‘Baby Bonds’ Plan from Murphy Raises Questions

Governor proposed a budget that raises taxes, borrows and cuts programs. A call to give children $1,000 is getting attention

What was expected to be a state budget proposal filled with cuts and spending to blunt the impact of the COVID-19 pandemic contained at least one big surprise when Gov. Phil Murphy included a plan to give most newborns $1,000 in savings to start off their lives.

This “baby bonds” proposal, an adaptation of a nationwide plan offered by U.S. Sen. Cory Booker (D-NJ) two years ago, would cost $40 million in the truncated 2021 fiscal year beginning Oct. 1. Ultimately, $80 million annually would go to provide a $1,000 bond or savings deposit for all children born beginning in 2021 to families with a household income of $131,000 or less.

That’s new spending in a budget in which Murphy also proposed cutting almost $1.3 billion in departmental spending, raising $1 billion in taxes and borrowing $4 billion to cover the total $32.4 billion nine-month budget.

Several Republican lawmakers have questioned the timing, cost and impact of this program.

GOP dismissal: ‘reckless fiscal gimmick’

“It is crazy to imagine any New Jersey family that would want to take out a loan with interest to turn around and put the money in a bank account. But that’s exactly what Murphy wants to do,” said Sen. Jim Holzapfel (R-Ocean). “It’s a reckless fiscal gimmick and waste of taxpayer dollars.”

Murphy acknowledged the state’s difficult fiscal position but defended the proposal as important to undertake now, especially given the way the novel coronavirus has disproportionately affected Blacks and Hispanics, as well as the Black Lives Matter movement that has grown in the wake of multiple deaths of Blacks at the hands of police.

“You can’t ignore tomorrow,” Murphy said Wednesday when asked about the proposal during a COVID-19 media briefing. “What’s the state going to look like when we emerge, what’s the next generation going to look like? And that’s probably a fair mantra, even in an equitable society. But when you look at the inequities that have been laid bare by this virus, when you look at everything from George Floyd now to Jacob Blake in Wisconsin, we would be abrogating strongly our responsibility to not put things in place that we know will directly redress some of those inequities and this program is exactly that.”

The ‘right time’ for program?

“One could argue that this is the right time to do something like this,” said Lisa Kaplowitz, assistant professor of professional practice in the finance and economics department at Rutgers Business School.

“Given that people in certain income brackets have been impacted by the pandemic to a greater extent because they have jobs they cannot do from home — health care, janitorial staff and others — and who don’t get paid if they do not go into work, providing even a small benefit to their children could make a difference to them,” she continued.

“There’s a lot of innovation that comes out of crisis,” Kaplowitz said. “Could this be an innovative concept to give folks in lower socioeconomic brackets an opportunity to start out when they become adults a tiny step less behind?”

Kaplowitz said that, depending on how the baby bonds program is structured, it could provide an even greater impact if individuals are allowed to add to the state’s initial deposit and have that grow with interest.

Administration working out the details

There are few details about how the program would run, however. Administration officials said they are still working through the particulars, including where the money would be invested and how it would be managed. They pointed to a possible model in the New Jersey Secure Choice Savings Program, a state-administered individual retirement account funded through a payroll deduction that would be automatic for those in companies with 25 or more employees set to take effect next March.

Under the parameters outlined by Murphy, the program would put $1,000 into a bond or account for children born to families with an income at 500% of poverty or less, beginning with babies born Jan. 1. In a given year, an estimated 72,000 children, or about three-quarters of all born in the state, would be eligible. That income qualification limit is about $50,000 higher than the median household income in New Jersey in 2018, according to the U.S. Census Bureau.

Administration officials noted that Booker’s proposal would give $1,000 to all children, regardless of income, with those in low-income families eligible for an additional $1,000. Murphy’s plan is currently a single $1,000 deposit, although he said he would be open to providing more if money were available from other sources. New Jersey is a high-cost state and it is hard for people to improve their socioeconomic status, even those at middle-income levels, one administrative official said.

Proposal garners backers

A number of progressive organizations and unions expressed support for the proposal.

Sue Altman, state director of New Jersey Working Families, lauded the program as a way “to address longstanding racial and socioeconomic disparities that prevent children of color from pursuing higher education, buying a home or starting a business.”

The New Jersey Institute of Social Justice called for such a program in a recent report titled Freed From Debt: A Racial Justice Approach to Student Loan Reform in New Jersey, which said state baby bonds would be “a bold program with a significant endowment to truly reshape wealth inequality for the next generation of young people in the Garden State.” The report calls for a financial investment for all children, with those of low incomes getting a larger investment. In a statement Tuesday, the group praised Murphy’s proposal as a first step and said it hopes he will expand the program.

But Republicans don’t see it that way and criticized Murphy for neglecting schools and other priorities to emphasize a program they consider frivolous.

“We could think of a thousand other ways to spend the money the governor wants to dedicate to ‘Baby Bonds,’” said Assemblyman John Catalano (R-Ocean). “Small businesses and restaurants are on the verge of bankruptcy and that means a loss of jobs. Schools in our district have cut programs for students and laid off teachers because of Murphy’s deep funding cuts.”

Downpayment on decreased violence?

In answering a question about the recent uptick in shooting incidents around the state, Murphy said the investment in children today could pay dividends in many ways, including possibly decreased violence, in the future.

“There are a lot of kids born 18 or 20 years ago who, if they had a little bit more wind in their sails from moment one, some helping hand that could have put them into a different, better spot, who knows what would be happening today,” he said. “If nothing else, for 18 or 20 years from now … it’s not a huge step, but it’s a modest step that, God willing, can put communities into a better place.”

Matthew Hale, a political science professor at Seton Hall University, called the baby bonds proposal “an innovative and exciting policy idea” that could become a model for the nation and does advance Murphy’s goals. But there could be benefits to Murphy, as well, by introducing it in the midst of the pandemic.

“There are some politics and perception reasons to introduce it now,” he said. “By including it in the budget, this innovative policy idea become part of the budget story. Without it, all anyone would be talking about is how much money we are borrowing. By including baby bonds, now there is at least another part of the story. Without Baby Bonds, national newspapers wouldn’t say a word about the New Jersey budget. Including them makes it a national story and that is good for Phil Murphy and New Jersey.”

Will Democratic lawmakers get behind babies?

Whether the proposal will become reality is unclear, though. Democratic leaders in the Legislature have so far balked at some of Murphy’s past calls to increase taxes on millionaires, for instance, and they ultimately get to approve any bonding the governor undertakes to balance the budget. So far, Democrats have responded to Murphy’s budget by praising his restoration of the popular Homestead Benefit and Senior Freeze property-tax relief programs but not mentioned baby bonds. Some legislative staff question the wisdom of borrowing money at an interest rate that may be higher than the rate at which the baby-bond investments might accrue interest.

But Hale said the program could garner favor with the public during the pandemic, and that’s why Murphy thinks now is a good time to move forward with it.

“To some extent it seems like there was a calculus that once you are talking about borrowing $10 billion to cover the budget hole (you) might as well go all in and use that money for a lot of new progressive policy ideas like this one,” he said. “It seems like people are willing to accept lots of additional government spending in this crisis so why not add on expensive things like baby bonds that might actually make a real difference.”