor Michelle Lujan Grisham's office has said annual child care budgets have climbed sharply, with the fiscal year 2027 budget including a $160 million increase for child care assistance, bringing the total child care budget to $606 million. But per the same account from Torres, program payouts have now exceeded the fund's investment returns, and lawmakers diverted $1.9 billion of fund deposits in 2025 to the Medicaid trust fund and the behavioral health trust fund, further straining the pool of money meant to sustain child care.
Projected Shrinkage Beginning in 2031
Torres told the committee the fund is projected to shrink at an exponential rate beginning in 2031, a trajectory that, left unaddressed, leads to the fund being unable to support universal child care by 2048. He recommended two fixes: slowing withdrawals to restore the fund's solvency, and using revenue sources beyond the trust fund — such as recurring general-fund dollars — to pay for the program going forward, the report notes.
New Mexico's universal child care program was signed into law by Governor Lujan Grisham this year and included authorization to draw up to $700 million from the Early Childhood Education and Care Fund. Separately, the governor's office has said Senate Bill 241 allows the Legislature to appropriate up to $700 million from the fund between 2026 and 2031, provided the fund remains above $10 billion, and that the program's co-pay structure can be adjusted if inflation spikes or oil revenues decline.
Lawmakers Divided Over Urgency
State Representative Patricia Roybal Caballero of Albuquerque praised universal child care as a way to uplift the working poor, but she urged her colleagues to be careful and intentional while addressing the fund's solvency before the next legislative session. She said the nation is watching New Mexico's successes, pitfalls and responses, according to the same report.
State Representative Doreen Gallegos of Las Cruces, who co-sponsored the creation of the early childhood trust fund, offered a sharper assessment. She said that although lawmakers were celebrating being the first state to offer universal child care, they were also looking for solvency solutions, and that the situation was “not good.” Her comments echo a broader concern raised earlier this year by Legislative Finance Committee staff, who told the Santa Fe New Mexican that the approach that we have planned now will have to be tweaked, even as the Early Childhood Education and Care Department maintained it had not overspent its budget.
Demand Outpacing Supply Statewide
The fiscal pressure comes as enrollment has scaled up fast. Since the program's launch, an additional 12,666 families and 16,706 children have enrolled statewide, and 63 new child care providers have registered, per the governor's office. About 30,000 families and 44,000 children were on track to receive free child care, the administration said, numbers that help explain why universal child care costs were projected to rise from slightly more than $445 million in the current fiscal year to nearly $730 million by fiscal year 2029, according to prior reporting from Source New Mexico.
That demand is colliding with a thin supply of actual child care slots. New Mexico's total regulated child care capacity grew by just 1.9 percent, from 70,108 slots in 2019 to 71,455 in 2025, according to Vox, which also reported the state's early childhood agency has estimated a shortfall of nearly 16,000 physical child care slots and a need for at least 5,000 new professionals to staff them. Vox noted that funding child care through vouchers typically boosts parent demand without increasing the number of available slots, and has been shown to shrink supply in rural and low-income areas.
Department Points to Family Satisfaction
Hailey Heinz, the department's director of policy, research and quality initiatives, said the department is focused on universal child care sustainability and that the program is producing positive results for New Mexico families. The department's 2026 Family Engagement and Satisfaction Survey found that 93% of families using universal child care report a positive impact on their well-being, with survey respondents identifying direct-cost relief as the most frequently named impact theme.
New Mexico's experiment has already drawn national attention and comparison. Connecticut deposited $300 million from its general-fund surplus into a new Early Childhood Education Endowment in 2025, and Montana seeded its own Early Childhood Special Revenue Account with $10 million the same year, according to The Pew Charitable Trusts. Pew noted that New Mexico's oil- and gas-dependent tax revenues help generate substantial surpluses during boom years but also create significant volatility, a dynamic now central to the solvency debate Torres raised this week.
