This story is part of CT Mirror Explains, an ongoing effort to distill our wide-ranging reporting into a "what you need to know" format and provide practical information to our readers.
Connecticut’s Baby Bonds program, a first-of-its kind statewide policy aimed at narrowing the racial wealth gap, was passed in June 2021.
After it passed, the legislature voted to delay the program’s start date by two years, from July 2, 2021 to July 1, 2023.
The delay was caused largely because of political interference from Gov. Ned Lamont’s office, which CT Mirror outlined in a story published Jan. 1.
Last week, State Treasurer Erick Russell and other program advocates reached a deal with Lamont to lift the Baby Bonds Trust out of political limbo and fund it through a repurposing of a reserve, rather than through bonding — though Lamont and legislators are still negotiating the budget and bond package, so changes to the program are possible.
Here’s what to know about the program and the current plan to fund it.
What is the CT Baby Bonds program?
The concept, introduced by a pair of economists over a decade ago, is simple enough: Set aside and invest money on behalf of children born into poor families.
CT Baby Bonds would place $3,200 in a trust on behalf of each baby born who is covered by HUSKY, the state’s Medicaid program — around 15,600 children per year.
Recipients still living in Connecticut could tap these resources between the ages of 18 and 30 to buy a home, pay for college or job training or invest in a business. Participants must take financial literacy training before accessing their funds.
According to the treasurer’s office, each child’s deposit likely would grow via investments to between $11,000 and $24,000, depending on when the funds are accessed.
Would children be automatically enrolled?
Yes. Eligible babies born on or after July 1, 2023 would be automatically allocated the money, Lamont’s office said.
How would Baby Bonds narrow the racial wealth gap?
Poor children of any race would qualify, but because Black, Latino and Indigenous children experience poverty at disproportionate rates, they would stand to benefit the most from the program.
How could the program be funded?
The legislature initially approved $600 million in bonding — $50 million a year for 12 years — to pay for the program. But the funding source has since changed.
A deal reached in May still would invest $600 million over the next 12 years in the program, but it no longer would rely on borrowed money to finance those investments — avoiding an estimated $165 million in interest charges.
Instead, a solution was found in a special reserve fund Connecticut set up in 2019 when restructuring its cash-starved pension fund for municipal teachers.
The reserve, which was designed to be tapped if the state failed to make its full annual contribution to the teachers’ pension fund, currently holds about $393 million.
And Connecticut has since deposited nearly $2.7 billion of budget surpluses into the teachers’ pension fund, so the money in the reserve could be repurposed — though the state still would have to open a special insurance policy in its place, at a cost of about $12 million — to protect the pension system and to appease ratings agencies, State Treasurer Erick Russell said.
That leaves about $381 million the state then could invest in Baby Bonds. The projected earnings over the next 12 years, coupled with the principal, would be more than enough to cover $600 million in investments for poor children, Russell said.