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

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Individual Development AccountsA 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

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Introduction

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

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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

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Theory discussion

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

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Policies

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

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Bipartisan support

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

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Assets for Independence Act

• Passed with bipartisan support in 1998
• Designed to provide funds to states for
  Individual Development Accounts
• 11 match
• Eligible EITC eligible 200 of poverty
  eligible for TANF.
• Must work or have an eligible working member of
  the same household.

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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

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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

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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.

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Medicaid Buy In Programs

• Work incentive maintaining healthcare coverage
• Sliding fee scale
• Income standards for eligibility
• Changed treatment of savings from earnings

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Social Security Work Incentives

• 2 for 1 disregard
• Impairment related work expenses
• Plans for Achieving Self Support
• Unencumbered Business Expenses

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Other mechanisms for asset building

• Independence Building Accounts
• Special Needs Trusts
• Not owned by beneficiaries

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Social Security Protection Act 2003

• For a period of 9 months.
• Disregard retroactive checks from SSA or SSI
• EITC refunds
• Child Tax Credit refunds

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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

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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.

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Other policies

• Section 8 Home Ownership Voucher
• CARE Act, S.476 300,000 IDAs
• Special Needs Trusts

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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.
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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

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Program Areas

• Affordable housing
• Community facilities
• Economic opportunity

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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.
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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

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Match Structure

• 31 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

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Organizational Structure

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

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Community Partners Front-end

• Serve the eligible population (recruitment)
• Facilitate IDA Application Process/Paperwork
• One-on-One Counseling
• Financial Literacy Asset Training

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NHCLF Backroom Operations

• Raise Match Funds
• Provide Technical Assistance and
• Tracking Savings, Match Training
• Match Savings Statements
• Central Coordinating Agency of all Partners

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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

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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

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NH Statewide IDA Collaborative highlights.

• 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

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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

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Problem

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

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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

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Methods

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

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Money Works Infrastructure
CDFI
Affordable Housing Group
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Personal Benefits Planning

• Current situation assessment
• Income projections and work incentive options
• Information and referral
• Follow up as needed

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Certified Credit Counseling

• Credit history recommendations
• Spending Savings Plans
• Credit Use and management
• Survival skills in the marketplace
• Preparing for asset goal

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Asset Based Training

• Home Ownership
• Postsecondary education
• Self employment

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Peer Support

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

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

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Research

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

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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

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Contact Information

Tobey Davies Center for CED and Disability School
of CED/SNHU 2500 No. River Road Manchester, NH
03106-1045 Phone [phone]
Fax[phone] t.davies_at_snhu.edu