Fiscal impact reports (FIRs) are prepared by the Legislative Finance Committee (LFC) for standing finance
committees of the Legislature. LFC does not assume responsibility for the accuracy of these reports if they
are used for other purposes.
F I S C A L I M P A C T R E P O R T
SPONSOR Martinez, A/Dow
LAST UPDATED
ORIGINAL DATE 02/09/25
SHORT TITLE Foster Parent Tax Credit
BILL
NUMBER House Bill 225
ANALYST Graeser
REVENUE*
(dollars in thousands)
Type FY25 FY26 FY27 FY28 FY29
Recurring or
Nonrecurring
Fund
Affected PIT
Credit
$0 ($11,400.0) ($11,400.0) ($11,400.0) ($11,400.0) Recurring General Fund
Parentheses ( ) indicate revenue decreases.
ESTIMATED ADDITIONAL OPERATING BUDGET IMPACT*
(dollars in thousands)
Agency/Program
FY25 FY26 FY27
3 Year
Total Cost
Recurring or
Nonrecurring
Fund
Affected
CYFD
No fiscal
impact
$940.0
No fiscal
impact
$940.0 Nonrecurring General Fund
CYFD
No fiscal
impact
$750.0 $750.0 $1,500.0 Recurring General Fund
TRD
No fiscal
impact
$19.9
No fiscal
impact
$19.9 Nonrecurring General Fund
TRD
No fiscal
impact
$85.0 $85.0 $170.0 Recurring General Fund
Total
No fiscal
impact
$1,794.9 $835.0 $2,629.9 General Fund
Parentheses ( ) indicate expenditure decreases.
Relates to House Bills 207, 341 and 345 and Senate Bills 272, 284, 304, and 305
Sources of Information
LFC Files
Agency Analysis Received From
Children, Youth & Families (CYFD) Agency Analysis was Solicited but Not Received From
Department of Finance and Administration (DFA)
Taxation & Revenue Department (TRD) House Bill 225 – Page 2
SUMMARY
Synopsis of House Bill 225
House Bill 225 (HB225) proposes giving a tax credit to foster parents licensed or certified by the
Children, Youth and Families Department (CYFD) or a child placement agency in an amount
equal to one hundred dollars for each week and for each child the taxpayer fosters in the taxable
year in which the tax credit is claimed. This is a refundable credit.
CYFD will issue a dated certificate of eligibility to taxpayers that apply for this tax credit from
CYFD if the department determines that the applicant meets the requirements detailed in this
bill. The bill details that the credit shall be claimed within three taxable years of the end of the
year in which CYFD certifies the credit.
This bill does not contain an effective date and, as a result, would go into effect 90 days after the
Legislature adjourns, or June 20, 2025, if enacted. The provisions of the act are applicable to
taxable years beginning January 1, 2025. There is no sunset date for the tax credit.
FISCAL IMPLICATIONS
This bill creates a tax expenditure with a significant cost. LFC has serious concerns about the
substantial risk to state revenues from tax expenditures and the increase in revenue volatility
from erosion of the revenue base. The committee recommends the bill adhere to the LFC tax
expenditure policy principles for vetting, targeting, and reporting or action be postponed until the
implications can be more fully studied.
Recently, the number of children in foster care has been about 2,200. Using 2,200 children in
foster care at $100 per week per child yields an annual general fund cost of $11.4 million.
CYFD expects significant costs to implement the certification. CYFD Information Technology
Division would need five additional positions and funding estimated at $938.6 thousand to
develop a template that is based upon federal Internal Revenue Service and Taxation and
Revenue Department (TRD) requirements. LFC notes from the text of the estimate that these
expenses would be non-recurring. Additional costs associated with the implementation and
maintenance of software are $750.0 thousand per year.
In their response to a similar bill (House Bill 207), TRD estimates $19.9 thousand in
nonrecurring implementation costs and $85 thousand in recurring implementation costs.
SIGNIFICANT ISSUES
Basic care is $20.91 per child per day, while extended care for teenagers can range to $29.08.
This is equivalent to $146 to $203 per week. The proposed $100 per week would increase
payment rates from 49 percent to 70 percent. It is unknown if this significant increase in
payments to foster parents would result is a comparable increase in quality placement
opportunities.
House Bill 225 – Page 3
The LFC Program Evaluation Unit prepared a brief during the 2024/2025 interim to support
Senate Memorial 5 (SM5) CYFD Restructuring Task Force.
1
The brief informs this tax credit
proposal. Information extracted from the SM5 evaluation follows:
The state averages 2,200 children per month in foster care, with an average of four
different foster homes a year per child.
Licensed foster parents (also known as resource homes) receive a non-taxable, monthly
maintenance payment as reimbursement for providing for children in their care. These
monthly maintenance payments are established by CYFD to cover typical, everyday
expenses, such as food, transportation, personal care, clothing, etc. and vary depending
on the child’s age and level of care.
In FY 24, New Mexico spent roughly $61 million for the care and support of foster
children (foster care maintenance payments and adoption assistance) in CYFD care.
New Mexico could choose to increase foster care maintenance rates but would likely
need to have increased rates approved by the federal Administration for Children and
Families in the state’s federal Title IV-E plan.
The LFC budget recommendation includes a $100 thousand non-recurring appropriation
to study foster care maintenance payment rates, as recommended by the Senate Memorial
5 taskforce.
This proposal may not be the most efficient means of increasing payments to resource homes.
From the SM5 brief:
Federal Title IV-E is the primary funding source for foster care because the federal
government allows states to claim reimbursement for a portion of expenditures for
eligible children placed in foster care at the federal medical assistance percentage rate.
This rate is roughly 75 percent in New Mexico, meaning the state should receive roughly
$3 in federal revenue for every $1 in state revenue.
Because ¾ of the state’s overall costs of foster care is met through the Federal Title IV-E
program, the tax credit proposal must be characterized as inefficient. The increased
reimbursement rates implicit in the proposal cost the general fund three times as much as an
increased reimbursement rate.
LFC encourages proposers of tax expenditures to provide goals and benchmarks, as well as a
sunset date where the effectiveness of the tax credit can be evaluated and kept, repealed or
modified.
PERFORMANCE IMPLICATIONS
The LFC tax policy of accountability is met with the bill’s requirement for TRD to include in the
annual tax expenditure report (Section 7-1-84 NMSA 1978) the data compiled from the reports
from taxpayers taking the credit and other information to determine whether the credit is meeting
its purpose.
1
https://www.nmlegis.gov/Entity/LFC/Documents/SM5%20Brief-Access%20to%20Community-
Based%20Services.pdf House Bill 225 – Page 4
CONFLICT, DUPLICATION, COMPANIONSHIP, RELATIONSHIP
Several bills have been introduced seeking to improve the services provided by CYFD in a
similar manner to this bill:
House Bill 207, which would expand the Special Needs Adopted Child Tax Credit to all
adopted children;
House Bill 341, which would require CYFD to issue identification cards to foster parents;
House Bill 345, which would require CYFD to conduct a child an adolescent needs and
strengths trauma assessment when placing a child into foster care;
Senate Bill 272, which would exempt foster parents or grandparent guardians/adoptive
parents from the personal income tax;
Senate Bill 284, which would change Insurance Code to prevent the disqualification of
foster children from coverage under homeowners insurance;
Senate Bill 304, which would create the Qualifying Foster care Organization Income Tax
Credit; and
Senate Bill 305, which would establish the Quality Foster Parent Recruitment and
Retention Task Force.
OTHER SUBSTANT IVE ISSUES
In assessing all tax legislation, LFC staff considers whether the proposal is aligned with
committee-adopted tax policy principles. Those five principles:
Adequacy: Revenue should be adequate to fund needed government services.
Efficiency: Tax base should be as broad as possible and avoid excess reliance on one tax.
Equity: Different taxpayers should be treated fairly.
Simplicity: Collection should be simple and easily understood.
Accountability: Preferences should be easy to monitor and evaluate
Tax Expenditure Policy Principle Met? Comments
Vetted: The proposed new or expanded tax expenditure was vetted
through interim legislative committees, such as LFC and the Revenue
Stabilization and Tax Policy Committee, to review fiscal, legal, and
general policy parameters.
X
Targeted: The tax expenditure has a clearly stated purpose, long-term
goals, and measurable annual targets designed to mark progress toward
the goals.
Clearly stated purpose X
Long-term goals X
Measurable targets X
Transparent: The tax expenditure requires at least annual reporting by
the recipients, the Taxation and Revenue Department, and other relevant
agencies
:
Accountable: The required reporting allows for analysis by members of
the public to determine progress toward annual targets and determination
of effectiveness and efficiency. The tax expenditure is set to expire unless
legislative action is taken to review the tax expenditure and extend the
expiration date.
Public analysis ? House Bill 225 – Page 5
Expiration date X
Effective: The tax expenditure fulfills the stated purpose. If the tax
expenditure is designed to alter behavior – for example, economic
development incentives intended to increase economic growth – there are
indicators the recipients would not have performed the desired actions
“but for” the existence of the tax expenditure.
No goals stated
Fulfills stated purpose ?
Passes “but for” test ?
Efficient: The tax expenditure is the most cost-effective way to achieve
the desired results.
?
Key: Met Not Met ? Unclear
LG/hj