Connecticut State Treasurer Erick Russell (D) walks us through the Baby Bonds program. Who is eligible, when can they access that money and how will it be used?
Mike Hydeck: After months in political limbo, the Baby Bonds program in Connecticut will finally get off the ground. If you don't know what it is, it's an annuity program funded by the state to help children who were born into poverty get a financial boost when they turn 18. Joining me now to explain how the program works and where it stands now is State Treasurer Erick Russell. Treasurer Russell, good to see you.
Erick Russell: Good to see you as well.
Mike Hydeck: Thanks for joining us on Face the Facts. First up people who don't already know how the program works, what is Baby Bonds?
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Erick Russell: So it's a program that's meant to address generational poverty. And so for children born on HUSKY is the measure that we use here in Connecticut. There will be $3,200, that would be invested in a trust in my office that will grow over the life of that child. And between the ages of 18 and 30, they could use it for designated purposes that are ultimately about helping to build wealth and really provide opportunity for those who haven't had as much. And so they could use it to purchase a home here in Connecticut, to start or invest in a business here in Connecticut, to help pay for post secondary education or job training, or save for retirement.
Mike Hydeck: And now you inherited the program from your predecessor, Mr. Wooden. One of the things he said was financial education was going to be a part of that. Is it still written into this component?
Erick Russell: Absolutely. So it's a requirement in order to access and make a claim for those monies when that child reaches again, that age of 18 to 30, the completion of a financial literacy course is required.
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Mike Hydeck: So when Treasurer Wooden started the effort, and state lawmakers signed off in 2019, why did it stall? It seemed like it was, everybody was happy, and this is gonna be a great thing. And all sudden, it kind of stalled. What was it?
Erick Russell: Yeah, so there was some conversations around funding. And I know the program was set to start on July 1, 2021. At that point, it was postponed for a couple of years. There were questions around some of the implementation. I know the governor had some concerns about how we were funding the program. And so when I came into office, one of my top priorities was one, making sure we started the program on time, and that the program was fully implemented as designed in legislation. But I wanted to look at different ways to fund the program rather than bonding. And we were able to come up with a way that saves hundreds of millions of dollars for taxpayers that funds the entire program upfront. And that really is going to make sure that the program is fully funded. And so again, we cut about $200 million off the top of the program rather than the 12 year bonding strategy, and also avoided about $165 million in interest that would have been paid over the life of the program.
Mike Hydeck: And so for people who don't understand, bonding is we borrow money to pay the program. And now we won't be doing that?
Erick Russell: So no borrowing, no impact on the budget whatsoever. And we've been able to fully fund the program up front.
Mike Hydeck: So do you have an estimate? Or can you figure out how many children this would benefit on a yearly basis?
Erick Russell: Yes. So there are north of 15,000 babies born on HUSKY every year. And so this is going to have a huge impact across the state. And it's really the goal, right, is we are one of the wealthiest states in the country. But we have one of the largest wealth gaps in the country. And it's a wealth gap that has widened. So this is about providing that bit of opportunity, that bit of hope, for communities that have often not had it. And you know, it's really leveling the playing field in the sense that regardless of what family you're born into, or where in the state you're born into, or what resources your parents have, you have a fair shot at having economic opportunity and growth right here in Connecticut.
Mike Hydeck: So let's talk about where the rubber meets the road so people understand how this works. Just use me as an example. I'm a baby born into poverty. I get a $3,200 check from your office. Where does that check go?
Erick Russell: So no checks. So the state, we would invest $3,200 into a trust account that's managed by my office, and that money would grow over the life of that child.
Mike Hydeck: So that's in like a fund on Wall Street?
Erick Russell: In a trust fund, correct. And we'll invest it alongside our pension funds. And then when that child is between ages 18 and 30, they could come to the state, they could say, I'm eligible for Baby Bonds, I want to make a claim to use for one of these designated purposes.
Mike Hydeck: So they have to fill out a form. Do they have to interview?
Erick Russell: Correct. They would fill out forms, they would make sure they would check off the box for their financial literacy programming and training, that they're using it for a designated purpose, that they are a Connecticut resident at the time that they're making that claim. And then we would be able to use those resources directly to, if they're going to use it to go to UConn, for example, we would be able to send that check right to UConn to help pay tuition.
Mike Hydeck: So we also know that nothing happens in a bubble, life is not perfect. I'm a 16-year-old, I'm getting ready to turn 18 two years later, but I ended up I ended up with a drug habit between the time I'm 16 and 18. Are there things that would disqualify you when you apply?
Erick Russell: No, if the core requirements of the program are met, then the individual would be eligible and would be able to use it for one of those designated purposes. Like I said, right now, I mean, this is about addressing poverty. And there's folks that deal with a lot of challenges because of that, of growing up in poverty. But again, this is focused on using it for very specific purposes. And again, if someone's going, whether they've had a drug issue or not, if they're going to be able to go to college, and we can, this program can help provide resources for that tuition and help level the playing field, I think that's a win.
Mike Hydeck: So in the money, the way it was written would say, all right, we're sending this money that we've saved for you up until you're 18 straight to UConn and it's going to be a part of your tuition.
Erick Russell: It's not going to be a cashed check to anyone to be able to use for whatever purpose they would like.
Mike Hydeck: So Republican leader in the House, Vincent Candelora questioned the compromise about where the money was coming from. And he said, we have a quote, we have that he said, in part, "It seems to undermine the message of fiscal responsibility the governor has promoted throughout the session, and the vague mechanics how they'll simply take $380 million for this program certainly deserves more scruitny." He believes it deserves more scrutiny, thinking maybe that money could go towards teaching and education. What's your response to that?
Erick Russell: So the legislature has a full budget to decide where they would like to send resources. We obviously have gone through a process with legislative leadership on a bipartisan basis with the governor to find this funding mechanism. It's not out of the budget. It's not, it's completely in compliance with our fiscal guardrails. But what we're actually doing is we're taking a reserve fund that was sitting there and scheduled to sit here until 2032, that is not doing anything for us and isn't growing in a significant way, and repurpose it. And we are avoiding $600 million in debt and borrowing that we would have been borrowing otherwise to implement this program that has already been passed into law, and have found a way to repurpose this reserve fund in a way that saves taxpayers hundreds of millions of dollars and meets this legislative goal, which was ultimately passed by the legislature.
Mike Hydeck: Do you foresee any other hurdles between now and the date that it's implemented?
Erick Russell: No, I think we have, again, very broad support for this program and strong support from the governor, has been a great partner in this process. And I think you know, when we talk about, we know that this program by itself is not going to solve generational poverty. This is a piece of the puzzle. It's why we've seen historic investment in recent years in education and childcare and housing in our state. And I think this is another piece to accomplishing that larger scale goal that we need to continue moving in the right direction.
Mike Hydeck: State Treasurer Erick Russell, good to see you.
Erick Russell: Thank you, Mike. Good to see you.
