Nevada Treasurer Zach Conine wants the legislature to create a new entitlement program for those born in Nevada called “Baby Bonds.”
Conine’s proposed legislation would replicate a program created in Connecticut in 2021 that would deposit $3,200 into a trust account on behalf of every child born within the state that meets some definition of poverty.
In Conine’s proposal, as in Connecticut, that definition would be that the baby is covered by either Medicaid or the state Children’s Health Insurance Program (CHIP) at the time of their birth.
This initial deposit would grow over time as the treasurer invests money within the trust and earns a return. The beneficiary would be able to withdraw the money once they turn 18 and use it for a range of purposes. In Connecticut, the uses of those funds are restricted for the purchase of a home, payment of tuition for higher education or use as seed capital to start an in-state business.
However, Conine’s proposal would also allow the beneficiary to “invest in financial assets or personal capital that provides a long-term gain to the designated beneficiary’s wages or wealth.” Since the acquisition of any material good increases a person’s wealth and any nearly service can be construed to increase their “personal capital,” Conine’s proposal essentially guts the restrictions used in Connecticut.
Nominally, Baby Bonds are intended to reduce wealth inequality by providing a birthright of capital to children born to poor families. Ignoring that the birthright of all humanity is absolute poverty and that capital is just stored labor value that must be created, the Baby Bonds proposal is misguided on multiple fronts:
- Baby Bonds fail to target benefits to the most needy. Traditionally, it may have been intuitive to presume that a child covered by Medicaid or CHIP lives in poverty. However, following a dramatic expansion of Medicaid eligibility parameters by the Sandoval administration a decade ago, all households earning up to 138 percent of the federal poverty level are eligible, including those with only single, able-bodied adults of working age.
Currently, this amounts to $16,753 in reportable income for a one-person household. Any child born to a parent enrolled in Medicaid would automatically be eligible for Medicaid.
The Nevada Department of Health and Human Services projects that Medicaid enrollment will approach 1 million individuals during the upcoming biennium. That level of enrollment is nearly triple the enrollment figures prior to the expansion 10 years ago and would represent nearly one-third of the state’s population.
Under CHIP, a child is eligible for coverage as long as household income does not exceed 200 percent of the federal poverty level, which is currently $50,200 for a family of four. The median household income in Nevada is $65,686, which is slightly less than the nationwide median of $70,784. In other words, a substantial proportion of Nevada households qualify for this entitlement program.
In total, 364,938 children in Nevada are currently enrolled in either Medicaid or CHIP in Nevada, according to data from the federal Center for Medicaid and CHIP Services. That amounts to 48 percent of Nevada residents under the age of 19. If roughly half the population is eligible for an entitlement program intended to benefit the most needy, that program is not targeted to the most needy.
- American households experience significant income mobility over the course of a childhood. According to a 2021 report from the nonpartisan Congressional Research Service, there is significant income mobility of American households over time.
Over 20 years, the overwhelming majority of American households will move to a different income quintile. One in 20 households in the bottom income quintile will move to the top income quintile. Seven percent of those in the top quintile will move to the bottom quintile. The majority of those in the second quintile will move to a higher quintile while 48 percent of those in the bottom quintile will do the same.
This is because most individuals achieve income growth throughout their working lives as they acquire additional skills and experience and move into more senior roles at work. Children born to young parents may be in a lower income group at the time of their birth and yet be relatively affluent by the time they reach adulthood.
Welfare programs are typically based on earnings in the current year so that they can more accurately match benefits to households that have current financial need. Projecting current economic standing onto households a generation into the future will allocate public benefits toward many individuals who don’t need them.
- Nevada is uniquely bad at verifying eligibility for entitlement programs. Eligibility for Medicaid and CHIP are both predicated on a household’s reportable However, not all income may be reported correctly and there are multiple ways to commit fraud within these programs. A person could gain either illicit income or contract for income that is not reported to state agencies.
A person could also hold more than one job earning reportable income but only present paystubs from one job to state agencies as proof of income. In states like Nevada that impose no personal income taxes and do not have paystub information automatically reported to state agencies, it can be difficult for welfare offices to detect this form of fraud.
A recent report from the Congressional Research Service shows that Nevada’s rate of errors and fraud within SNAP is the highest in the nation and more than double the national average, at 7.6 percent. These are only the payments that were subsequently discovered as being erroneous or fraudulent.
Given Nevada’s poor track record of confirming applicants actually meet Medicaid or CHIP eligibility criteria, layering an additional entitlement on top of these programs is likely to double down on the same fraud.
- Fiscal notes do not incorporate the costs of the entitlement. State agencies are required to submit fiscal notes on legislation that could cause their office to expend additional resources. The Treasurer’s Office has submitted a fiscal note that estimates their costs to manage the Baby Bonds program from an administrative standpoint only – it does not include the cost of the bonds themselves.
The office believes it will cost a little more than a $500,000 annually to manage the program. The additional entitlement expense is unknown. However, this amount can be estimated using data from the Center for Medicaid and CHIP Services.
If 364,938 children in Nevada are eligible for one of these programs and birth rates are relatively constant over time, one can assume that roughly 1/18th of this total is born each year.
Personal and economic freedom make Nevada an attractive destination for domestic migration, however, and some of the children now living here were born elsewhere. If one assumes one-third of these children were born outside Nevada, then a conservative estimate might be that 13,584 children would be eligible next year for Baby Bonds. At $3,200 apiece, this would total to an annual program expense of $43.5 million.
For all of these reasons, Nevada lawmakers should reject the Baby Bonds proposal. Public support should be given to households only in the years in which they need it based on verified earnings. Projecting the current socioeconomic status of any family a generation into the future reflects a fundamental misunderstanding of social mobility in a market economy.
Instead, lawmakers should focus on rooting out fraud within existing entitlement programs so that support can be targeted to those who truly need it. Congressional researchers have singled out Nevada as particularly inept at evaluating program eligibility, which is a bad look.
