First Steps Forward: How Vermont is Testing Baby Bonds with Private Dollars to Fight Rural Poverty
While initially envisioned as a state-funded trust, the program has evolved into a unique public-private pilot focused on the Northeast Kingdom.
In an ambitious effort to address intergenerational poverty and retain young talent in the state, Vermont has launched the “First Steps Forward” initiative. Spearheaded by State Treasurer Mike Pieciak, this program places Vermont at the forefront of a national conversation on economic equity. While initially envisioned as a state-funded trust, the program has evolved into a unique public-private pilot focused on the Northeast Kingdom.
This article breaks down how the program works, the difference between the theory and the pilot, and the financial hurdles that remain to fully realize the Treasurer’s vision.
A Vision for Economic Equity
The concept of “Baby Bonds” was originally developed by economists Dr. Darrick Hamilton and Dr. William Darity Jr. as a tool to close the racial wealth gap. The theoretical model is straightforward: the government sets aside funds for children born into poverty, allowing that money to grow through compound interest over 18 years. When the child reaches adulthood, they access a substantial nest egg to buy a home, start a business, or pay for education.
In Vermont, Treasurer Pieciak championed this idea as a way to support the state’s most vulnerable families while incentivizing young people to stay in Vermont. While the original legislative proposal (H.769) sought a permanent trust funded by state revenues, the legislative process resulted in a different approach. Act 184 authorized the creation of the program structure but pivoted the funding model from public tax dollars to private donations.
Rather than viewing this as a setback, the Treasurer’s office has reframed this as an opportunity to test the concept through a targeted, agile pilot program before seeking broader statewide implementation.
How the “First Steps Forward” Pilot Works
The pilot program differs significantly from the traditional 18-year Baby Bond model. It is designed to produce results faster, allowing the state to evaluate the impact of asset-based welfare on a shorter timeline.
The Investment: Qualifying participants will receive a grant of roughly $3,200.
The Timeline: Unlike a bond that matures over two decades, testimony indicates these funds will be distributed within 2 to 3 years of receipt.
The Usage: Funds are restricted to wealth-building activities, such as higher education, homeownership, or business entrepreneurship in Vermont.
Because the timeline is accelerated, the pilot functions less like a bond dependent on compound interest and more like a conditional capital grant. While a $3,200 investment might grow to over $10,000 in 18 years under the traditional model, the pilot focuses on the immediate impact of providing capital to young adults entering the workforce or higher education.
Focusing on the Northeast Kingdom
The pilot explicitly targets Caledonia, Essex, and Orleans counties. This geographic focus is data-driven, aiming to assist residents in the region with the highest economic need.
Medicaid Birth Rates: While the statewide average for births financed by Medicaid sits between 37% and 41%, rates in Northeast Kingdom towns can range from roughly 45% to 55%.
Retention: The region faces challenges with low business persistence and lower educational attainment compared to the Vermont average.
By isolating the pilot to this region, the state aims to gather specific data on whether a financial “anchor” can reduce youth out-migration in rural areas.
The Challenge: The $1.5 Million Fundraising Goal
To launch the program, Treasurer Pieciak secured a historic commitment of $300,000 from M&T Bank, alongside $25,000 from the Vermont Student Assistance Corporation (VSAC). This $325,000 seed funding serves as the foundation for the pilot.
However, for the program to be statistically valid, further funding is required. The Treasurer’s office has set a goal of raising $1.5 million.
This figure is not arbitrary. To accurately measure the success of the policy, researchers need a participant group large enough to filter out anomalies and track genuine behavioral changes.
Current Capacity: With the secured $325,000, the program could support approximately 80 participants (factoring in grants, coaching, and administration).
Target Capacity: Reaching the $1.5 million goal would allow the program to serve approximately 375 participants.
A larger group is essential for the program’s long-term viability. A small sample size risks providing “anecdotal” evidence, whereas a cohort of nearly 400 young adults would provide the robust data necessary to prove the concept works and potentially justify future public funding.
Corporate Partnership and Context
The lead investor, M&T Bank, has framed this contribution as part of its commitment to Vermont following its acquisition of People’s United Bank. This partnership utilizes funds from the “Amplify Fund,” a charitable vehicle established as part of the merger process to benefit low-to-moderate-income communities.
For M&T Bank, which faced operational challenges during the systems integration in 2022, the partnership offers a way to deepen ties with the Vermont community and support economic development in rural areas where banking access is often critical.
What Happens Next?
The “First Steps Forward” initiative is currently in a crucial design and fundraising phase.
Committee Work: The Baby Bonds Advisory Committee is currently meeting to finalize eligibility rules, the financial coaching curriculum, and distribution logistics.
Fundraising: The Treasurer’s office continues to seek donors to bridge the gap between the current $325,000 and the $1.5 million goal. Under Act 184, the Treasurer must confirm that sufficient funds are available before the pilot fully launches.
Launch: Once funding targets are met, beneficiaries will be selected, with funds expected to be distributed to participants in the following 2 to 3 years.
By leveraging private dollars to test a public policy theory, Treasurer Pieciak is attempting to prove that a small capital investment in Vermont’s youth can yield long-term economic returns for the state.