Individual Development Accounts: A strategy for fostering social and economic participation

1. Individual Development Accounts:A strategy for fostering social and economic participation Asset Development & Tax Policy 2004 Disability Program Navigator Series October 21, 2004 Tobey Davies, School of Community Economic Development

2. Introduction • Asset Building policies • Relevant of social & economic theories • Strategies, particularly IDAs • NH Statewide IDA Collaborative • Research

3. Reality “Few people have spent their way out of being poor. Those who do do so by saving and investing for long term goals.” • Michael Sherridan, Assets and the Poor

4. Theory discussion • Internal locus of control • life satisfaction • ability to mobilize resources • Role theory • Adapting to expectations, rules, circumstances.

5. Policies • Assets for Independence Act • Tax policy • Healthcare • Social Security • Housing and Urban Development

6. Bipartisan support • Conservatives likely to view assets as vehicle for self-reliance • Liberals often view as re-distribution of resources

7. Assets for Independence Act • Passed with bipartisan support in 1998 • Designed to provide funds to states for Individual Development Accounts • 1:1 match • Eligible: EITC eligible; 200% of poverty; eligible for TANF. • Must work or have an eligible working member of the same household.

8. “Making Work Pay”(Center on Budget and Policy Priorities, 2003) Earned Income Tax Credit • Work incentive to workers and self employed • Available to child & childless singles. • Must file for taxes

9. EITC, cont. • For workers w/o children between ages of 25-65, credit exceeds $382 • Gives back some or all of federal income tax taken out of pay. • May get additional cash back from IRS

10. EITC, cont. Even workers whose earnings too small to have paid credit, can still get EITC. - employer-paid disability benefits qualify as earned income - Adult children may qualify as “qualifying child” & also meet Child tax credit.

11. Medicaid Buy In Programs • Work incentive: maintaining healthcare coverage • Sliding fee scale • Income standards for eligibility • Changed treatment of savings from earnings

12. Social Security Work Incentives • 2 for 1 disregard • Impairment related work expenses • Plans for Achieving Self Support • Unencumbered Business Expenses

13. Other mechanisms for asset building • Independence Building Accounts • Special Needs Trusts* *Not owned by beneficiaries

14. Social Security Protection Act 2003 For a period of 9 months…. • Disregard retroactive checks from SSA or SSI • EITC refunds • Child Tax Credit refunds

15. SSPA 2003, cont. Effective June 2004, disregarding: • All education related income, • scholarship, • fellowships, and • gifts income. Not counting as a resource in SSI for 9 months

16. SSPA, cont. Individual Development Accounts • Allowable to individuals • Disregard income placed in exempt IDA, reducing countable income • Adapting economic policy to create the means for social outcome.

17. Other policies • Section 8 Home Ownership Voucher • CARE Act, S.476 = 300,000 IDAs • Special Needs Trusts*

18. Background NHCLF (CDFI) Mission To serve as a catalyst, leveraging financial, human, and civic resources to enable traditionally under-served people to participate more fully in NH economy.

19. Strategies • Provide loans, capital, and technical assistance • Complementing and extending the reach of conventional lenders and public institutions; and • Bringing people and institutions together to solve problems

20. Program Areas • Affordable housing • Community facilities • Economic opportunity

21. NH Statewide IDA Collaborative AFIA-funded Statewide IDA Collaborative designed to help eligible low income workers of New Hampshire achieve the dream of homeownership, post-secondary education or small business startup/development.

22. Eligibility and Uses • Eligibility • 200% Poverty • EITC Eligible • TANF Eligible • Savings Categories • Homeownership • Post-Secondary Education • Small Business Startup/Development • Pilot Savings Categories • Home Repairs • Vehicle Ownership

23. Match Structure • 3:1 match • $25/month minimum savings • $100/month maximum savings • $1,000/year savings cap • $2,000 lifetime savings cap • $6,000 maximum match per individual

24. Organizational Structure • 20 Community Partners – Front End • NHCLF- Backroom Operations • Financial Institutions – Hold IDA Accounts • Other Partners – Provide training and referrals

25. Community Partners: Front-end • Serve the eligible population (recruitment) • Facilitate IDA Application Process/Paperwork • One-on-One Counseling • Financial Literacy & Asset Training

26. NHCLF – Backroom Operations • Raise Match Funds • Provide Technical Assistance and • Tracking Savings, Match & Training • Match Savings Statements • Central Coordinating Agency of all Partners

27. Financial Institutions • Specific Features • Custodial • No Fees & Interest Earning • Duplicate Statements (1 to client, 1 to NHCLF) • Provide Funding for the IDA Collaborative • Training and TA on financial education topics

28. Other Partners • Other Partners include: Cooperative Extensions, Homebuyer Education Centers, Higher Education Assistance Centers • Provide Financial Fitness and/or Asset Specific Training • Work with Community Partners to enhance/develop curriculums

29. Each Community Partner holds “ownership” over their Program. Program rules/updates are discussed at Quarterly Community Partner Meetings NHCLF Provides no operational dollars to the partners to run the Program NH Statewide IDA Collaborative highlights….

30. MoneyWorksCommunity Partner • An initiative of Project Dollars and Sense • Tied eligibility to working people with disabilities eligible for SSI or SSDI • Savings for home ownership; college; business

31. Problem • Real or perceived financial disincentives • Difficulty navigating public benefit system • Un-served or under-served by financial institutions • Low-wages • Lack of support

32. Goals • Plan public benefits necessary in order to work and improve economic well-being • Use financial services successfully • Develop positive financial habits and credit history

33. Methods • Integrated counseling (benefits, credit, asset training) • Peer Support • Financial education workshops • Affordable financial services • Individual Development Accounts

34. Self Help Groups Certified Credit Counselors Benefit Planners Credit Union Money Works Infrastructure $ CDFI $ Affordable Housing Group

35. Personal Benefits Planning • Current situation assessment • Income projections and work incentive options • Information and referral • Follow up as needed

36. Certified Credit Counseling • Credit history & recommendations • Spending & Savings Plans • Credit Use and management • Survival skills in the marketplace • Preparing for asset goal

37. Asset Based Training • Home Ownership • Postsecondary education • Self employment

38. Peer Support • Savings clubs and buying coops • Managing illness and financial wellness • Organization skills • Navigating marketplace • Working toward goals

39. Equity building…. MNHS $25,000 NHHFA $5,000 CPI $20,000 IDA $3,600 DMHD $2,500 FHLB $12,000

40. NH Statewide IDA Collaborative highlights…. • After 3 years… • 565 Total Enrolled 330 Actively Enrolled • 281 Home; 21 Education; 22 Business; 6 Other • 78 Graduates of Homeownership (as of 10/21/04) • $532,106 Saved • $1,350,695 Matched • $ 384,940 Match Paid Out

41. Research • Asset Accumulation & Tax Policy (NIDRR) • LIFE Account Feasibility Study & Implementation Plan (CMS) • National Tax Facts Coalition • Youth Transition Grants – SSA

42. Resources • Corporation for Enterprise Development (CFED): www.cfed.org • World Institute on Disability: www.wid.org/equity • Center for Social Development: www.gwbweb.wustl.edu/csd • Center on Budget & Policy Priorities: www.cbpp.org

43. Contact Information Tobey Davies Center for CED and Disability School of CED/SNHU 2500 No. River Road Manchester, NH 03106-1045 Phone: 603-644-3103 Fax:603-644-3103 t.davies@snhu.edu