With great fanfare, the Los Angeles City Council – in partnership with the LA Unified School District – last week enacted new pilot program called “Opportunity LA” to establish “children’s savings accounts” for every first grader in the city. The accounts would be seeded with $50 for every student.
According to the city press release, the children’s savings accounts would be rolled out in the 2020-2021 school year, initially being provided to 10 percent of first grade students – approximately 4,000 students. Backers say all city first graders will receive a children’s savings account and $50 in seed money within five years.
Proponents argue that creating a savings account for every student will help encourage more students saving for college. The city press release cites data showing that “a low-income child with up to $500 in a dedicated savings account is three times more likely to enroll in, and four times more likely to graduate from, post-secondary education than a similar low-income child with no savings.”
There’s no question that saving for college – and encouraging young people to save at an early age – is a good thing. But this particular program raises many serious questions.
For starters, the program is funded for the first two years with state and federal grants, including from a $25 million allocation in this year’s state budget for children’s savings accounts.
As ABC 7 News notes, “things could get tricky” after the first two years of funding runs out, as the estimated annual cost after that would be $2 million per year to provide savings accounts for the district’s 40,000 first graders.
It’s also questionable whether this is an appropriate role for government. Do we really need the LA City Council to set up a savings account for students when any parent can go down to their local Bank of America branch and open a savings account for their child?
Los Angeles County Supervisor Hilda Solis, one of the program’s proponents, said of the program that, “saving for college early helps build positive, lifelong financial habits.”
She’s right. It’s a lesson some Los Angeles politicians could take to heart, as well.
Consider that, as our Lance Izumi wrote earlier this year following the resolution of LAUSD teachers strike in January, “the district’s finances mean that the (teachers union) deal is built on quicksand.”
The deal included a 6 percent raise for teachers, a cap on class sizes, and more staff at schools. The additional staffing could cost roughly $403 million – built upon voters passing a parcel tax increase. Yet, 55 percent of voters rejected the parcel tax increase in June.
Izumi also notes a warning from the LA County Office of Education that the district’s structural deficit means that it won’t be able to meet a state-mandated 1 percent budget reserve within a few years, and that “the district will be bankrupt” by 2021-22.
Meanwhile, city of Los Angeles budget director Rich Llewellyn recently projected city deficits of between $200 million and $400 million per year if the city does not act to cut spending.
According to the Los Angeles Times, “Llewellyn’s report asks city departments to come up with immediate plans to reduce costs or find new revenue sources equal to 3% of what they were given in this year’s budget.”
Perhaps Los Angeles could learn a thing or two from this program and strive to “build positive, lifelong financial habits” in how they spend the people’s money.
Tim Anaya is the Pacific Research Institute’s communications director.