Oh, baby: $500 to all newborns?
State bill is designed to encourage habit of lifelong saving.
By Jim Sanders - Bee Capitol Bureau
Published 12:00 am PST Thursday, March 1, 2007


Happy birthday, baby, here's $500 -- courtesy of California taxpayers.

Legislation announced Wed- nesday would provide a tax-free, long-term investment account to every baby born in California, regardless of the parents' financial or immigration status.

Senate Bill 752 is meant to persuade more families to invest for the future.

"If we ask people to invest in California, California must invest in its people," said Sen. Darrell Steinberg, D-Sacramento, who is co-authoring the bill with Republican Sen. Bob Dutton of Rancho Cucamonga.

"Every child ought to grow up knowing that they are worth investing in, from birth on," Steinberg said.

The proposed account, called Kids Investment and Development Savings, or KIDS, is meant to grow until the child turns 18 and could withdraw the money for a house, education, vocational training or to roll over into a retirement account.

But critics say the state has more critical needs than padding accounts for children too young to say thanks. Sen. George Runner, R-Lancaster, said it's hard to support giving $500 to every newborn when the state says it doesn't have enough money to build prisons.

"It's certainly an interesting idea, and a worthy goal," Runner said. "The problem is, it's the wrong time."

Gov. Arnold Schwarzenegger has taken no position on SB 752, which needs support from two-thirds of each house -- meaning Democrats and Republicans -- to pass. The bill is sponsored by New America Foundation, a nonprofit and nonpartisan group.

The savings program would cost taxpayers more than $283 million per year. California has roughly 566,000 births annually, a figure expected to climb to nearly 612,000 by 2015.

Treasurer Bill Lockyer, whose office would administer the program, has taken no position the bill but supports the notion of helping families invest in their future. Tom Dresslar, Lockyer's spokesman, said administrative costs have not been projected.

Steinberg said the $500-per-baby seed money would promote lifelong savings and financial literacy. Parents, relatives, friends and others would be encouraged, but not required, to make regular contributions to the accounts.

Interest rates are not predictable, but if the account averaged 5 percent annually, a $500 state investment supplemented by $50 per month in family contributions would total nearly $17,500 after 18 years, Steinberg said.

Dutton said he learned firsthand about the value of such accounts. Kiwanis Club donations funded a $200 account when his daughter, Kara, was born. Interest plus family contributions, hiked the fund to $65,000 in about 25 years, he said.

"We're not born with a savings gene," said Assemblyman Dave Jones, D-Sacramento. "It's a learned behavior."

No states now operate such a youth savings program. But the United Kingdom provides seed money for newborns, and Canada recently proposed a program to help low-income families save for their children's education, according to Steinberg's office.

Nationwide, 25 percent of white children and 50 percent of nonwhite children grow up in households without any significant savings or resources for investment, SB 752 says.

Details are pending, but Steinberg said he envisions not allowing withdrawal of the state's $500 seed money unless the owner shows proof of enrolling in an educational program, buying a house, or possessing a retirement account.

Contributions by family members would be subject to penalties for early withdrawal, Steinberg said. Money in the account, or contributions made to it, would not be considered when determining eligibility for low-income assistance.

Barbara Coe, chairwoman of the California Coalition for Immigration Reform, said the state should not subsidize the children of illegal immigrants.

"It would send an even louder message for illegal aliens around the world to come to California," Coe said.

Backers counter that children born in California are U.S. citizens, regardless of their parents' immigration status, and that a $500 account inaccessible for 18 years would be a weak magnet.

Assemblyman Chuck DeVore, R-Irvine, said he has some questions about how the program would be implemented but he supports its goal. "I think it's a worthy expenditure of public funds," he said, noting that $280 million is far less than 1 percent of the state's general fund.

John Huff, 51, of Yuba City said the subsidy is needed more by current college students.

"Why not invest in someone's education now, rather than wait 18 years?" he said.


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