Episode 16: New Mexico Universal Childcare + Iowa Employer Grants

New Mexico just became the first state to offer FREE childcare to everyone. Iowa gave $14M to businesses to figure it out themselves. Which approach actually works?

In Episode 16, Greg and Doug break down two radically different approaches to America's childcare crisis after spending a week on the road with employers facing real challenges.

What you'll learn:

• How New Mexico's $1B universal childcare program works (and why it might fail)
• Iowa's $16,000-per-slot business grant model - the math behind it
• The distribution center paradox: when workers start at 6AM but daycares can't legally open until 6AM
• Why a state chamber told us "even with all our influence, we can't solve this alone"
• The "grandparent economy" - unconventional supply solutions that actually work
• How one resort company with 4,500 employees admitted they were "designing blind"

Key insights:

• 76% of C-suite execs say childcare is their #1 workforce barrier
• Childcare costs 30% of income in destination communities (federal benchmark: 7%)
• New Mexico families save $12,000 per child annually starting November 1st
• Iowa needs 48,000 more slots but only created 874 in 3 years

Plus: Greg's Disneyland analogy that perfectly captures the supply problem, Doug's take on whether $18/hour is enough for childcare workers, and why they might have a fourth kid if childcare was actually free.

Perfect for: HR leaders, benefits professionals, employers struggling with recruitment/retention, and anyone trying to understand how childcare became America's biggest workforce crisis.

Chapters

• 0:00 Introduction to Tax Break Breakdown
• 2:05 New Mexico's Universal Child Care Program
• 10:00 Iowa's Child Care Business Incentive Grants
• 18:25 Chamber of Commerce Childcare Challenges
• 26:45 Resort Community Workforce Solutions
• 30:00 Closing Thoughts and Takeaways

Transcript

Speaker 1: 0:02

Welcome to the Tax Break Breakdown with your hosts, greg and Doug. Sit back and relax while they review current and upcoming child care tax credit programs employers can take advantage of. Now on to the show.

Speaker 2: 0:16

Welcome to the Tax Break Breakdown with your hosts, greg and Doug. This is episode 16, where we are talking New Mexico, iowa, and then we're giving two examples of real-life situations that Doug and I have been over the last two weeks, speaking with a chamber of commerce and a destination resort hospitality company. There was some uniqueness about each of them. Doug and I got to travel for a week together and drive hours and hours and fly miles and miles. It was a lot. It really was a lot, it was a lot.

Speaker 2: 1:01

Today, I think. So a couple things we're going to cover today. New Mexico as well. It's kind of the big announcement, even though we're definitely late to the game on this one, but it's for good reason, right? We've just been really, really busy trying to help companies yeah, well it's.

Speaker 2: 1:22

I mean details of it's still shaken out too, um, but it is exciting yeah, so new mexico will talk about the universal child care, um, and then also iowa. So iowa has a grant program for businesses, so we'll talk about what that is. Um, I haven't seen on when their next like cohort is being launched, but we have some data on what they have been doing, who maybe got some funding already, what they're doing with those fundings, so why don't we jump into it? Unless, doug, do you have anything interesting to?

Speaker 1: 1:58

share. Nothing as interesting as New Mexico offering universal childcare, Greg.

Speaker 2: 2:04

Hey, okay, all right, All right, let's jump into that then. Fine, as interesting as new mexico offering universal child care. Greg, hey, okay, all right, all right, let's jump into that then. Fine, I was trying to think, you know, only because we've, we literally have been with each other for like a week, so like there's not much that we, I guess we have our audience. You know, we, we probably should Nothing, nothing crazy. I don't think, yeah, that's, but what it's?

Speaker 1: 2:28

it's Maddie's birthday today.

Speaker 2: 2:31

Okay, it's my 15 year old's birthday today, but she's at a um, she's at a uh school camp and they don't allow any technology. Can't even have your phone.

Speaker 1: 2:43

Well happy.

Speaker 2: 2:45

any technology Can't even have your phone. Well, happy birthday, Matty. Happy birthday, Matty 15 years old, yeah, anything else I don't, personally, and I don't think so We've just.

Speaker 2: 2:57

Q4 is starting to ramp up. This is when you know, a lot of employers are starting to do OE and I'm getting a lot of interest from brokers where they have employers that may have some extra funds and they're like we've always wanted to do a care benefit. Is there something we can do now, Like if it makes sense, and they're over it? But I've also heard the reverse, which is healthcare costs went up 10% and we have nothing.

Speaker 1: 3:26

I think just you know, the takeaway from that is uh, it's never too late to add a care benefit. Uh, not open enrollment dependent. Uh, we can, you know, stand those things up quickly and and get people's support and uh, maybe even healthcare costs along the way.

Speaker 2: 3:44

Yeah, that is something that we had thought about.

Speaker 1: 3:46

right, because we're Doug and I work.

Speaker 2: 3:51

We're Doug and I work right. We traditionally went into child care but over the last year and a half we support on elder care and we'll be looking at adding pet care, all types of care, and when you think of an elder care benefit or dependent care or adult care, there is a direct tie to lower health care costs for self-insured plans by supporting their aging workforce and then their aging workforce's parents. There has been studies around that and so we would. We were, you know, brainstorming and I'm sure that there's data out there and research out there that shows that employees that have quality childcare tend to use the healthcare system less because of less stress, less financial stress, more proactiveness, nutrition right All the things for the little kiddos that having quality childcare can help with.

Speaker 1: 4:50

We've not been able to get to direct correlation there. I think we've looked at data, but there's a lot out there that I think anecdotally points to it, and so it'd be interesting. We haven't really dug into it in a while. Probably time to revisit.

Speaker 2: 5:03

We haven't dug into it. In a while. Probably time to revisit. We haven't dug into it. Yes, well, let's move into New Mexico. Universal Child Care. What does it mean? This started November 1st. I'll go through New Mexico, you go through Iowa. How's that sound?

Speaker 1: 5:23

That works, okay, that works All right. Starts on November 1 1st. We haven't gotten to november 1st yet september, october, november.

Speaker 2: 5:31

That's right, we have we have some time we have some time 100 free child care for every family, no income requirements. Millionaires and minimum wage workers pay the same, which is zero Birth through school age, including before and after care, up to 10 hours daily at participating providers. So this is interesting. I haven't seen who's administering this across the entire state. It's something that I have on my list to figure out. But we see some of these challenges right with programs that are very broad where the provider needs to join, and then just managing right your network and managing payments and communication can be a nightmare. And in this case, when now it's like everybody, I'm interested to know who the infrastructure is behind deploying, managing, tracking, paying, movement of funds, reimbursements, refunds, appeals, all of that stuff and then also what happens, go ahead some level.

Speaker 1: 7:01

But the part that jumped out to me was participating providers. And I think when you look at like some subsidy programs like this, um, whether they're partial or full, like across the country, like not specific to New Mexico or anywhere else, providers don't always want to take part in it because it takes them sometimes months to get paid for care they provide, like the cashflow, the business kind of messes up. So it'd be interesting to see how New Mexico addresses that. And I think to your point like who's administering it? How do they approach it? You know we don't have the employer engagement piece of it here. It's really provider and administration and families. So like that's going to be fascinating If it works. And then if it works, it's an incredible case study and if it doesn't, it's, you know, hopefully not the last time we get a stab at something like this in this country.

Speaker 2: 7:58

They project, it'll save $12,000 per child annually. It's expected to serve 12,000 additional children. Particularly impacts workforce participation for mothers, which is a common theme that we even see on the employer side. It was built over six years since they created the early childhood education department in 2019. And it's interesting that they use the word economic infrastructure, because we've been talking about how, uh, some of the things we're doing at upwards is um, around infrastructure right, like, regardless of what's happening, you need a system, you need a way, you need this. The piping between family provider, government, employer, like you need a central place where all of that can live, where it can exchange information. But they look at child care as an economic infrastructure, which I think is a great way to think about.

Speaker 2: 9:06

It Funded by 10 billion trust fund from oil and gas revenues, and voters approved constitutional amendment with 70% support about three years ago, so it's funded. 1 billion annual investment. Early childhood trust fund generates 500 million annually in investment returns. Early Childhood Trust Fund generates $500 million annually in investment returns. That's insane. I wonder what did they say then. If they're getting $500 million annually in investment returns, let's say they're getting 5% to 8%. How much is in that trust fund? I'm sure it's out there somewhere. A lot, yeah, 1.25% of land grant permanent fund constitutionally guaranteed. Additional $120 million requested from a legislature.

Speaker 2: 9:47

So for employers I think the pros here it's going to remove, at least to some extent, child care as a recruitment and retention barrier. Now again, the assumption there is that there's enough supply. Assumption there is that there's enough supply. Um, and so even you know, thinking about it, there's gonna likely be more providers out there that are gonna want to start home daycares. Um, I don't know if it's gonna increase the. I mean I would assume then that centers are gonna, obviously you're gonna to need more teachers, right, like so does this put a supply constraint that maybe they didn't address yet either?

Speaker 1: 10:34

Yeah, so interestingly. So I think this is where some of those additional requests are coming from the legislature are coming from the legislature. So, going through their press release on the program, they're working to establish a $12.7 million low-interest fund to help construct, expand or renovate child care facilities. So that'll get, as you say, $12 million, $12 million, no, so $12.7 million. And then they requested $20 million for the 2027 budget.

Speaker 1: 11:05

Now again, we've seen some of these type things not really take off. So does that really help the supply side of it? But the other thing that I found interesting, kind of buried at the end of this, is it says basically there's going to be some type of an incentive for providers that pay staff a minimum of $18 an hour and offer at least 10 hours of care per day, five days a week. So that is actually will be interesting. I'm assuming what they say incentive rate, right, that's going to be additional paid to them for the care that they're providing. Um, so it's an interesting way to try to incentivize a center or a home daycare to to increase pay of the of those like those jobs. So a holistic thought around this does the carrot kind of meet the need and does it generate. Like the approach, I think, to your point.

Speaker 2: 12:06

Um is where we've seen sometimes those things be misaligned, but it's good to see that like it's at least thought about and baked in there yeah, I was thinking like an analogy is if you give everybody free disneyland tickets, there's only so many people it can hold, and even at its so like typical marketplace, right Supply is key In this case. They would demand first and basically made it uncapped demand.

Speaker 2: 12:43

So, like I'm not saying anything negative about this, this is amazing. But from traditional marketplace you may have wanted to do a year or two of massive supply building and then launch your massive universal childcare. Was your read on it that it's $18 plus? Like, if they're already getting $10 an hour, it'd be $28? Or is it $18 minimum? $18 minimum?

Speaker 1: 13:10

$18.

Speaker 2: 13:11

Still not enough, though. Right, I mean, let's talk about what a caregiver does. They need to be no, I don't think it's enough $700, $300 an hour for what they do, in my opinion.

Speaker 1: 13:22

Well, I mean, here's what I will look at here. Right is, what is this as a delta of new mexico's minimum wage? You know because you know right now in new mexico state minimum wage, at least in 24, was 12 an hour, right? So it's saying hey, you gotta pay like six above that cost of living relatively low in most areas of new mexico.

Speaker 1: 13:51

But like, at the same time, is that enough, like, for somebody to, like you know, stay in that profession long term? It's an improvement over 12 an hour, right like, and stuff like that. So again a start, um, but that's again right. Does the carrot actually match a need when you look at the competition for labor? Right, like, in a lot of these things, if you can make the same you know doing something else, right like, what do you choose? So I don't know if it's enough to make it attractive, right, and I think that that's a fair a fair point you got to go 30 minimum, 30, 40 dollars like minimum.

Speaker 1: 14:34

I mean, we live in California but still give it.

Speaker 2: 14:40

give it to them Taking care of our kiddos. They are our future.

Speaker 1: 14:45

I will not for a second said that they do not deserve it. But, uh, realistically, I think, if you can get to 22, $25 an hour, right, and some of these areas, especially the majority of the country, california, right, high cost of living. I think if you can get to $22, $25 an hour, right, and some of these areas, especially the majority of the country, california, right, high cost of living, I think is different, um, and we have to solve that differently. But just in general, like it does need to be more and certainly needs to be above 20,. Uh, in my mind to to make that right. Like I think we're, you know, really relying on goodwill with some of these things and people wanting to be in that space and serve their communities, and we need to do more to to take care of them. Yep.

Speaker 2: 15:20

Well, at the end of the day, big announcement right Like this is huge, Her state to do no caps or not no caps, but like no minimums, reducing that red tape. I think we think that there was potentially and I haven't done all the research into like what has led up to this. I know like a lot of states have been doing some level of trying to get supply, but it just seems like the analogy of you just gave everybody Disneyland tickets and everybody's going to show up and go. I want my ticket on November, Like I want to get in and they won't be able to, um, which could cause some challenges, backlogs and so um. But I mean, imagine that. Imagine if you're now paying 24 000 for two kids and care and next year it's zero, you get $24,000 back. I mean that's, that's going to have massive, just short. I mean it's going to change. I think, unless, unless I mean, what do you think might happen? Like people are going to pay off debt, people are going to go on vacations, Are they going to spend it?

Speaker 1: 16:29

That's the hope right, I mean we tend to see, I mean you know, you tend to see that that money goes back into the economy. Listen, we are consumers at heart in this country and you know, and I think also when you look at the impact, like I would have, right especially you know, if we were going to have another child, or all right, like even like looking back, like knowing that that existed, like as a remote worker. New Mexico is beautiful. New Mexico is beautiful, by the way, has some absolutely gorgeous areas that you know, growing up in Arizona, I visited multiple times. Right Like I would like consider moving there, right Like, at least you know you didn't do it a period of time.

Speaker 1: 17:09

So when you look at right, like what becomes right, we've seen these cycles of've seen these cycles with Austin, with Denver. New Mexico is an area of the country that has a lot of. Even Phoenix has a lot of outdoors type of activity, beautiful area, stimulating the economy and making that appealing to young families is interesting.

Speaker 2: 17:33

We talked about. We were talking about I have three kids now would we do another kid? And the main barrier was like, first helping cost was one of them, and so this could be the way to get another little kiddo, doug. I got to move to New Mexico.

Speaker 1: 17:52

Meet you in New Mexico, man.

Speaker 2: 17:58

I'm in Beautiful Exc. Beautiful exciting. I think it's exciting. Um, we will try to uh be a little earlier on our releases. We're a little bit late on covering this, but, um, I have an alert set up so, uh, as new information comes in, we'll share it. Let's jump into iowa. What iowa do?

Speaker 1: 18:18

iowa, that's how they say it I know, it's certainly not it's okay, well, iowa's had their child care business incentive grant uh running for a while. Um 14 million was the latest round in January of this year. The goal to create 875 new childcare slots, but also requires a 50-50 batch from businesses and essentially they're reimbursing for construction and expansion. So looks like we had about 13 employers participating in the last round. This includes Dan Foss Power Solutions, allen Memorial Hospital and Blendwood Schools. Uh, only companies with 75 plus employees are eligible uh for this program. Uh, interesting form of segmentation, but there it exists. Um, but like where it came from is.

Speaker 1: 19:13

Iowa is not unique in this, but realize they were losing about $935 million annually to child care shortages. Had lost 33% of child care businesses over the course of five years and 23% of Iowans live in child care deserts. That includes 35% of rural areas. So it was really framed as workforce development, not a social program, again targeting employers, but looking out workforce development economic impact. We're sensing a theme here that we've seen across. But basically businesses apply for the grants to build and expand their facilities. They have to match the public funds. It can be onsite, where they can partner with providers and help expand it, and it is funded by a temporary funding source, unfortunately, which is ARPA dollars that need to be spent by 2026. So this may be the last round of it Hopefully not. Maybe they will decide to find a way to support it Otherwise, because from an ROI perspective, I think what they're finding right is so they've invested over $500 million since 2020, over 10,000 new slots statewide.

Speaker 1: 20:29

There's still a need for almost 50,000 more slots, so we've not addressed the total imbalance there. But they're saying it's like every dollar invested returns about 860 long term. So you're like an 8x ROI. Be interesting to dig into the calculation there a little bit. I think pro-wise right, it does right.

Speaker 1: 20:50

We do have employers participating in this. Right, it does right, we do have employers participating in this that I think are really strong, uh, like um stakeholder in a really strong stakeholder in the economic viability of these programs and like the workforce population and their access to child care. Downside is temporary funding source. Again, it's segmented only to large employers. Vast majority of companies in this country are small businesses. So, like it is, I think there's a reason you do that for this is because that's where the capital is going to be, but hard to really think about how you expand it and really right, like, yes, they're helping expand those seats, but they're for their employees right For the most part. So like, is the public really benefiting in the way that we want? So I would say, like, as for what it's intended, success, and I hope that it continues because it does do something positive, right and creating more supply. But is it a holistic solution? You know, I don't really think so at this point.

Speaker 2: 21:56

Yeah, when you actually look at the summary of grants, so the largest was $1.8 million to Hancock County Economic Development. The next largest was $1.7 to the Colfax Economic Development Corporation. Go through all of them. I think almost all went to either repurposing or building a center, which I think, because there's many different ways they could have deployed these dollars and they, you know they had to choose who they were going to award the money to. I think the theme here, because of the ARPA funding, was get the infrastructure built and so they prioritize people that were like, yes, we'll build a facility and then you know they're going to have to keep it ongoing, but they got a significant dollar amount. So, total award amount 10.38 million new slots created 649. Total awards in 2024 was for nine uh, nine awardees. In 2022. It was four awards for3.6 million that created 225 new slots. So since 2022, they've awarded $14 million and created 874 spots. Now would it be fair to just divide the two and tell you how much did it cost? I think it was like $16,000.

Speaker 2: 23:20

Yeah, I'm only getting that because you know there's many different ways we talk about supply. Yeah, it's about $16,000 per slot that got created. That's how much it costs, and so it doesn't talk about like ongoing costs, but that's you know. You do the rough math, um, and we talk about, you know, when we talk to employers, I think a lot of people think supply is a, is a, a slot or a seat, but in reality, um, I think there are different ways to create supply than just creating a new seat, and we've seen this with, like friend, family, neighbor, network, right, and I actually think we had a new term for it and it was called the grandparent economy.

Speaker 2: 24:17

Activate the grandparent economy, activate the grandparent economy right where, yeah, grandma's taking care of one kid, where they're getting a stipend from their employer. Grandma loves kids and, you know, can take care of two kids, gets double a stipend. You've now created a slot without actually paying sixteen thousand dollars000 to create it. Yeah, there's all these unique ways. I know we wanted to keep this episode short, but why don't we spend a couple minutes on like real world scenarios as well? I'll go through the first one, you go through the second and we'll kind of what do you call it? We'll just lighten through it. So Doug and I were able to speak to a state chamber of commerce and here's some of the interesting things that they had shared 76% of their C-suite executives cite child care as the number one workforce barrier. More child care deserts than islands of providing. And there was one example of a county that only had a couple hundred licensed spots for 4, kids was almost well over a 1500 seat shortfall. Um, they have one of their largest employers in their state, a large retail distribution center. Here's, like some of the and I get, I get where they're coming from the state says that the daycares can't legally open till 6am. Well, that's when their shifts started and so you can't be in two places at once, and I think the response there was well, the employer needs to change their hours.

Speaker 2: 25:52

The other thing you know the structural problems. Small businesses can't afford on-site solutions, and then rural communities have zero options. So really, what they want from a state chamber is they want data that they can take to legislators. They don't want these anecdotes. They want cost-sharing models that are actually going to work. They want solutions that can scale from their largest employer in the state down to mom and pops, and so they are thinking through a couple different things, like repurposing empty school buildings, doing tri-share pilots, multi-employer consortiums, regional approaches for single company, and so I think the takeaway is that even state chambers with all their influence can't solve it alone. There needs to be this central place where our employer, family, provider and government all work together, which is funny because that's what we've been doing it upwards. That is my take on for a minute on the largest hospitality destination resort company in a valley that we went to. We don't want to say exactly where, but share a little bit about their challenge, because I know some of our employer listeners have the same challenge.

Speaker 1: 27:10

Yeah, I think this is interesting, whether you think of it as a destination community or as a rural community, right, you get out of where, right, like there's very unique supply challenges and there's almost like a much more contained right Economic ecosystem. That's really what. What we're dealing with here, where you know this area is really kind of segmented away. You have this employer that has, you know, over 4,500 employees right, add seasonal workers, you know, to the tune of 1500, you know, once or twice a year, and the area childcare costs are over 30% of the income, there aren't enough spaces open and it's like how do you address that? And when you look at you know I remember we took a for my mom's, so we're going a little tangent here.

Speaker 1: 28:02

We went up to Big Sky, montana, which is another kind of one of these communities, not the one we were at and I remember talking to some of the folks who worked there and talking about the cost of housing, right, and the cost of services, right, for people that were the workers. These communities tend to be very affluent for the people that are the residents, both full and part-time, but for the workers they either live far away and commute in or really really struggle to find services, and so a couple of things were really interesting there. One is, again, the supply does not meet the demand, either in amount or in the hours they work, like hey, hospitality weekends, well, there's no childcare, what do you do? And so needs to really look at how do you solve this complex equity formula. And it was a really, really interesting and productive conversation of like here's a lot of creative ways, right, like you can start to put these pieces together.

Speaker 1: 29:03

Greg just mentioned like you need a single place where employers, government, parents, providers can interact. This is kind of that same thing, just in like a really kind of like tight, like almost like segmented, like economic situation. So conversation were interesting and continuing. Um, don't know if you want to call anything else out specifically there, greg.

Speaker 2: 29:24

I mean, I think the the way that they started to put together their phases, cause it wasn't, you know, I think they originally came to the table wanting to um offer a subsidy, and like that was where their head was at. And I think a lot of companies think like, yeah, maybe there's a way to throw money at it which is fair, like affordability is going to be is the primary barrier, um. But we kind of stepped back and said do we know everything about the, the actual challenge that employees are facing down to the job code? Is there patterns by job code? Is there patterns by region? And how do you map and layer that over the existing supply? So their idea was we are invested in solving this. We first want to gather intelligence and we're going to do that by offering some type of incentive which we've talked through, some type of incentive to get people to start searching, because the data from all those searches are going to lead to uncovering where their gaps.

Speaker 2: 30:33

The next is they want to creatively fund and stack benefits. So not only the employer, them putting money in, but there's a regional tax being talked about that could be used for this. Then you look at 45F programs, the 45F federal program. Then you look at state programs right, so, creatively stacking those together. And then they also pointed out that in especially in those areas, there's unconventional supply, like activating the grandparent economy, expanding home daycares, formalized babysitter networks. So in this case, this, this um company actually had a list of uh workers who also did babysitting for local families and for their own families, right, and so how do you actually bring that, that list, which is active people that have experience and taken care of little kiddos to more people, um, and so that was, I think, their, their phased approach again.

Speaker 2: 31:36

But everything came down to yes, we're going to solve this, we don't everything Like. The takeaway is sometimes the smartest move is to admit you don't know what you don't know, and they did that. And so they're going to focus on getting the data, understand where there's gaps, creatively stack funding and different programs and then activate some of these unconventional supply networks, and all of that together over time is going to create a sustainable model which then, for their business, helps with recruitment retention, lower absenteeism and with that cue the music we're out. Thank you so much. Have a wonderful week. That's it, and is it? Is it, that's it? Yeah, that's it, that's it.