This post originally appeared at https://www.badgerinstitute.org/questions-arise-about-legitimacy-of-plan-to-give-every-wisconsin-newborn-money-for-college/

$25 grants would be funded with excess from fees levied on some parents’ 529 contributions

Two state Assembly members have proposed giving a $25 starter for a state-administered educational savings account to every child born or adopted in Wisconsin.

To do that, Assembly Bill 1012 is asking the Legislature to change state law to allow for about $1.5 million a year for roughly 60,000 children to be taken from a segregated account built from fees on private savings accounts in the state’s tax exempt Edvest 529 program.

The WisKids bill would also allow the state Department of Health Services an exception to state privacy laws and for the first time would provide basic information about newborns and their families to the state Department of Financial Institutions. The DFI oversees Edvest and, if the bill is passed, would oversee WisKids.

The proposal by Rep. Evan Goyke, a Democrat from Milwaukee, and Rep. John Macco, a Republican from Ledgeview, comes at the same time that Democrats in Congress are pressing for something called the 401Kids Savings Act.  

The federal legislation would give the 72 million children living and 3.6 million children born every year in America between $500 and $750 in taxpayer money for an education savings account every year until they are 18. 

While the press releases and media coverage provide scant information about the total cost of 401Kids Savings, data provided by the bill’s authors say taxpayers would be responsible for, at the very least, $37.8 billion a year forever. 

WisKids faces several big challenges. The bill has been referred to the Assembly Committee on Financial Institutions but has not yet been put on the calendar for an executive hearing, so it’s unclear whether it will be heard in this session.

“I think we have to grant that there is a noble intent to this bill,” state Rep. Jerry O’Connor (R-Fond du Lac), vice-chair of the Financial Institutions committee, told the Badger Institute. “The challenge to the success of it will be determining whether families who don’t have money to set aside now will at least match that $25 and begin saving.”

Some Assembly Republicans are questioning the legitimacy of underwriting a new state educational savings plan with earnings from Edvest. Some have expressed concern that the bill would open the door to using tax money if the Edvest segregated funding were to be exhausted.

Goyke and Macco stressed that no taxpayer money will be used to fund WisKids. Macco, the founder and former president of Macco Financial Group in Green Bay, told the Badger Institute he has worked on various legislation involving Edvest since he joined the Assembly in 2015.

“Edvest costs the state of Wisconsin nothing,” Macco said. “DFI does a phenomenal job. I’ve been championing this for 10 years. This is worth doing for kids. We’re planting trees we’re never going to sit under.”

Macco and Goyke’s bill, however, raises questions about the cost of the $25 gifts and the Wisconsin 529 College Savings Program. The program, launched in 1997, includes two tax exempt programs, the Edvest 529 plan, available directly from the state to the public, and the Tomorrow’s Scholar plan, offered through private investment advisers.

According to a cost-benefit analysis included in the WisKids bill supporting documents, there were 106,450 Edvest accounts and114,933 Tomorrow’s Scholar accounts as of June 2022.

From early on, the board for the College Savings Program has collected fees from the assets in those accounts to cover the cost of administering the programs. The state stopped charging fees on Edvest accounts and collects a fee of 0.05% of assets in Tomorrow’s Scholar accounts.

The account from those fees has grown to $22 million. Assembly Bill 1012 is asking the Legislature to change the law to allow the DFI to pay not only for the administrative costs of WisKids but the $25 savings account grants in perpetuity. In essence, the bill would redistribute fees collected from private account holders to other families.

In addition to the roughly $1.5 million cost of the savings grants, startup costs for WisKids range from $390,000 to $1.5 million, and annual administrative costs would range from $253,000 and $487,000, according to the cost-benefit analysis.

Aside from the legal and funding concerns, there is another fundamental question: Is a $25 gift from the state enough to persuade families to start saving now for their children’s higher education 18 years later?

While the cost-benefit study concludes that WisKids-type accounts are a good idea, there is little data tying them to an increase in college enrollment.

“Universal CSA (college savings account) programs that provide benefits from birth have not been studied thoroughly with experimental trials,” the study says, “so the majority of data on the relationship between having college savings and enrolling in college comes from survey and correlational studies.”

Nor is there any data to suggest that offering a starter savings program spurs public interest in saving with the state for college. Macco and Goyke believe WisKids could be a reintroduction to state-run educational savings programs such as Edvest.

For a variety of reasons, just 20 percent of American parents make use of the 529 plans offered in their states, according to an Edward Jones survey. And the use of them varies wildly. Wisconsin’s Edvest for example, has assets of $6.6 billion, while Virginia’s 529 program has assets of $60 billion.

Over the last decade, at least half a dozen other states — California, Illinois, Maine, Nebraska, Pennsylvania and Rhode Island — have enacted starter saving programs for children. 

But when Goyke and Macco filed a similar bill in the last session called, oddly enough, 401Kids, it went nowhere. As of 2024, federal changes allow for parents to roll into 401K or other retirement plans unused 529 savings for their children’s retirement without any tax exposure, Goyke said.  

Goyke and Macco were unaware of the details of the federal 401Kids Savings Act and were not sure how it would be funded. Both lawmakers said they believed WisKids could stand as a companion to the federal saving proposal if it were to pass. Both said they’d need to take a closer look. 

The toughest part about selling WisKids so far, Macco told the Badger Institute, is convincing fellow conservatives in the Legislature that the program isn’t a Trojan horse for some permanent taxpayer-supported government program down the road.

Macco acknowledged that some remain unconvinced.

The language of the bill makes clear that taxpayer money isn’t involved in the WisKids program. “We have guardrails within the bill that give comfort to those skeptical of the bill,” Goyke said. “And we are probably not having this conversation if the bill doesn’t have buy-in from both parties.”

Macco expressed some pessimism that WisKids would be heard during this current legislative session. And if he reintroduces the bill in the following session, as Macco has promised, the bill will lose its bi-partisan author. Goyke is leaving the Assembly to run for city attorney in Milwaukee.

Mark Lisheron is the Managing Editor of the Badger Institute. Permission to reprint is granted as long as the author and Badger Institute are properly cited. The Badger Institute has registered in opposition to Assembly Bill 1012.

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