Efforts to close the wealth gap in Vermont are on hold for now after lawmakers decided not to fund a program that would have created investment accounts for babies born into low-income families.
Legislation introduced in both the House and Senate would have allocated $6.2 million dollars for a “baby bond” program that seeks to disrupt generational poverty by giving young Vermonters a financial lift as they head into adulthood.
The state would have deposited $3,200 into individual accounts for the estimated 2,000 babies born annually into Medicaid-eligible households. Analysts estimate the bonds would be worth $11,500 when a child turns 18. The program would have allowed them to use the money to purchase a home in Vermont, start or invest in a local business, or transfer the funds into a retirement account.
Addison County Sen. Ruth Hardy, one of the bill’s sponsors, said financial constraints prevented lawmakers from moving forward with the plan.
“We sort of had to make some pretty difficult decisions about what our priorities were, and creating and funding a new program was just not, at the end of the day, something we could do this year,” Hardy said.
State Treasurer Mike Pieciak, who introduced the baby bond proposal to lawmakers earlier this year, said he’s still hopeful the program will materialize. Legislation that’s expected to win final approval in the Senate when lawmakers return for their veto session next month would authorize his office to begin a pilot program with private funding.
“It would not be the full implementation of the baby bonds program, which we do think would be transformational for kids born into poverty,” Pieciak told Vermont Public. “But the pilot program, we think, can lay the groundwork and show how it would work operationally — how it would work in terms of changing the way that parents feel about the future of their children.”
Pieciak said he’ll present proposals and requests for funding to national organizations that are trying to build support for publicly funded baby-bond programs in state and federal governments.
“That’s going to be something we spend a good deal of time this summer on and we hope to have something more concrete in the fall,” he said.
The baby bond concept has wide support from anti-poverty advocates such as Liz Scharf, director of community economic development at Capstone Community Action in Washington County.
Scharf told lawmakers earlier this year that the program would “address the existing systemic inequities and provide a financial foundation otherwise unavailable to many low-income children.”
“At its best, the program can disrupt the generational cycle of poverty and result in better health outcomes, because we know that physical and mental health and well-being are tied to financial stability,” Scharf said in written testimony.
A widely cited 2019 study found that baby bonds are especially effective at closing the racial wealth gap. The study determined that 15.8-to-1 median wealth ratio between white and Black young adults would shrink to 1.4-to-1 under some baby bond structures.
“It is a long-term investment in our youth to try to break generational poverty. It’s not an easy fix, and so the only way it’s going to happen is if we play the long game on it.”Rep. Dan Noyes
Wolcott Rep. Dan Noyes, who sponsored the House version of the bill, said the program could also boost rural economic development, since it provides an incentive for young Vermonters to remain in the state when they turn 18.
“You have to be a resident of Vermont in order to claim the bond,” Noyes said.
Noyes said he was disappointed the Legislature didn’t have the capacity to allocate state funding for the program this year. But he said he hopes the pilot program will provide a proof-of-concept needed to build political will for future legislation.
“It is a long-term investment in our youth to try to break generational poverty,” Noyes said. “It’s not an easy fix, and so the only way it’s going to happen is if we play the long game on it.”
Pieciak said he hopes to solicit seed funding sufficient to provide money to at least a couple hundred Vermont children. He said it’s possible the program would, instead of starting an investment account at birth, give kids a lump sum when they turn 18.
“It would make the most sense, in my opinion, to have a pilot focused on the Northeast Kingdom, because that’s where we see the greatest rates of childhood poverty,” Pieciak said.
Hardy said she thinks the pilot program “is probably better than nothing.” But she said she’s worried that it could take a generation for the program to yield data lawmakers might use to decide whether to expand the initiative.
“Relying on private funds and a pilot program seems pretty shaky to me,” Hardy said. “It may be better to start over and try to do it again for real at a time when we can fully fund it.”
Have questions, comments or tips? Send us a message.
_
