The Connecticut legislature did not fund the “baby bonds” program it adopted last year in the $24.2 billion fiscal 2023 budget it approved this week.
“I am disappointed to hear about these unexpected developments. Connecticut led the way in addressing the racial wealth gap last year with the passage of CT Baby Bonds,” state Treasurer Shawn Wooden said on Wednesday. “Although we were a national leader on this issue, the journey to create and implement good public policy like CT Baby Bonds can have its share of twists and turns.”
Wooden is a leading advocate for the “baby bond” concept in Connecticut and on the national stage.
Wooden said the budget delays implementation of the state program by two years, meaning babies born after July 1, 2023, will be eligible but those born after July 1, 2021, won’t be.
Funding for the program has also been delayed for two years but the $600 million total amount will not be changed. Starting in 2024, $50 million a year has been authorized.
“It’s disappointing to see the delay in the implementation of Connecticut’s Baby Bonds program,” Shira Markoff, Policy Fellow at Prosperity Now, told The Bond Buyer on Thursday. “The racial wealth gap is wide and growing, and we need innovative policies like ‘Baby Bonds’ to begin addressing it right away. I urge Connecticut to keep its promise to the state’s babies and families by fully funding this program.”
Prosperity Now is a non-profit corporation based in Washington, D.C., whose aim is to expand economic opportunity for low-income families and in underserved communities. It was former known as the Corporation for Enterprise Development.
Last year, the group released a report, “A Brighter Future With Baby Bonds: How States and Cities Should Invest in Our Kids,” that stated that by investing in a new generation of children “with the largest investments provided for children from households with the least wealth, which are disproportionately Black, Latinx and indigenous — over time Baby Bonds will help narrow the racial wealth divide.”
Wooden is President of the National Associated of State Treasurer and is the only Black elected state treasurer in the United States.
Congressional and public finance leaders including Wooden and Sen. Cory Booker, D-New Jersey, are pushing for a federal baby bond law to help narrow the racial wealth divide.
Wooden said at The Bond Buyer’s National Outlook Conference in March that baby bonds are investments in the long-term future of the state.
Public Act 21-111, which created the CT Baby Bonds program, passed during the 2021 legislative session with bipartisan support.
The CT Baby Bonds program will create a trust for children born into poverty whose births are covered by HUSKY, the state’s Medicaid public health coverage program for people with low incomes.
After the baby is born, up to $3,200 is to be set aside in a trust managed by the treasurer’s office. When a child reaches the age of 18 and completes a financial education requirement, they can access the funds for those purposes which have been shown to close the racial wealth gap.
These eligible purposes include things such as paying for higher education, buying a home in Connecticut, starting or investing in a business in the state or contributing toward retirement savings.
The fiscal 2023 budget passed Tuesday totals $24.2 billion and includes $600 million in new tax cuts, which include a $250 per child tax credit, a $100 million state cap on municipal car taxes and $40 million to eliminate a state tax on pensions and retirement income. Additionally, the state’s gasoline tax holiday will continue until December 1.
The budget also includes money for initiatives such as mental health services for children, addressing poor air quality in schools, and workforce shortages. Gov. Ned Lamont has indicated he would sign the bill when it gets to his desk.
“The General Assembly voted to give taxpayers their largest tax cut in history, while paying down $3.5 billion in unfunded liabilities, making groundbreaking investments in childcare, crime prevention, environment protection, and caring for our most vulnerable residents,” Lamont said in a statement. “We are transforming Connecticut, making it a place where people and businesses want to grow and set down roots.”
The budget also cuts the state’s unfunded pension liability by $3.5 billion.
On Monday, the Office of Policy and Management and the Office of Fiscal Analysis said in its forecast that the state’s revenue forecast had markedly improved.
“Thanks to today’s exceptional consensus revenue forecast, Connecticut will make a historic contribution towards paying down our long-term unfunded pension liabilities, helping the state to eliminate reliance on one-time federal dollars to balance the budget, and enable us to provide much-needed tax relief,” Lamont said.
He said the state now expects to see an unprecedented balance in the budget reserve fund at the end of the year, a $1 billion increase over the January consensus revenue forecast.
“This will provide savings in future years and ensure that we can provide critical services while reducing taxes for residents and businesses. One of the things that has held our state back for decades are these unfunded liabilities,” Lamont said.
“While today’s news is among some of the best economic news our state has seen in many years, there remains a great deal of economic uncertainty due to the ongoing pandemic, inflation, supply chain disruptions, war in Ukraine, and a changing international geopolitical climate,” said OPM Secretary Jeffrey Beckham. “As a result, we must remain fiscally cautious and not commit to significant new ongoing spending initiatives.”
Connecticut issued its the first social bonds, totaling $520 million in May 2021 and issued an additional $300 million of social bonds in December.
The state’s GOs are rated Aa3 by Moody’s Investors Service, A-plus by S&P Global Ratings, AA-minus by Fitch Ratings and AA by Kroll Bond Rating Agency. All four rating agencies assign stable outlooks.
“Connecticut has a diverse and mature economic base anchored by a large finance sector and important manufacturing and education and health sectors,” Fitch said in December when the state sold $800 million of tax-exempt GOs. “Pre-coronavirus pandemic economic expansion cushions the state as its recovery trails the nation’s. Connecticut has the highest per capita personal income of any state, though income growth has slowed in the prior decade.”
Barclays Capital priced the state’s $500 million of Series 2022A GOs and $300 million of Series 2022B social GO bonds on Dec. 16.
Moody’s said in December the “rating reflects the state’s continued commitment to numerous governance improvements that have already borne fruit in the accumulation of significant budgetary reserves and good financial performance through the pandemic. The reserves are critical in mitigating budgetary inflexibility created by the state’s heavy debt and retiree benefit liabilities, which are among the highest of the states.”