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Washington State Considers Baby Bonds to Address Wealth Gap

The Legislature wants to create a pool of money that will give a minimum of $4,000 to every child born under the state’s Medicaid program. The program would cost about $150 million annually.

(TNS) — Jennifer Bereskin dropped out of high school when she was 17. Her family was homeless, and she needed to get a job to buy food and afford bus fare. Couch surfing with friends in Everett, Lynnwood and Seattle, her dreams of college were put aside.

"I was merely surviving, I wasn't able to thrive," she said.

But Bereskin wonders if it could've been different.

A new proposal coming to the Washington state Legislature for consideration next year aims to break the cycle of poverty that's trapped families like Bereskin's and lift future generations of low-income residents toward a path of financial independence.

The Washington Future Fund would create a pool of money that every child born under the state's Medicaid program, Apple Health, could access a portion of upon adulthood to use toward homeownership, education or pursuing a small business.

Lawmakers introduced the plan during the last legislative session but paused the idea, opting instead to create a state committee charged with outlining exact details and recommendations for how Washington could create a trust fund program for the roughly 40,000 children born each year under Apple Health.

"I'm hoping that I might be able to give a child a chance," said Bereskin, a housing advocate and member of the committee. Bereskin is an enrolled member of the Qawalangin Tribe Of Unalaska and the youngest daughter of The SeaMonster Man Snohomish Nation. "The way the system is currently set up, at the current statistical rate, my son may not be able to own a home one day."

The model is based on "baby bonds," an idea popularized by Darrick Hamilton, an economics professor at the New School in New York, and William Darity Jr., a professor at Duke University, and now taking off in several states.

Pioneering a bold idea to narrow the wealth gap, Washington would be one of the first states to create a trust fund program for babies born into low-income families. The trusts are intended to even the financial playing field for lower-income residents by providing a chance to catch up to their wealthier peers.

The state committee focused on the program released its final recommendations report Wednesday evening. Under its proposal, beginning in 2024, a minimum of $4,000 would be set aside for each eligible child to access when they're 18 to 35 years old. The program would cost about $150 million annually, according to state estimates, with the first investment coming from the general fund, the principal fund used to support the operation of the state.

Momentum around the policy idea picked up steam in the wake of Black Lives Matter protests in 2020 after the murder of George Floyd, as lawmakers turned to the baby bonds model as a way of addressing longstanding racial and economic inequities.

Connecticut and Washington, D.C., have created similar programs that would set aside money for low-income newborns. Other states, such as New Jersey and Massachusetts, are exploring creating similar programs as well.

About 30 percent of Washington households of color lack the sufficient net worth to subsist at the poverty level for three months without income, compared with about 18 percent of white households, according to a 2018 report by Prosperity Now, a nonprofit focused on serving low-income communities. Households of color in the state are also 1.5 times more likely than white households to have zero or negative net worth, according to the report.

"Income is what helps people get by, but wealth is what helps them build for their future," researchers from Prosperity Now and strategy consultants from Camber Collective wrote in a wealth inequities study commissioned by Washington Future Fund committee.

Washington state Treasurer Mike Pellicciotti described the Washington Future Fund as a long-term plan to reduce poverty. He noted that for well-off families, it's not unusual for a parent to start setting aside savings for their newborn, or for a grandparent to buy stocks on behalf of their new grandchild.

But creating that kind of nest egg isn't always possible for low-income families already struggling to get by, Pellicciotti said, particularly families in rural parts of Washington or families of color. "Literally within days of birth," inequities are entrenched, he said.

"This type of wealth gap was not created in a few years, and will obviously take many years to remedy, but this is an important step to moving things forward and creating opportunities for over half of Washington's newborns," Pellicciotti said.

When recipients come of age and can prove financial need, they can tap into their accounts for specific "tools of wealth creation that are consistently identified as disrupting poverty," Pellicciotti said. Funds can be used to pay for higher education or trade school, to buy a home or to start a small business.

The return on investments could be as high as roughly $24,000 if a recipient tapped into the account at age 25, or about $50,000 if they accessed the fund at age 35, according to state estimates.

Roughly half of all births in Washington are covered under Apple Health, the state's Medicaid program, or about 40,000 children in a given year. About 57 percent are children of color.

Rural counties see a much higher percentage of children born under the state's Medicaid system, Pellicciotti said. In Yakima, Ferry and Adams counties, more than 3 in 4 births are funded by Apple Health, according to state health records.

Pellicciotti said he feels confident the Washington Future Fund will be approved next year, emphasizing the proposal has support from both sides of the aisle.

Sen. Yasmin Trudeau, D- Tacoma, noted the proposal has also attracted supporters from a range of business groups such as the real estate industry, attributing the program's broader appeal to a number of factors.

The sponsor of the initial state Senate proposal, Trudeau said the fund will gives more buying power to marginalized residents, allowing them to invest those dollars back into the local and state economy — meaning more home sales, more educated workers, more spending at neighborhood shops.

The program would also reduce the number of people on long-term government welfare services, Trudeau said, and dramatically improve the lives of residents living in rural and conservative parts of the state.

The wealth gap has hit a crisis point and action needs to be taken now to "change the trajectory of people's lives," said Rep. Monica Stonier, D- Vancouver, who sponsored the House version of the bill last session. She anticipates reintroducing the Washington Future Fund proposal next year following the committee's recommendations. If approved, the fund would take effect for eligible children starting in 2024.

"What other way do you see disrupting generational poverty?" she said.


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