Recently, a new law went into effect jump-starting a pilot project intended to narrow the wealth gap in Vermont.
The state is standing up a baby bonds program using a new investment account for kids born into low-income families.
If the pilot is successful, Vermont could join Connecticut in becoming one of only two states in the country to launch a full program.
Vermont State Treasurer Mike Pieciak recently joined Vermont Public's Jenn Jarecki in-studio to share more. This interview was produced for the ear. We highly recommend listening to the audio. We’ve also provided a transcript below, which has been edited for length and clarity.
Jenn Jarecki: Well, let's start with a broad overview of baby bonds. What are they exactly?
Mike Pieciak: Baby bonds have three policy goals. One is to reduce generational poverty. Another is to invest in rural economic development. And then the third is to retain young people in Vermont. So the essence of the program is that you provide a sum of money, invest in children — invest in babies that are born into poverty in Vermont — that money grows over time it's invested by our office. And then by the time those babies become adults, they can use that money to buy a house in Vermont, start a business in Vermont, go to higher education or job training, or roll it over into their retirement.
Jenn Jarecki: Could you speak to certain regions of the state that may benefit from the program more than others? Or is the need spread out fairly evenly across Vermont?
Mike Pieciak: Well, it definitely — by geography — has a bigger impact. In the Northeast Kingdom for example, when you look at a county basis, over half of the children are born onto Medicaid, which is the eligibility criteria Dr. Dynasaur. So in a place like Orleans County, Essex County and Caledonia County, if you add them all together, over 50% of babies born in those counties are born into poverty. When you look at Chittenden County, it's more like 25% of children are born into poverty. So it will have a disproportionate beneficial impact to places like the Northeast Kingdom. Also in southern Vermont, there are a lot of rural areas of southern Vermont where there's higher degrees of poverty. So those places will benefit disproportionately. So it's investing in a way that really breaks through a lot of barriers and really gets capital, gets resources to those that need it the most.
Jenn Jarecki: So some lawmakers and Gov. Phil Scott were concerned about how a full-fledged baby bonds program could impact the state budget. The legislature ultimately passed a bill requiring you to seek private funding for this pilot program — like grants or donations — instead of using taxpayer dollars. So I'm curious how that impacts this early process of getting the pilot program off the ground. And how would you plan to fund a full baby bonds program if the state were to stand one up?
Mike Pieciak: On the pilot, what we're looking to achieve is, you know, securing funding from national foundations that are really interested in the concept of the new economy, thinking through these issues that we talked about, about generational poverty and wealth inequality.
And the other thing that we're doing with the pilot, we wouldn't necessarily create a baby bond for a child born next year. We would identify young adults that are on the cusp of turning 18 years old, and we would provide them with the fully matured baby bonds. So that concept of compounding over 18 years, over 25 years or 30 years — we understand how compounding investments work. That part of it, we don't need to prove out.
But what we want to show is what children and young adults do once they have that opportunity in front of them. If they have $15,000 that we say you can use to buy a home, start a business, job training, higher education or roll it over into retirement, and then from that cohort we'll be able to identify how their trajectory changed, how their economic trajectory changed. What it was concretely, what it was from a hope standpoint, from an emotional standpoint, what additional resources they needed to be successful, so what gaps remain. But that's sort of the hope of the pilot, is trying to bring forward what would be a long-term investment, you know, up to just a couple of years so we could see that impact.
Jenn Jarecki: And in terms of the full proposal, on your website, it mentions that it "does not require any new fees or taxes for Vermonters." That's a quote. How would you fund the program if it were fully in operation?
Mike Pieciak: Our proposal, when we announced this last December, was to use the excess funds that are in our unclaimed property system. So our unclaimed property system has been growing quite substantially over the last couple of decades. This year, we're bringing in close to $19 million. And even though we do our best — we do television advertising, we do local outreach, we have an automatic program. Despite all of our best efforts, maybe we returned four or $5 million every year to people. And that number, in terms of the revenue that we've received, is growing quite substantially compared to the amount of claims we're able to pay out. So there's an excess amount there, and it can be variable. It can go up one year, down one year. And that's why I thought it was a good source of funding for this program, because this program is a longer-term investment. When you're putting the money in on year one, you don't need it until year 18. So you can sort of smooth out any variability that comes along the way.
Another source that has good symbolism is an estate tax —revenues that we have now. Because the estate tax is also a variable source of funding: You don't know how much you're going to get year to year. And it also has good symbolism, because it literally would be the revenues that we already are receiving that are oftentimes one-time funds, we would be dedicating to the next generation of Vermonters in a generation that's born into poverty.
Jenn Jarecki: And I understand, treasurer, that it was you who brought the idea of a baby bonds program to lawmakers. How did you first hear about it?
Mike Pieciak: Yeah, well, you know, the story is funny. The first I ever thought about this program actually was after a cabinet meeting when I was working for Gov. Scott. And he pulled me aside and said, "Hey, do you remember when you might have been a child and your grandparent gave you, you know, a $100 treasury bill or it was your birthday and they gave you another one? And that sort of added up and you use that maybe as a start for starting a business or your first home or education." And it actually rang true to me because my grandparents would do that when it was my birthday. And that did add up to an amount that I used to buy my first home when I was in my late 20s.
We went back and sort of looked at what was out there. And the closest thing we could find was something they were doing in Maine where they provided money to every child born in Maine, like $500 in a 529 account, which is something that helps you pay for school. We proposed that internally, and it didn't necessarily go anywhere, just other priorities and whatnot.
And then I was having a meeting with the treasurer from Connecticut — and Connecticut's the state that has brought baby bonds all the way to operation. And he was telling me about the program and how they were trying to fund it. This has been a multiple-year process in Connecticut. And I said, "Oh, that sounds a lot like what we were thinking about." But then he described, you know, buying a house in Connecticut, starting a business in Connecticut, rolling it over to retirement. So, they were all wealth-generating activities. It spoke to me because not everybody wants to go to college. Not everybody wants to seek a higher education degree. Maybe some people have a full scholarship for that and they want to instead think about buying their first home. So it had a broader use. And it really was that Connecticut example that made us interested in pursuing it here in Vermont.
Jenn Jarecki: Well, what are the next steps for your office regarding the pilot program? And when can Vermonters expect to see this launch?
Mike Pieciak: Yes, we're hoping that we can launch the program sometime in early 2025. The next steps are fine-tuning the exact parameters of the pilot. We'll seek to be securing more funding over the summer and into the fall. And then hope to be able to announce it some time again in early 2025.
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