Washington state treasurer Mike Pellicciotti. (State of Washington Photo)

People born into low-income families in Washington state will get a financial boost at the outset of their lives with so-called “baby bonds” if lawmakers pass legislation to establish the Washington Future Fund.

The program would allocate $4,000 into an investment pool for every child whose birth is funded by Apple Health, the state’s program for Medicaid recipients.

Recipients would be eligible to receive a one-time disbursement from the pool from age 18 to 35, which they could use for one of three purposes: a down payment on a home, post-secondary education, or starting a business.

“The Washington Future Fund is an innovative strategy to seed wealth for future generations by reducing capital barriers for those in need,” Washington state treasurer Mike Pellicciotti, who requested the legislation, told GeekWire.

Apple Health funds the births of about 47% of babies born in the state each year, according to a report commissioned by lawmakers to assess a similar bill proposed during the last legislative session.

The report outlined wide wealth disparities within the state, with more than 60% of births in rural counties funded by Apple Care. In addition, 70% of African American babies and 79% of Hispanic, Native American and Hawaiian/Pacific Islander babies were born under the program.  

One in ten Washington households have zero or negative net worth, while 36% have a net worth of $500,000 or more, the report found.

The data reflect longstanding wealth gaps in the U.S. In 2016, the median white family had more than ten times the wealth of the median black family, according a report by McKinsey & Co.

The idea that “baby bonds” can help close such gaps was proposed in 2010 by economists Darrick Hamilton and William Darity Jr., and advanced by Sen. Cory Booker (D-New Jersey), a proponent of national legislation to create an account for every newborn in the U.S.

Connecticut and Washington, D.C. recently passed laws setting aside funds for low-income children that can be accessed later in life.

The estimated cost of the program in Washington state is $152.8 million annually; unclaimed funds would go back into the pool. By the time the first cohort would be eligible at age 18 in 2042, the program will have served 700,000 newborns.

“We’re already seeing among the current generation that dreams of achieving homeownership, a competitive education, or starting a small business are seemingly beyond reach,” said Pellicciotti.

“The Washington Future Fund would be a significant course correction to help make those foundational opportunities for wealth building achievable once again.”

Household net worth in Washington State and the U.S. (2022 Washington Future Fund Committee Report Chart; U.S. census data)

The new legislation has passed out of policy committees in both the House (HB 1094) and the Senate (SB 5125) and next goes to the House Appropriation and Senate Ways and Means Committee.

In parallel, Pellicciotti has asked the state to pass a constitutional amendment that would allow the funds to be invested in private stocks. Without the amendment, the funds would need to be invested more conservatively.

With the amendment, the estimate for returns is $11,300 at age 18 and $30,300 at age 35. Without a constitutional amendment, the estimate for returns is $7,200 and $12,700 at those ages.

Supporters of the bill include the Washington State Labor Council, AFL-CIO, the State Board for Community & Technical Colleges, Habitat for Humanity Seattle for King and Kittitas County, and the Washington State Budget and Policy Center.

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