Equity Bonds: Leveling the Playing Field, Eradicating Poverty and Building Wealth for all New Yorkers

Former Obama-Biden Housing Secretary and Budget Director Shaun Donovan announced that as Mayor he would provide Equity Bonds of $1,000 to every child in New York City. The plan would also provide annual deposits of up to $2,000 for public, charter, and low-income private school students. The newest proposal continues Donovan’s Campaign of Ideas with Equity Bonds: Leveling the Playing Field, Eradicating Poverty, and Building Wealth for all New Yorkers. The announcement was made during the National Action Network’s Annual King Day Policy Forum 2021 in Harlem.

Equity Bonds builds upon a concept first introduced by Senator Cory Booker and Congresswoman Ayanna Pressley known as “Baby Bonds,” which proposed depositing $1,000 in principal and an income-scaled monthly contribution into a government savings account for every newborn in America. At the state level, New York State Assembly Member Michael Benedetto has introduced a similar proposal.

Donovan’s Equity Bonds proposal would begin immediately upon inception to expand enrollment beyond newborns to any child up to two years old, and the entire New York City public, charter, and low-income private school student population, with $1,000 in principal. Students would also immediately begin receiving annual deposits of up to $2,000 depending on income. Eligibility for additional deposits would be limited to families making less than five times the poverty level, and annual deposits would be on a sliding scale based on income. Under this program, any child born into poverty, regardless of immigration status, can go to school, knowing that roughly $50,000 is waiting for them before entering the workforce or pursuing higher education.

This investment would immediately begin to tackle generational wealth disparities that play a fundamental role in systemic inequality. Funds would be accessible to enrollees upon graduation from a New York City school, attainment of a G.E.D. or apprenticeship (including a grace period), for purposes like paying for college, buying a home, starting a business, eradicating debt, and other methods of achieving economic security.

Policy Mechanics

The Booker-Pressley “Baby Bonds” bill proposes a $1,000 deposit into a government savings account for every newborn in America, maturing at 3 percent interest, and supplemented by an income-adjusted monthly contribution (maxed at $166.67 per month, or $2,000 per year). Equity Bonds expands enrollment beyond newborns, to children ages 1 and 2, the entire New York City public and charter school population, and low-income students in private and parochial schools, broadening the original policy’s purview and immediate value for low-income families. Children of low-income families moving to the city would automatically be enrolled in the program.

New York City public school enrollment in the 2019-20 academic year was 1,131,868. In the same period, there were roughly 300,000 kids, between the ages of 0 and 2, living in the city — meaning annual enrollment in the Equity Bonds program would be about 1.4 million (roughly 1 million eligible kids in the public schools, 161,000 qualifying in private and parochial schools, and another 235,000 ages 0-2). The city would seed about $1.4 billion in principal deposits in the first year of the program. Using income and school enrollment data collected by the 2017 American Community Survey and the U.S. Census Bureau, the first year Equity Bonds endowment, scaling monthly contributions by family income, would be about $3.2 billion — $1.4 billion in scaled monthly contributions and $1 billion in initial seed money for low-income public school students, $156 million in scaled monthly contributions and $160 million in seed money for low-income private and parochial school students, and $300 million in scaled monthly contributions and $200 million in seed money for eligible children ages 0-2.

Families making under approximately $150,000 per year would be eligible, with monthly contributions adjusted dependent on income. After 18 years, the amount accrued for children from the lowest-income families would be almost $50,000. After all low-income student and early childhood accounts have been seeded with $1,000 principal payments in the first year of the program, the city would be spending $1.9 billion on average per year.

The program would benefit from joint long-term commitment of public and private financing to insulate it from big downturns in the city’s annual budget. Students moving to and from the city, enrolling in or leaving the schools, complicates modeling the program’s exact annual expenditure. Students establishing permanent residence outside the city and unenrolling from the New York City schools would have access to the funds, frozen at the amount to which they have accrued, once they turn 18.

Impact

In the last decade, in the shadow of the Great Recession, the wealth gap in New York City has become a chasm and many families are getting by on subsistence wages with little-to-no savings. Nationally, in 2016, the 80:20 ratio (an income inequality measure, comparing annual incomes of the top 80th percentile with those of bottom 20th) was 5.1, according to the Russell Sage Foundation’s Chartbook of Inequality. The same year, in New York City, the figure was 6.8, according to CCC New York. But as wide as the income gap is, the wealth gap is even starker. Research from the Urban Institute found the white-to-black and white-to-Latinx median wealth ratio to be 10:1 and 8:1, respectively.

The income and wealth disparity is decidedly more pronounced along racial lines and persists in spite of higher educational attainment, underscoring the cyclic nature of poverty and wealth accumulation. In a September 2015 report on the racial wealth divide in America, Yunju Nam, Darrick Hamilton, William A. Darity, Jr., and Anne E. Price of the New School’s Center for New York City Affairs found that, in 2013, the percentage of white young adults, financially reliant on their parents to pursue higher education, was 34%; for Black young adults, it was 14%. Twelve percent of white adults relied on their parents for financial support to buy a house, compared with 2% of Black adults. Those figures are symptomatic of systemic racial disparities in family wealth. The same study determined that the median wealth of Black families who did not contribute to their kids’ college tuition was $3,699; the median wealth of white families in that category was $73,878. For families who did contribute to their kids’ college tuition, Black parents’ median wealth was $24,887, while white parents was $167,935.

A 2014 study conducted by Laird Bergad of CUNY’s Center for Latin American, Caribbean, and Latino Studies compared wealth concentration and income by race in the city between 1990 and 2010, determining that non-Hispanic whites, though comprising only 37.1% of total households, garnered 50.1% of total income, while Latinx residents represented 26.1% of total households and 18.4% of total income, Black residents represented 21.4% of total households and 16% of total income, and Asian residents represented 13.4% of total households and 13% of total income.

Implementing a long-term asset-building birthright program, like Equity Bonds, would provide us with a strong foundation to end perpetual poverty, and repair racial inequities in family savings, structural impediments to pursuing higher education and homeownership, and the yawning wealth gap in the city more broadly.

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