The 2026 New Mexico legislative session begins on January 20 and ends on February 19. Thirty-day legislative sessions, commonly referred to as the “short sessions”, are focused primarily on budget matters. The agenda is set by the Governor as to what measures will be heard by the legislature.
The budgetary process used to adopt the state’s annual budgets consists of both the governor and the Legislature releasing separate spending plans before the start of each regular legislative session. State lawmakers then use both plans to craft a new budget for the coming fiscal year.
Governor Lujan Grisham is in her final year in office of her second term which ends January 1, 2027. State law prohibits an outgoing governor’s administration from spending more than half of appropriated funds before the governor leaves office at the end of December, which is the budget year’s midpoint.
This article is an in-depth report comparing both budgets and the brewing showdown between the Governor and the Legislature on universal child care.
GOVERNOR MLG’s PROPOSED $11.4 BILLION BUDGET
On December 22, Governor Michelle Lujan Grisham released her $11.3 billion proposed budget for the fiscal year 2026 – 2027 which will commence July 1, 2026 and end June 30, 2027.
State spending can be categorized as “recurring” or “non-recurring”. Examples of “recurring expenditures” would be creating new staff positions at state agencies or paying for increasing employee health care premiums. Examples of “non-recuring expenditures” would be one-time expenses like road construction projects. The slowed growth reflected in the governor’s 2026 proposed state budget primarily affects recurring spending.
The highlights of the governor’ proposed 2026-2027 budget include the following:
- A 4.6% spending increase of approximately $503 million. The increase is due to signs of cooling state revenue growth.
- The governor’s proposed budget contains funding to compensate for federal cuts by the Trump Administration. The state’s Health Care Authority would receive a significant increase in spending under the governor’s proposed budget plan. The proposed spending plan calls for a $2.13 billion general fund budget for the Health Care Authority. It is an increase of $61.6 million, or 3%, over the current fiscal year, primarily to deal with federal funding cuts and changes to Medicaid and the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps. Much of the $61.6 million budget increase would go toward offsetting impacts posed by the federal budget bill signed by President Donald Trump in July which includes reducing federal funding for states’ administrative costs. The agency’s budget includes a recommended $92.9 million to provide health coverage for Medicaid enrollees who would otherwise lose coverage under the federal budget reconciliation bill known as the “One Big Beautiful Bill” signed by President Trump in July.
- A 1% salary increase for all state workers and teachers. With the state facing a revenue slowdown, the governor’s 2026 proposed budget contains no large pay raises for government workers. The governor’s proposed 2026 budget plan appropriates $62.7million to pay for a 1% salary increases for state employee’s and teacher’s salaries. It calls for an additional 7% salary increase for law enforcement and emergency fire response personnel. The governor’s proposed budget includes $13.5 million for 7% salary increases for state police and firefighting personnel. Over the last six years, the average annual salary of New Mexico state workers has increased by 47%, from about $49,950 to $73,520 per year. Average teacher’s salaries have increased at a slightly slower rate, increasing from $49,770 to $68,670
- A $160 millionallocation for a universal childcare initiative. This is considered the most controversial expenditure in the Governor’s proposed budget. According to the executive budget recommendation the $160 million increase brings the overall cost of childcare to $606.4 million. The governor announced the initiative in November, saying it would remove previous income limits for receiving state-subsidized childcare.
- The governor’s spending plan calls for a capital outlay package of $525 millionand a $300 million tax package with sunset provisions, making it a one-time expense as opposed to a recurring expense. The 2026-2027 proposed budget calls for hefty one-time spending, including $100 million for statewide road projects, $238 million for water projects and up to $200 million to overhaul the current site of the state fairgrounds in Albuquerque and to possibly find a new home for the annual state fair also known as Expo New Mexico.
The 1.7 Billion in one-time appropriations include the following:
- $200 million for the Federal Reimbursement Revolving Fund, which helps to pay for responses to natural disasters
- $100 million to select, acquire and build a new State Fairgrounds, if necessary
- $100 million for State Fairgrounds revitalization projects
- $100 million for statewide road construction and maintenance projects
- $65 million for statewide affordable and attainable housing initiatives
- $65 million for the Strategic Water Supply Fund
- $60 million to the New Mexico Match Fund, which helps New Mexico locales leverage federal grants
- $49.3 million for the Quantum Benchmarking Initiative
- $45 million for statewide homelessness initiatives
- $38.5 million for career and technical education
- $35 million Indian water rights settlements
- $30 million for a reading intervention program
- $25 million for a health professional loan repayment program
- $22.5 million for complying with the terms of a settlement agreementin a lawsuit over the Rio Grande’s water supply
- $22 million for aquifer monitoring
- $21 million for statewide cybersecurity initiatives
- $20 million for the state Research, Development and Deployment Fund
The link to review the Governor’s proposed 2026 budget is here:
Click to access Executive-Budget-FY26-Digital-1.pdf
GOVERNOR’S PROPOSSAL TO MOVE STATE FAIR AND REPURPOSE FAIRGROUNDS TO INCLUDE AFFORDABLE HOUSEING
The Governor’s proposed budget contains a proposed $100 million allocation to select, acquire and build a new State Fairgrounds. If also contains another $100 million for State Fairgrounds revitalization projects, including affordable housing, park areas and new entertainment venues.
It was December 3, 2024 Governor Michelle Lujan Grisham announced plans to move the New Mexico State Fair to a different location and redevelop the 236 acre State Fair property into mixed-use development including affordable housing and a new stadium. On March 21, 2025, in response to the Governor’s announcement to redevelop or move the state fair, the New Mexico legislature passed legislation creating the “State Fairgrounds District.” It is a board that has redevelopment funding authority over the existing State Fair grounds property. On June 18, 2025, the state General Services Department announced that a $844,433 contract with Stantec Consulting Services Inc. was entered into with the State for Stantec to create a master plan for repurposing the 236-acre tract of land that has since 1938 hosted the annual New Mexico State Fair.
On December 8, 2025, the Governor’s Office released to the public three concept plans prepared by Stantec for the development of the State Fair property with one in particular calling for moving the fairgrounds with no recommendation where nor cost estimate to rebuild All three plans propose affordable housing be built and for large park areas with public access on San Pedro and Central.
Moving the State Fair has generated strong opposition by area residents. At least two previous feasibility studies have found that the cost to move and rebuild the New Mexico State Fair would be over $1 Billion dollars.
The link to a related article on the New Mexico State Fair Grounds can be found in the postscript below.
LEGISLATOR’S REACTION TO GOVERNOR’S PROPSED BUDGET
During the December 21 news conference releasing the governor’s proposed 2026 state budget, Lujan Grisham’s Chief of Staff Daniel Schlegel and several cabinet secretaries attributed the proposed increased state spending largely to the governor’s universal childcare initiative, as well as funding changes related to President Trump’s “One Big Beautiful Bill.”
Under the governor’s proposed budget, the state would keep about $3.4 billion in reserves.
In response to the Governor’s proposed budget, Gallup Democrat State Senator George Muñoz, Chairman of the powerful Senate Finance Committee, noted a slowdown in revenue growth, including a decline in corporate and personal income taxes. Muñoz said this about the governor’s proposed 2026 state budget:
“It’s a little bit too high for the amount of recurring money we have. … Everything’s dropping, and I do not want to come back to a special session because those revenue numbers are way too high. … We in New Mexico have done a lot of great things … and now the economy is slowing down. … We know that corporate income tax and personal income tax, and [Gross Receipts Tax] is slowing. We know that production is leveled off, but prices are down. So, as the economy slows, so do we, because we’ve set New Mexico up so we don’t ride a roller coaster again.”
Representative Nathan Small, D-Las Cruces, the chairman of the powerful Legislative Finance Committee, said in response to the Governor’s proposed budget that the Legislature shares many of the same spending priorities as the governor’s plan. However, Small expressed concern that the spending levels proposed by the Governor would grow the state budget by too much given current economic conditions.
LEGISLATURE’S PROPOSED $11.1 BUDGET
On January 7, the Legislative Finance Committee (LFC) released the legislature’s proposed 2026-2027 state budget. The LFC is proposing an $11.1 billion budget plan that features significantly less proposed spending than Governor Lujan Grisham’s proposed budget of $11.4 Billion. The Legislative Finance Committee’s proposed budget of $11.1 billion represents a 2.5% increase over the current fiscal year, while the governor is proposing a 4.6% increase. The Legislative Finance Committee’s spending plan increases year-over-year state spending by about $268 million, or roughly 2.5%. It leaves general fund reserves at a healthy 32% of proposed spending.
Following are the major highlights of the proposed LFC budget:
- The LFC’ s proposed budget calls for $1.7 billion in nonrecurring appropriations, including $328 million for transportation projects and $227 million for water projects. The LFC’s plan includes upwards of $545 million from various sources, including capital outlay and one-time appropriations, to fully fund the construction of a new school of medicine at the University of New Mexico in Albuquerque, which the LFC called a “lynchpin in an ambitious effort” to double enrollment with the end goal of expanding the state’s health care workforce.
- Nonrecurring sources of revenue, including from the “Public Education Reform Fund” and the “Government Results and Opportunity Fund” for pilot projects accommodate additional spending.
- The LFC’s nonrecurring general fund recommendation includes over $2.3 billion in special, supplemental, and deficiency spending for a broad range of projects, the transfer of set-aside funds, and transportation and Information Technology
- Recurring general fund revenues for FY27 are projected by the LFC budget at $13.9 billion, a $317 million increase for the two years since FY25. With an average increase of 2.5%, most agencies would see moderate growth under the LFC’s spending plan.
- Under the LFC proposed budget, two key natural resources agencies, the Environment Department and the Energy, Minerals and Natural Resources Department, would see above-average increases of 6% and 5%, respectively.
- The Veterans Services Department would receive a 12% increase in general fund revenue.
- The LFC committee recommends spending $73.2 million to increase the state’s share of healthcare premiums for public school employees so that educators can keep more take-home pay. This is equivalent to a 2% average pay increase. George Muñoz, D-Gallup, said the change could result in annual savings of about $2,000 for teachers around New Mexico making $60,000 to $70,000 per year.
- The LFC committee recommends an average 1% salary increase for state, higher education, and public school employees at a total cost of $62.7 million.
- The LFC’s nonrecurring investments include $350 million for higher education, including support for the lottery scholarship and the University of New Mexico medical school.
- The LFC’s budget includes $10 million for aquifer restoration related to Rio Grande litigation with Texas, and $40 million for a fund that supports the commercialization of science and technology research.
In contrast to the LFC’s increase spending of about $268 million, or roughly 2.5%, Governor MLG’s budget recommendation calls for spending to increase by about $503 million, or roughly 4.6%, over current levels. The difference between the two proposed spending plans is primarily attributable to higher proposed spending amounts in Governor MLJ’s budget in three major areas:
- Health care administrative costs imposed because of Trump’s federal budget cuts.
- The Governor’s Universal Child care initiative.
- The Governor’s proposed budget contains a $100 million allocation to select, acquire and build a new State Fairgrounds as well as another $100 million for State Fairgrounds revitalization projects.
AREAS OF AGREEMENT
There are two major areas of agreement between the Governor’s proposed budget and the LFC’s proposed budget: state employee pay raises and funding for roads.
PAY RAISES
The LFC’s proposed budget plan, just like the governor’s plan, calls for 1% salary increases for all state workers and teachers, starting in July 2026. Those pay raises would be smaller than in recent years, but the legislative budget recommendation also calls for $73.2 million to be spent to increase the state’s share for public school employees’ health insurance premiums. A similar policy change was made last year for state workers.
ROAD FUNDING
The Governor’s budget plan and legislative budget plans agree there is the need to repair and rebuild highways around New Mexico, as the percentage of roadways deemed acceptable in the state has decreased from 75% in 2011 to 69% in 2023. The legislative spending plan would authorize $155 million in one-time road maintenance funding, along with additional money for local and tribal governments. That’s slightly more than the $100 million for statewide road construction and repairs proposed by the governor. That’s slightly more than the $100 million for statewide road construction and repairs proposed by the governor
MAJOR DIFFERENCE IN A NUTSHELL
The major differences between Gov. Michelle Lujan Grisham’s proposed budget and the LFC’s proposed budget can be summarized as follows:
- Early Childhood Education and Care Department: a $149.6 million difference between the two with the Governor proposing a larger amount.
- Children, Youth and Families Department: a $17.2 million difference with the Governor proposing larger amount.
- Health Care Authority: a $81.6 million difference with the Governor proposing larger amount.
LEGISLATOR’S REACTION
LFC Chairman State Rep. Nathan Small, a Las Cruces described the LFC’s spending plan as a starting point and said there’s room for negotiation. Small said this:
“We anticipate a great deal of work with the governor and agencies and folks all across the state. … We have a really strong and incredible opportunity to make New Mexico the most affordable place to have a family and to have kiddos, which is a key way to support New Mexicans. … We have to do that in a responsible way and that financially works.”
“The financial picture, although it is still brighter in New Mexico than in many other states, there are bigger challenges ahead, and so this does not budget the full increase that the executive proposes … We anticipate a great deal of work collaboratively in that space.”
Small said the current fiscal year one is of the toughest the state has experienced “in recent memory” due to external factors like tariffs and federal funding cuts, leading to a dip in state revenues after seven years of growth. Small said this:
“We can’t really underestimate … the challenges that are ahead [because of] the massive federal budget reconciliation bill President Donald Trump signed into law last year . … With hundreds of millions of dollars in federal cuts on the horizon to food, health care and other public support programs, it’s clear that we have our work cut out for us. ”
Legislative Finance Committee Vice Chairman George Muñoz, a Democratic senator from Gallup, said New Mexico has had a “great run” in recent years, due in large part to a revenue bonanza from the oil and gas industry, but he noted the economy is slowing. He emphasized the importance of a “disciplined budget” to avoid what he called “reactionary problems.” Muñoz said this:
“We can absorb price shocks, and we can absorb federal disruptions. … Economic slowdowns we can handle, and we don’t have to cut services, and we will not see a number of midyear cuts or special sessions because we’ve created a budget that creates a balance and stability as we move forward into the next year.”
The link to review the LFC’s proposed budget plan is here:
Links to relied upon or quoted news sources are here
REVISITING CREATION OF UNIVERSAL CHILDCARE
It was on September 9, 2025 Governor Michelle Lujan Grisham and the New Mexico Early Childhood Education and Care Department (ECECD) announced the historic milestone that New Mexico would become the first state in the nation to guarantee no-cost universal childcare starting November 1, 2025. The groundbreaking new initiative makes childcare available to all New Mexicans, regardless of income, by removing income eligibility requirements from the state’s childcare assistance program and continuing the waiver of family copayments. This amounts to an average annual family savings of $12,000 per child.
Governor Lujan Grisham said reaching the milestone of free universal child care required asking the Legislature and New Mexico voters for sustainable sources of funding. New Mexico voters in 2022 passed a Constitutional Amendment that pushed state lawmakers to tap into a state fund and use it to build out the early childhood education system in the state. Along with the expanded access to free child care, the state allows entities like local governments and schools to start applying for low-interest loans to expand or create new child care facilities, under the expanded rules to the state’s Child Care Facility Loan Fund passed in the 2025 legislative session.
During the 2025 legislative session, lawmakers increased the Early Childhood Education and Care Department’s budget by $113 million to $995 million total, including $463 million specifically for child care. The state in 2020 also created a new fund called the Early Childhood Trust Fund, which started at $320 million and now has $10 billion as of September 9.
The announcement fulfilled the promise made by Governor Lujan Grisham and the New Mexico Legislature when they created the Early Childhood Education and Care Department in 2019. Since then, New Mexico has expanded access to no-cost childcare to families with incomes at or below 400% of the federal poverty level, reducing financial strain on tens of thousands of families.
New Mexico families who receive childcare assistance report greater financial stability, more time to focus on their children, and the ability to choose higher-quality care settings. New Mexico is also taking decisive action to build the supply of infant and toddler care statewide by taking the following actions:
- Establishing a $12.7 million low-interest loan fund to construct, expand, and renovate childcare facilities, with an additional $20 million requested in the Fiscal Year 2027 budget.
- Targeting growth to focus on care for infants, toddlers, low-income families, and children with special needs.
- Partnering with employers and school districts to expand child care options for working families.
- Launching a statewide campaign to recruit licensed and registered home providers.
- To support providers, reimbursement rates will rise to reflect the true cost of care.
Programs that commit to paying entry-level staff a minimum of $18 per hour and offer 10 hours of care per day, five days a week, receive an incentive rate. Government officials estimates an additional 5,000 early childhood professionals are needed to fully achieve a universal childcare system.
NM Early Childhood Education and Care Department Cabinet Secretary Elizabeth Groginsky said this:
“Early childhood care and education is a public good. … By providing universal access and improving pay for our early childhood workforce, we are easing financial pressure on families, strengthening our economy, and helping every child learn in safe, nurturing environments. This is the kind of investment that builds equity today and prosperity for the future.”
Governor Lujan Grisham said this when the announcement was made that New Mexico would offer no-cost universal child care:
“Child care is essential to family stability, workforce participation, and New Mexico’s future prosperity. … By investing in universal child care, we are giving families financial relief, supporting our economy, and ensuring that every child has the opportunity to grow and thrive. … [Universal child care is] the backbone of creating a system of support for families that allow parents to go to work or college. … It’s going to make New Mexico extremely attractive to build your business here. … It’s going to make New Mexico extremely attractive to come here and raise your family.”
SUSTAINABILITY FOR FREE CHILD CARE RAISED
The funding and sustainability of New Mexico’s free childcare program to all residents has raised major concerns. The program, which previously only covered families making up to 400% of the federal poverty level, now extends to all New Mexicans. This expansion has led to concerns about the program’s cost and sustainability. Paul Gessing, president of the Rio Grande Foundation, a taxpayer watch group, referenced a report from the Legislative Finance Committee, which warns that spending could increase from $450 million to nearly $850 million annually by 2027. Gessing said this:
“Depending on uptake and further inflation and the challenge of bringing new providers into the system, this could just be the starting point in terms of those price increases.”
The Legislative Finance Committee report also highlights a significant increase in the number of children qualifying for the program, from just under 100,000 to 326,000, with only 31,000 care slots available. Reilly White, an economics professor at the University of New Mexico, noted the potential supply and demand issue saying this:
“We’ve increased the level of subsidies, but not the supply of available child care.”
Despite these concerns, Elizabeth Groginsky, the cabinet secretary for the state’s Early Childhood Education and Care Department, remains optimistic about the program’s sustainability. She said that care slots have increased by 20% since 2019, with an estimated 4,500 new spaces expected to open across the state. She also does not anticipate costs doubling by fiscal year 2027, estimating increases at $600 million instead of $800 million. When asked point blank if the program would be sustainable, Groginsky said this:
“Yes, I absolutely do! … What we’re hearing from families is this has been the relief they’ve been looking for.”
Governor Michelle Lujan Grisham’s budget recommendation for fiscal year 2027 aligns with Groginsky’s calculations, suggesting $600 million in funding.
The link to the quoted or relied upon news source is here:
SHOWDOWN ON UNIVERSAL CHILD CARE LOOMS BETWEEN GOVERNOR AND LEGISLATURE
Several legislators have expressed misgivings about the hefty price tag and rollout of the Governor’s universal child care plan. While the governor has proposed more than $160 million to expand child care assistance, the Legislative Finance Committee’s $11.1 billion budget would increase spending for the Early Childhood Education and Care Department by less than $14 million.
The Legislative Finance Committee wrote this in its released proposed budget:
“In fall 2025, the department announced it would be providing universal free childcare, which began in November 2025. … This announcement will create additional demand for Childcare Assistance without the necessary revenues to implement this policy decision should more people apply and qualify for subsidies. … ECECD requested a significant increase in general fund revenue in FY27 for universal childcare and likely will need significant additional revenue in following fiscal years.”
During the January 7 news conference at the state Capitol announcing the LFC’s proposed budget, LFC Chairman Rep. Nathan Small, D-Las Cruces, said the LFC’s budget plan does not include an additional $160 million to prop up the program for the coming year that was included in the Governor’s executive plan. Representative Small said lawmakers are keenly focused on addressing affordability issues for New Mexico families, but indicated the Legislature is not fully on board with removing income limits for receiving state-paid child care. Smalll said this:
“We have to do that in a responsible way that financially works.”
Representative Small pointed out the state’s child care assistance program has already seen its funding increase from about $150 million in 2022 to roughly $440 million as of this year.
Michael Coleman, the governor’s chief spokesperson, said this in a statement about the Legislative Finance Committee’s early childhood budget proposal of significantly reduced funding:
“Governor Lujan Grisham is disappointed by the LFC’s early childhood budget proposal, but she is not surprised — and she is not deterred. … Executive and legislative budgets are rarely aligned initially. … The governor is confident the Legislature will fund universal childcare at levels that match the public’s strong support for this historic initiative.”
COMMENTARY AND ANALYSIS
The 2026 session will be Governor Lujan Grisham’s last as Governor and for that reason she is considered a “lame duck”. She will have far less leverage with the legislature than she has had in past sessions.
During her entire two terms as Governor, Michelle Lujan Grisham has concentrated on improving the state’s education system, restoring the state’s mental health care system destroyed by her predecessor as well as child welfare needs to the point of creating the Early Childhood Education and Care Department.
The Governor’s proposed budget contains a $100 million allocation to select, acquire and build a new State Fairgrounds, if necessary as well as another $100 million for State Fairgrounds revitalization projects. The Governor’s efforts to relocate and move the state fairgrounds should be rejected by the legislature and abandoned by the Governor. The $200 Million in proposed funding for the State Fair should be dedicated to the universal childcare funding.
There is little doubt that universal childcare will have the biggest impact on the state given the direct impact it will have on thousands of families and hundreds of thousands of New Mexico’s children long after Governor Michelle Lujan Grisham leaves office. It will be the Governor’s most lasting legacy only if the New Mexico legislature sees fit to fund the program.
The link to a related article on the State Fair is here: