Connecticut’s $600 million plan to narrow wealth gap: Give kids trust funds
A once-radical proposal to narrow the vast racial wealth gap and other economic disparities is poised to achieve a key milestone in the U.S.: Actual funding to put programs in place.
Connecticut Gov. Ned Lamont and fellow Democrats in the Legislature are about to announce a 12-year, $600 million deal to launch a baby-bonds program for newborns starting in July.
A proposed budget in Washington, under consideration by the City Council, would restore $54 million for a baby-bonds program in the nation’s capital.
“We are celebrating. It was a little scary at times,” said Darrick Hamilton, the New School economics professor who developed the baby-bonds proposal. “These ideas are getting momentum,” he said, driven by a wide political coalition that made “clear and plain the value of the program.”
The idea behind baby bonds is to establish trust funds for children when they’re born, allowing the money to grow over time and then be accessed in young adulthood for wealth-building purposes like education, buying a home, starting a small business or saving for retirement.
Connecticut and Washington both approved the programs in 2021, and several other states have seriously considered the idea. But it’s been a challenge to find funding for the grants for each child, generally limited to babies in poorer families eligible for Medicaid.
In Connecticut, the deal resolves a funding dispute between lawmakers and the governor, who had resisted borrowing money to pay for baby bonds. Legislators, led by members of its Black and Puerto Rican Caucus, had threatened to block the budget if the issue wasn’t resolved.
To set up a $3,200 trust for each baby born after July 1, Connecticut would tap a reserve fund, avoiding an estimated $165 million in interest charges. The state treasurer estimates that, by investing the money, accounts could grow to roughly $11,000 or as much as $24,000, depending on when recipients access them.
In Washington, officials said a mistake in the budget process had stripped $54 million from the program. By restoring the money, the district would be able to hire a firm to invest funds for the program, which was supposed to be setting aside cash for each eligible baby born since Oct. 1, 2021.
Children were set to receive $500 at birth, then $1,000 each additional year that their parents’ income remains under a threshold of three times the poverty level.
“We didn’t have another broken promise” to vulnerable communities, said Hamilton. He now hopes Connecticut’s neighbor, Massachusetts, “is emboldened to go further,” along with other states.
A task force convened by Massachusetts’ state treasurer recommended creating a program in a December report. Washington state’s Legislature took a first step toward baby bonds last year, and legislators and officials in several other states have proposed similar efforts.
Many states are facing more difficult financial situations as the economy has cooled and pandemic-era funding dries up. These fiscal realities are why Hamilton ultimately envisions a federal baby-bond program.
“This is a tremendous leap forward toward the north star when the federal government eventually legislates this,” he said.