Minneapolis will soon support 200 families with its new guaranteed basic income pilot, an experiment in alleviating poverty by paying low-income households $500 per month for two years, no strings attached.

The city has set aside $3 million of American Rescue Plan Act funds for the program. Households must earn less than 50% of area median income to be eligible. The program echoes a similar experiment that St. Paul launched in 2020 and dozens of other cities nationwide, whose leaders have made testing grounds to inform federal welfare policies.

Minneapolis wanted to try guaranteed basic income because federal COVID money offered an opportunity for something radically different to address the city's intractable racial disparities, said Erik Hansen, the city's Director of Economic Policy and Development.

"We have some of the largest gaps in wealth-building in the country. We have some of the highest gaps in homeownership by race, in high school graduation by race. Workforce participation rate is going to be determined based on skin color in Minneapolis and St. Paul," he said. "We need to start thinking of different ways to try and address this disparity."

Traditional welfare programs impose a number of work and education conditions. Food stamps require able-bodied adults without dependents to work at least 20 hours a week or participate in job training programs.

"Where there's a public benefit, there's always the expectation on the individual that they are owing something to that system, and one thing about [guaranteed basic income] is giving agency to the recipient," said Mark Brinda, manager of Minneapolis Employment and Training.

Guaranteed basic income should be much more straightforward than traditional benefit programs, which can be problematic for those with language barriers, said Bo Thao-Urabe, executive director of the Coalition of Asian American Leaders.

The burden of translating often falls to immigrant and refugee children, she said. Families face confusion around what counts as work-training activity, and having to apply for jobs that don't fit their skills in order to meet basic criteria for receiving food assistance.

"It makes it extremely difficult for people who are in poverty to put additional conditions on the financial assistance that they get," Thao-Urabe said.

Research around the effectiveness of guaranteed basic income is limited because multi-year nationwide pilots are still in their infancy.

Some preliminary findings emerged from Stockton, Calif., last spring. In 2019 Stockton pioneered the nation's first mayor-led initiative to give 125 people $500 a month for two years. The city found that the guaranteed income gave recipients opportunities to take more risks to achieve higher aspirations – such as quitting a low-wage job in pursuit of an internship leading to better employment. It also found an increase in full-time work among participants, despite the program having no work requirements.

"The largest spending category each month was food, followed by sales/merchandise, which were likely also food purchases at wholesale clubs and larger stores like Walmart and Target," the Stockton report said. "Other leading categories each month were utilities and auto care or transportation. Less than 1% of tracked purchases were for tobacco and alcohol."

A study of Alaska's Permanent Fund, which pays out about $2,000 per year to each resident of the state regardless of age, found that it had no effect on full-time employment, but did increase part-time employment.

"Overall, the estimated macro effects of an unconditional cash transfer on the labor market are inconsistent with large aggregate reductions in employment," the researchers concluded.

The Federal Reserve Bank of Minneapolis is partnering with the city of Minneapolis to evaluate the program.

Ryan Nunn, the fed's assistant vice president for Applied Research, Community Development and the Center for Indian Country Development, said his team plans to survey participants about their subjective experiences, but also study whether the extra cash enabled participants to achieve higher employment and social mobility.

"We're trying to track outcomes of all sorts from housing outcomes, to labor market outcomes to mental and physical health and wellbeing outcomes," Nunn said. "We think we have a rigorous statistical design for learning what the effects are, and we're excited to find out more."

Minneapolis officials are still sifting through applications from would-be participants. While he could not say how many households applied, Brinda confirmed demand far exceeded spots available.

Funding for Minneapolis' program will run out in two years, but if the results from the pilot are positive, staff may lobby for additional resources from a blend of the city's general fund, federal and philanthropic sources, he said.