DC Council Should Restore Funding for the Baby Bonds Program

Chairperson McDuffie and members of the committee, thank you for the opportunity to testify. My name is Caitlin Schnur, and I am the Deputy Policy Director at the DC Fiscal Policy Institute (DCFPI). DCFPI is a nonprofit organization that shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.

DCFPI urges the committee to restore funding for, and protect the integrity of, the “Child Wealth Building Act of 2021,” or the baby bonds program, which aims to reduce DC’s substantial racial wealth gap. DCFPI is grateful to the committee for championing this effort and encourages its members to reject the mayor’s fiscal year (FY) 2025 budget proposal to reduce the program’s reach by more than half, which will harm Black and brown children from families with low incomes. DCFPI also encourages the committee to work diligently with the Office of Chief Financial Offer (OCFO) to advance baby bonds implementation. More than two years have passed since the law went into the effect, yet the District still has not enrolled a single child in the baby bonds program.

DCFPI applauds the mayor for including $1 million for the Strong Families, Strong Futures (SFSF) DC guaranteed income pilot program in her proposed budget. DC Council should maintain this appropriation for SFSF DC, which boosts the economic security of Black and brown mothers who, due to systemic racial and gender oppression and exploitation in the labor market, face deep-seated barriers to economic stability and prosperity.^[1] Providing an infusion of unrestricted income to mothers experiencing economic hardship supports their overall wellbeing and gives their infants, DC’s youngest residents, a solid economic start.

The committee should:

• Reject the mayor’s proposed eligibility and benefit changes to the baby bonds program, restore funding across the financial plan, and encourage the OCFO to quicken its implementation of the program; and,
• Maintain the mayor’s $1 million investment in the SFSF DC guaranteed income pilot.

Baby Bonds Will Help Close DC’s Outsized Racial Wealth Gap

Chairman McDuffie laudably championed the “Child Wealth Building Act of 2021,” which established a DC baby bonds program to reduce the District’s alarming racial wealth gap and help realize a future of shared abundance. As the result of a long and well-documented history of deliberately racist policies, exploitative and extractive systems, and white racial violence against Black residents, the District has one of the largest racial wealth gaps in the country: in the DC area, white households have 81 times the wealth of Black households.^[2]

The racial wealth gap causes intergenerational harm. Wealthy families can pay for an elite education for their children, start a business, buy a home in a safe and amenity-rich neighborhood, weather a job loss or illness, and provide future generations an inheritance to build on.^[3] Families with little or no wealth are denied these opportunities as well as the freedom and security wealth provides. As baby bonds scholar and advocate Darrick Hamilton puts it, “the reality is that wealth is the paramount indicator of economic prosperity and well-being…[W]hen it comes to economic security, wealth is both the beginning and the end.”^[4]

To truly move the needle on the racial wealth gap, a baby bonds account “must accumulate a balance sufficient to meaningfully expand a person’s life opportunities in young adulthood,” such as by covering the cost of a down payment on a home, research from the Urban Institute shows.^[5] This means that substantial endowments and annual contributions to baby bonds accounts are especially essential in a high cost area like the District, where the median sales price for a single-family home reached $1.1 million in 2020.^[6]

The Mayor’s FY 2025 Proposed Budget Support Act Restructures the Baby Bonds Program to Reach Fewer Children and Slash Future Beneficiaries’ Disbursements

Despite the mayor’s own Comeback Plan calling for building “economic stability, mobility, and wealth” among DC’s Black, brown, and Indigenous residents, last year her proposed FY 2024 budget raided $54.3 million in recurring funding for baby bonds across the financial plan and made this transformative program subject to appropriations.^[7] Under Chairman McDuffie’s leadership, the Council restored funding to the baby bonds program across the financial plan.

Now, to generate cost savings across the financial plan, the mayor’s FY 2025 Budget Support Act (BSA) restructures the baby bonds program in ways that 1) reduce its reach and 2) undermine its intended benefit and ability to close the racial wealth gap. The mayor’s proposal applies retroactively to FY 2022, when the Child Wealth Building Act became effective—meaning that many children who stood to benefit from baby bonds are no longer eligible, and those who remain eligible will receive far lower disbursements in the future.

First, the BSA narrows the eligibility criteria for children, limiting the pool of children who can participate from those in families with income up to 300 percent of the federal poverty level (FPL), or $77,460 for a family of three in 2024, to those in families with income up to 100 percent FPL, or $25,820 for a family of three in 2024.^[8],[9] In DC, where the living wage for a family with one working adult and two children was $130,025 in 2024, this extremely narrowed eligibility excludes far too many children in families struggling to get by.^[10] Only about 1,702 new babies would be enrolled in the baby bonds program each year under the mayor’s proposal, compared to 4,150 under current law, according to the OCFO.^[11] Projecting out to 2040, the mayor’s proposal leaves only approximately 18,185 of DC’s young residents in the program—less than half of the projected 44,353 participants under current law.^[12]

Second, the mayor’s proposal substantially reduces the total value of disbursements available to future baby bonds beneficiaries, limiting the program’s ability to close the racial wealth gap. The BSA changes the District’s baby bonds deposit amount to just $500 each year, with no indexing to inflation. Currently, deposit amounts go up to $1,000, vary by income tier (with higher contributions for lower-income families), and are indexed to inflation. For example, under current law, a child in a household earning up to 100 percent FPL would receive an annual deposit of $1,000, and this annual deposit would increase with inflation annually.^[13] Under the mayor’s proposal, a child born in 2024 who receives the maximum annual contribution throughout the eligibility window would have just about $9,100 in 2024 dollars at age 18, compared to $21,000 under current law, according to analysis by the Urban Institute.^[14]

The Council Should Fully Restore the Baby Bonds Program

The harm of the mayor’s proposed changes to the baby bonds program are borne by DC’s Black and brown children from families with low incomes in the form of non-eligibility or reduced future disbursements. Her proposal scales back funding by three-quarters, or $63.3 million by FY 2028.^[15]

As of March 2024, the baby bonds trust fund has about $17.6 million, representing contributions plus appreciation from FY 2022 to FY 2024. The mayor proposes repurposing the $17.6 million to cover the lower costs of her restructured baby bonds program through FY 2027 and part of FY 2028, at which point the fund would receive $3.12 million in new appropriations and increase slightly thereafter. Under the mayor’s proposal, by FY 2028, the fund would have only about $20.8 million of the $84 million it would have had under current law, leaving the program dramatically smaller and less effectual.

The mayor’s proposal is harmful, short-sighted, and inequitable. The District cannot cut its way to prosperity and should not balance the budget on the backs of Black and brown children. The Council should restore funding to the baby bonds program across the financial plan and revert to its original design.

The Council Should Quickly Implement, and Improve Transparency for, the Baby Bonds Program

In addition to rejecting the mayor’s proposed changes and funding cuts to the baby bonds program, the committee must protect its funding and integrity moving forward. Doing so requires getting the program up and running. The mayor signed the “Child Wealth Building Act of 2021” into law on December 13, 2021, and the law took effect on February 18, 2022.^[16] On February 2, 2024—nearly two years later—the OCFO finally awarded a vendor to administer the baby bonds program.^[17] While this is an important step in the right direction, it means that baby bonds implementation is only just beginning in earnest. More than two years since the law passed, the program still has not enrolled any eligible children.

It is clear from the mayor’s actions in both FY 2024 and FY 2025 that the slow implementation of the baby bonds program has put its success at risk—especially in the face of ongoing revenue challenges and the program’s 18-year time horizon for yielding financial benefits to participants. The committee should continue to work with the OCFO to speed up program implementation and improve program transparency, toward the goal of quickly and effectively enrolling eligible DC children.

In addition to working with the newly-awarded vendor to build out the necessary infrastructure for baby bonds implementation, the committee and OCFO should take steps to:

• Finalize and adopt proposed baby bonds regulations. In December 2022, the OCFO issued a Notice of Proposed Regulations for the baby bonds program.^[18] The OCFO still has not issued its final rules, which will provide a framework for program implementation, including the administration of the Child Trust Fund, program eligibility criteria, and enrollment rules. The timely issuance of final rules is necessary to support the program’s successful roll out. The committee and OCFO should issue final regulations as soon as possible.
• Build public awareness around the baby bonds program. The OCFO has published limited public information about the baby bonds program. Lack of transparency for the program—such as a clear timeline on implementation—makes it difficult for stakeholders to support the program’s success. Moreover, limited public information means that parents of eligible children may not know that their children qualify for the program or understand what steps, if any, they need to take to ensure their children are enrolled. Over the course of FY 2024 and beyond, the committee, the OCFO, the awarded vendor, and other public agencies, such as the Department of Human Services, should build public awareness and transparency for the program. This could include a public media campaign, a launch event, regular and widely-publicized program updates, and/or an online program dashboard tracking eligibility, enrollment, and other key data points.

Strong Families, Strong Futures DC Bolsters Economic Wellbeing for Hundreds of DC’s Black and Brown Mothers and Their Infants Through Unrestricted Direct

SFSF DC is an unconditional direct cash assistance program that supports mothers with low incomes living in Wards 5, 7, and 8 during the first year of their child’s life. The program aims to improve maternal and child health outcomes, especially among Black and brown mothers and infants, and to better understand how direct cash assistance impacts participating families’ physical and mental health outcomes.^[19] SFSF DC is aligned with the District’s Upward Mobility Project, an interagency initiative aimed at increasing upward economic mobility for DC’s Black and brown residents, who experience outsized rates of poverty compared to white residents.^[20] SFSF DC also supports the purported economic mobility and wealth-building initiatives in the mayor’s Comeback Plan.^[21]

The FY 2022 budget funded SFSF DC at $1.5 million. The Deputy Mayor for Planning and Economic Development (DMPED) awarded this money to Martha’s Table, a local non-profit, to administer the program.^[22] From May 2022 to May 2023, Martha’s Table served a cohort of 132 mothers who received either a single lump-sum payment of $10,800 or monthly payments of $900 for one year.^[23] Participants also received supportive services.^[24] Aligned with SFSF DC’s racial equity goals, 96 percent of participants identified as Black or African American. The FY 2024 budget provided an additional $1 million to SFSF DC to expand on the pilot’s initial success by continuing to provide cash assistance to participating mothers.^[25] Now, the mayor’s proposed FY 2025 invests another $1 million into SFSF DC, to support the third and final year of the pilot.^[26]

The Council Should Maintain the Mayor’s Investment in Strong Families, Strong Futures DC, which is Already Showing Positive Outcomes

Martha’s Table is finalizing its public report of SFSF DC’s midpoint and final evaluation results.^[27] However, DMPED shared positive initial findings via its FY 2023-2024 performance oversight materials.^[28] After just six months of receiving payments, mothers reported improvements to their housing, food, and financial stability as well as reduced stress from financial concerns. Participants also shared that the program helped them pursue educational and employment goals, pay down debt, and afford transportation and childcare. Participating mothers have used their SFSF DC income to spend quality time with their children through special vacations and birthday parties, open their first savings account, and afford a first home, the Washington Post reports.^[29]

SFSF DC’s initial positive findings are aligned with existing research on guaranteed income and cash transfer programs, which are proven to benefit individuals and families. These programs increase financial security and reduce material hardship, lift children out of poverty, increase food security and housing stability, and improve mental and physical health, among other benefits, a large body of program evaluation data show.^[30] Over the last several years, localities across the country have tested guaranteed income strategies for various population segments, contributing to a growing body of evidence that cash-based policy approaches strengthen families and communities and yield positive ripple effects for children.^[31] Although SFSF DC’s available outcomes data are still limited, it is clear that the program has positive benefits on participating mothers and children.

The extensive body of evidence affirming the benefits of guaranteed income and cash transfer approaches suggests that ongoing investments in SFSF DC will continue to yield positive outcomes for DC’s Black and brown mothers and infants, and the Council should maintain the mayor’s proposed $1 million in funding for the program.