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New study identifies options for reparations delivery

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Discussions of reparations center on who should pay, who should receive them, and how much should be paid, but less on how payments would be delivered. New research from the Center for Social Development (CSD) identifies a policy model for delivering reparations.

Published in a special double issue of RSF: The Russell Sage Foundation Journal of the Social Sciences, the study draws upon CSD’s Child Development Account (CDA) research and the long-running SEED from Oklahoma Kids (SEED OK) experiment. The findings are summarized in a new brief.

“Our goal in this research is not to debate whether reparations are warranted,” said Trina Shanks, the study’s lead author. Shanks is the Harold R. Johnson Collegiate Professor of Social Work at the University of Michigan School of Social Work, director of the Center for Equitable Family & Community Well-Being at the University of Michigan, and a faculty director at CSD.

“In this study, we focus on the system for delivering reparations,” she added.

Identifying a structure for reparations policy

Designing that system is a surprisingly complicated undertaking. Study authors Trina Shanks, Jin Huang, William Elliott, Haotian Zheng, Margaret Clancy, and Michael Sherraden examine three options: direct cash payments, transfers into trust accounts, and transfers into savings plans.

Cash payments, they note, come with a “risk of asset depletion and losses” but “no policy support” to protect the assets or to ensure that they grow. Trust funds are managed by an overseer until a specified point, and the funds are invested conservatively to protect against losses, but earnings tend to be lower than those from more moderate investment choices.

Shanks and her coauthors contrast these options with a savings plan structure like that used for 401(K)s and 529 college savings plans. In such structures, the private sector manages the assets with government oversight. A central entity – in this case, the agency charged with overseeing a reparations policy – negotiates on behalf of beneficiaries for low fees and asset protections.

The authors have evidence on such a structure’s potential.

Evidence from a policy experiment

In 2007, CSD launched the SEED OK experiment to test the viability of a CDA policy initially proposed by Michael Sherraden in the 1991 book “Assets and the Poor.”

“I wanted to create a system that would empower children and their families to overcome opportunity barriers born of inequity, exclusion, and historical injustice, from asset stripping to segregation,” said Sherraden, the George Warren Brown Distinguished University Professor at Washington University in St. Louis and CSD’s founding director. “A universal system of children’s accounts is one way for families to develop assets they can use to access higher education, start a business, or buy a home.”

“In the SEED OK experiment, we have examined whether a CDA policy built on a transformed 529 plan can move the needle,” Sherraden added. “We’ve shown that the policy is sustainable over time and effective in building assets.”

SEED OK researchers randomly selected 2,704 newborns and their caregivers in Oklahoma, assigning about half to a treatment group and the others to a control group.

Each infant in the treatment group automatically became the beneficiary of a state-owned 529 account within the Oklahoma 529 College Savings Plan, but the accounts were different than typical 529s.

Every state-owned CDA came with a $1,000 deposit, and SEED OK offered caregivers incentives to open their own Oklahoma 529 accounts for the beneficiaries.

The assets in those CDAs have grown since 2007. The study reports that the average balance per beneficiary, including those from the account owned by the state and any other 529 account opened through the Oklahoma plan on a SEED OK child’s behalf, was $3,939 at the end of 2022. The sum includes investment earnings, as well as incentives from the experiment and deposits made by the families.

“With SEED OK, we have shown that even modest investments made early in a child’s life can grow substantially over time,” said Jin Huang, the William and Helen Reichmann Research Professor, School of Social Work at Saint Louis University, and CSD Research Director.

“Under a reparations policy, public deposits would likely be much larger,” Huang added. “Sherraden’s original proposal called for a seed investment of $30,000 per child in today’s dollars.”

Shanks and her coauthors also recommend that a reparations policy include public contributions at milestones in each beneficiary’s life – for example, at birthdays or graduations.

What can the CDA model teach policymakers about reparations design?

Acknowledging that research will continue on delivery strategies, the study’s authors draw upon insights from SEED OK and implemented CDA policies to specify parameters for a reparations effort.

“Ideally, a savings plan structure for reparations would have automatic enrollment (with an option to opt out at any time), sensible investment options, an experienced and trusted asset manager, low fees, asset growth, and investment targets to achieve individual and family goals.”

“Such accounts,” they continue, “would be overseen and regulated by a federal agency charged with administering Black reparations and representing the Black community.”

Nevertheless, they say, recipients should be allowed to “take reparations as cash” if that is their preference.

Additionally, Shanks and colleagues identify a series of “observations” for designing reparations policy:

  • Centralized accounts can accomplish automatic enrollment of all eligible reparations recipients into an integrated policy system.
  • Public oversight of a centralized account structure can ensure full inclusion, protections, low fees, effective delivery, and prudent asset management.
  • Centralized accounts can receive and manage multiple funding flows.
  • Reparations funds should be distinct from individual-level funding.
  • Delivery of a reparations policy could take the form of lifelong asset building, with investments for personal and family development.
  • Reparations can narrow the racial wealth gap.
  • Asset accounts for reparations should be accompanied by fair tax benefits.
  • Reparations in asset accounts should not affect eligibility for other public benefits.

As debates on reparations continue, and policymakers begin to weigh design considerations, the authors conclude that the evidence on CDA policy is valuable for designing a reparations policy.

“In both practical and political terms, a CDA policy model, or something like it, may be a promising candidate for effective delivery of reparations,” they write. “We hope that this article makes it clear that an effective and sustainable design for delivery of reparations will be necessary for implementation, stability, and effectiveness of a future reparations policy.”

The full study, “A Policy Platform to Deliver Black Reparations: Building on Evidence from Child Development Accounts,” can be accessed online at RSF: The Russell Sage Foundation Journal of the Social Sciences.

The companion brief, “Asset-Building Policy and Black Reparations: Effective Delivery and Wealth Accumulation,” is available on the CSD website.

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