To close the wealth gap, WA is considering $4,000 'baby bonds'

To close the wealth gap, WA is considering $4,000 ‘baby bonds’

Jennifer Bereskin dropped out of high school at age 17. Her family was homeless and she had to find a job to buy food and pay for the bus fare. Couch surfing with friends in Everett, Lynnwood and Seattle, her college dreams were put aside.

“I was just surviving, I wasn’t able to thrive,” she said.

But Bereskin wonders if it could have been different.

A new proposal coming to the Washington Legislature for consideration next year aims to break the cycle of poverty that traps families like Bereskin’s and lift future generations of low-income residents onto 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 part of adulthood for home ownership, education or pursuing a small business.

Lawmakers introduced the plan in the last legislative session but put the idea on hold, opting instead to create a state committee to outline exact details and recommendations on how Washington could create a trust fund program. for the approximately 40,000 children born each year under Apple Health.

“I hope I can give a child a chance,” said Bereskin, a housing advocate and committee member. 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 might not be able to own a house one day.”

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

Pioneering a bold idea to close the wealth gap, Washington would be one of the first states to create a trust fund program for babies born into low-income families. Trusts aim to level the financial playing field for low-income residents providing a chance to catch up with their wealthier peers.

The state committee responsible for the program released its final report of recommendations Wednesday evening. Under his proposal, beginning in 2024, a minimum of $4,000 would be set aside for every eligible child to access when they are between 18 and 35 years old. The program would cost about $150 million a year, according to state estimates, with the first investment coming from the general fund, the main fund used to support state operations.

Momentum around the policy idea gained momentum following the 2020 Black Lives Matter protests following the murder of George Floyd, as lawmakers turned to the baby bond model as a way to address long-standing racial and economic inequalities.

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

About 30% of households of color in Washington don’t have enough net worth to subsist at the poverty line for three months without income, compared to about 18% of white households, according to a 2018 report by Prosperity Now, a nonprofit organization. nonprofit focused on serving people in low-income communities. According to the report, households of color in the state are also 1.5 times more likely than white households to have zero or negative net worth.

“Income is what helps people get by, but wealth is what helps them build their future,” Prosperity Now researchers and Camber Collective strategy consultants wrote in a study on inequality of Wealth Commissioned by the 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 affluent families, it’s not unusual for a parent to start setting aside savings for their newborn, or for a grandparent to buy stocks in the name of their new grandchild. .

But creating that kind of nest egg isn’t always possible for low-income families who are already struggling to get by, Pellicciotti said, especially families in rural Washington or families of color. “Literally within days of birth,” inequalities are entrenched, he said.

“This type of wealth gap was not created in a few years and it will obviously take many years to close, but this is an important step in moving things forward and creating opportunity for more than half of Washington newborns,” Pellicciotti said.

When recipients reach majority and can prove they need financial assistance, they can tap into their accounts for “specific wealth-building tools that are consistently identified as poverty-disrupting,” Pellicciotti said.. Funds can be used to pay for college or trade school, buy a home, or start a small business.

The return on investment could reach about $24,000 if a beneficiary tapped into the account at age 25, or about $50,000 if they accessed the fund at age 35, according to state estimates.

About half of all births in Washington are covered by Apple Health, the state’s Medicaid program, or about 40,000 children in any given year. About 57% are children of color.

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

Pellicciotti said he was confident the Washington Future Fund would be approved next year, noting the proposal has support from both sides of the aisle.

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

The sponsor of the original state Senate proposal, Trudeau said the fund would give marginalized residents more purchasing power, allowing them to reinvest those dollars in the local and state economy — meaning more home sales, more educated workers, more neighborhood store spending. .

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

The wealth gap has reached crisis point and action must 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 plans to reintroduce the Washington Future Fund proposal next year following the committee’s recommendations. If approved, the fund will come into effect for eligible children from 2024.

“What other way do you see to disrupt generational poverty?” she says.

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