CT Baby Bonds program, designed to narrow state’s wealth gap, goes into effect
CT Baby Bonds, the anti-generational poverty, racial equity, and economic growth program championed by Connecticut State Treasurer Shawn Wooden, has been signed into law and went into effect July 1.
Described as a first-of-its-kind program, CT Baby Bonds is a long-term investment in the state”™s economy that is designed to address economic disparities and narrow the wealth gap. The program will create a trust for the benefit of children whose birth is covered by HUSKY, Connecticut”™s Medicaid program, which insures pregnant women.
Participants covered by HUSKY represent individuals from every town in Connecticut. While the majority of participants in HUSKY are white, Wooden said there remains a disproportionate number of people of color enrolled, which is why the legislation will have a significant impact in helping to close the racial wealth gap.
When a beneficiary is between the ages of 18 and 30 and completes a financial education requirement, the funds can be used for targeted eligible purposes that are consistent with research to help close the racial wealth gap including educational expenses; purchasing a home in Connecticut; investing in a business in Connecticut; and/or contributing towards retirement savings.
A 2019 study done by McKinsey shows that failure to close the racial wealth gap would cost the U.S. economy between $1 and $1.5 trillion, or 4-6% of the GDP in the next decade, directly constraining the state”™s economy. While Connecticut is home to the highest annual income per capita in the country, it also has one of the highest rates of income inequality, as well as stark racial wealth gap disparities.
Furthermore, while some of the first beneficiaries of the program who are born after July 1, 2021, won”™t be eligible to receive the funds until the year 2039, research recently completed by Washington University in St. Louis found that states”™ efforts to create savings accounts for newborns changed the behavior of account holders earlier than when they received the funds. The research indicates that beneficiaries experienced higher graduation rates, greater expectations about higher education, and improved efforts to save for the future early on in their lives.
CT Baby Bonds will be managed and administered by the Office of the Treasurer.
“Connecticut is ground zero for wealth and income inequality,” Wooden said. “For us to be the first in the nation to tackle generational poverty and advance racial equity with the enactment of CT Baby Bonds is powerful and a testament to our values and our shared belief that everyone should have the opportunity to experience the American Dream.”
Wooden said he hopes the federal government and other states will follow Connecticut”™s lead. “CT Baby Bonds can be a model to help narrow the racial wealth gap across the country,” he said. “After the pandemic further exposed and exacerbated preexisting wealth and income gaps, especially among communities of color, Connecticut is making a long-term investment that will increase the likelihood of long-term systemic change that benefits families, communities and our economy.”
The legislation was part of the legislative bond package and will be funded through State General Obligation bonds, with $50 million per year authorized in the bond package for the next 12 years, totaling $600 million.