Bonds

Lawmakers in Massachusetts are considering legislation to establish a “baby bond” program, an effort proponents believe will help address racial wealth disparities.

Following nearly a year of work by the office of State Treasurer Deborah Goldberg in researching potential plans the bill was submitted to state lawmakers this week.

“Baby Bonds is a proactive approach to addressing historic inequities while also creating a stronger economy within our state,” Goldberg said. “This program will give us an opportunity to reach children who suffer from generational poverty, providing them with a foundation for future success in adulthood.”

The bill would create a state-funded and managed trust account for each child born into a low-income household in Massachusetts.

Those funds would become available on the child’s 18th birthday to “create opportunities for financial independence,” said the legislation, by offering a nest-egg investment for use on education, entrepreneurship, or other wealth-building initiatives.

While the amount of initial deposit is yet to be determined, the Treasury estimates returns on the state-managed portfolio will average 5% annually, allowing Massachusetts to provide no less than $10,000 to each child by the time they come of age.

A task force launched by Goldberg to research and develop recommendations in March published a report at the end of the year that helped inform the structure of the current bill.

That report, among other things, highlighted the ability of baby bonds to help deal with persistent and largely race-based wealth disparities, addressing “the unique needs of our residents and our economy” while also saving the state in the end.

The structure of the program is similar to a program enacted in Connecticut, though its initial funding was delayed.

The District of Columbia has also enacted a similar program.

Citing a Massachusetts Taxpayers Foundation report, Goldberg’s office estimated the state would save around $25 billion over five years if it “eliminated the racial disparities of wages, housing, investments,” and saving, not costing, taxpayers by decreasing dependence on public welfare programs while increasing the size of the state’s potential tax base.

Primary funding for the bonds is to come from general appropriations, while other streams, including bond issuances and federal funds, will help “provide some sustainability” should markets fluctuate.

The report recommends establishing a dedicated funding stream for the program as well setting out the potential need for additional payments to individual accounts should the economy turn sour and returns fall below estimated rates.

The plan submitted to the legislature calls for a 17-member advisory board chaired by the sitting treasurer to oversee the implementation and operations of the program and its annual expenditures, as well as create fraud protection mechanisms and forge partnerships with communities “disproportionately impacted by the racial wealth gap” in the process.

Six of the seats would be filled by designees selected by state lawmakers who would provide only advisory input. The rest would be voting members, drawn from various fields associated with baby bonds, including economics and public advocacy.

Articles You May Like

China’s property market is expected to stabilize in 2025 — but stay subdued for years
Sick man of Europe? Germany’s bosses sound alarm on staff illness
Arizona town drops planned $70 million bond sale
Markets prepare for volatility amid election, Fed action and scant bond supply
Warren Buffett continued to sell down his Apple stake, cutting about a quarter in the third period