Editorial: State fund an investment to exit poverty cycle

The state treasurer wants to invest funds now for children to use later for financial stability.

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By The Herald Editorial Board

Efforts to address child poverty — with good reason — typically focus on the more immediate needs for children and families: the availability of basic assistance, of child care and preschool, of health care coverage, of free and reduced-price school meals, of the federal child tax credit. All vital and deserving of support.

The problem, notes state Treasurer Mike Pellicciotti, is child poverty’s persistence through childhood and into young adulthood and the lost opportunities for education in college and trade schools and the capital that more well-off families can call on to help young adults begin to build financial stability and generational wealth.

Currently, about 47 percent of the children born in Washington state — more than 37,000 each year — are eligible for Apple Health, Washington state’s Medicaid health care program; about 226,000 children under 18 years of age — about 16 percent — live below the federal poverty level.

That’s a definite immediate concern for those children and their families, but it remains a concern for them — and a significant financial concern for the state — decades from now when those young adults find themselves without the finances to fully fund education, afford a down payment on a home or the backing to start a business, Pellicciotti said recently during an interview last month with the editorial board.

“If we’re already at 47 percent and moving in the wrong direction in terms of that wealth gap, if we don’t get out ahead of this issue, we’re going to have major challenges on our state treasury and the weight of different obligations on our state treasury in two to three decades,” he said.

Rather than wait 20 to 30 years for the bill on those obligations to come due through a further spiral of poverty and its effects, Pellicciotti said he wants to sock away money now, invest it and then provide a nest egg to those eligible for use for education and training, a down payment on property or the launching of a small business.

“What’s the first thing that a responsible, loving parent or grandparent does when a child is born; if they have the means to do it?” he asked. “They set up a savings account, or put stock or bonds aside.”

That’s not an option for half of Washington families, the state’s chief financial adviser said, allowing inequities to develop and two different financial trajectories to diverge in the state. Pellicciotti wants to allow low-income families to make a course correction early in the lives of children.

Using a proposal called “baby bonds” as a model, Pellicciotti proposes — with backing from proposed bipartisan legislation and a study by a legislative committee — to establish the Washington Future Fund. The fund would set aside $4,000 from the state’s general fund for each child born who is eligible for Apple Health. Those funds would then be invested by the state’s investment board as it does for the state’s pension fund and other investments. Between the ages of 18 and 31, adults who qualify, would be allowed to draw on the accrued value — as much as $25,000 — of that original investment, for use for education costs, seed money to start a small business or as a down payment on property.

Unlike the baby bonds model — including federal legislation proposed by U.S. Sen. Cory Booker, D-N.J., that would set up an individual account for each child born in the U.S. — Pellicciotti and the legislation in the House and Senate call for two means tests. The first would determine the size of the pool of likely future beneficiaries; the second, at the time of withdrawal, would determine the financial eligibility of beneficiaries. Those eligible would have to be residents of Washington state; successfully complete a financial education course approved by the state Treasurer’s Office; and meet financial requirements.

The difference the program could make for individuals and their families would be pronounced, Pellicciotti said.

“What excites us about the Washington Future Fund is not just the benefit and opportunity it provides to those soon-to-be-young adults, but the hope it provides to a 13- or 14-year-old going into high school who would have a much different view of high school if they know that have $10,000 or $20,000 — depending on when they claim it — to achieve their educational pursuits, pre-apprenticeship, or for small business or to own property. Sadly, now that’s a foreign concept,” he said.

But it also could be meaningful for communities throughout the state, rural and urban, in returning investment and capital to those communities. It’s potential in rural communities, Pellicciotti said, is one of the reasons it has generated interest and support from Republican lawmakers.

The state’s wealth gap is particularly evident in rural areas of the state, he said, noting that while Apple Health participation is 47 percent statewide, in the state’s rural counties, that figure can range from 66 percent to 75 percent of births.

The fund, he said, could be key to keeping young adults — and those investments — in those communities, that currently are often denied that capital.

A report regarding the Washington Future Fund is set to be delivered to lawmakers in December in advance of the session beginning in January — which is also a budget session — for further consideration by lawmakers.

A set-aside of $4,000 from the state’s general fund for an estimated 37,000 children each year is no small sum. In addition, a state constitutional amendment would need to be approved by the voters that would allow the state investment board greater authority to make investments that can deliver higher returns than would be initially allowed.

Yet — like parents and grandparents who have the means to invest in bonds or a college savings plan for newborn family members — the Washington Future Fund could allow the state and its taxpayers to invest now in the future success of young residents, provide more opportunity to break free of the cycle of financial difficulties and avoid much of the personal and societal costs of child poverty.

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