Federal Assets Policy Update Assets Learning Conference September 19-21, 2006.

Federal Assets Policy Update

Assets Learning ConferenceSeptember 19-21, 2006

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CFED works to expand economic opportunity by helping more people save and invest, succeed as entrepreneurs, contribute to and benefit from the economy.

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Assets and Opportunity Snapshot: Financial Security Across the Nation

Nearly one in five households owes more than it owns (21 million).

One in four female-headed households has zero or negative net worth.

One in three minority-headed households has zero or negative net worth.

One in four families (26 million) does not own enough to subsist at the poverty level ($4,875 in income) for three months.

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Assets across America: Financial SecurityFindings on Net Worth

For every one dollar in net worth of a household headed by a white adult, a minority-headed household has about 6 cents.

For every one dollar in net worth of a household headed by a male, a female-headed household has less than 40 cents.

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Federal Government Response

Incent asset building for all: $362 billion a year is highly skewed to upper-income citizens.

More than 45% of the benefits went to households whose average income exceeded $1 million, (less than 1% of the population).

Those households with incomes exceeding $1 million receive, on average, an annual tax benefit of $155,000.

The top fifth (those with household incomes greater than $80,000) received the vast bulk (88.7%) of the asset-building benefits.

In contrast, the rest of the population shared 10.5% of the tax benefits, and the lowest 60% of households got a bit less than 3% of the benefits.

The poorest 30% of households (those with incomes less than $20,000) receive $5 or less in average of these incentives.

Overwhelmingly, tax expenditures for asset building outweigh direct expenditures ($506 to $1).

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Existing Asset Policies for Low-Income People

Family Self Sufficiency: 71,300 Assets for Independence Act: 40,000 Office of Refugee Resettlement: 73,851 American Dream Downpayment Initiative

HUD: 40,000 families a year Affordable Housing Program downpayment

program, Federal Home Loan Bank: 47,539 Saver’s Credit: 5 million IRS Split Tax-Refunds

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Existing Program: Family Self Sufficiency, HUD

HUD program, 1991-- largest of the asset building programs

71,300 people – declined about 4,000 people over past two years

Funding instability caused by changes in the procedures HUD uses to allocate funding for FSS program coordinators,

Unanticipated consequences of recent changes in the Housing Choice Voucher funding formula.  

Goal - return to HUD’s prior policy of funding one public housing FSS coordinator per agency out of the public housing operating fund,

Goal - revise the Housing Choice Voucher FSS Notice of Funding Availability to ensure that each agency with a FSS program receives funding for at least one FSS coordinator.

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Existing Program:Assets for Independence (AFI), HHS

AFI is administered by the Office of Community Services (OCS), within the U.S. Department of Health and Human Services’ Administration for Children and Families. AFI programs assist client families in placing earned income in special purpose, matched savings accounts called Individual Development Accounts (IDAs) and providing financial education.

From 1999-2004, OCS made 344 grants of $75,140,417 to assist 30,253 savers. A total of 211 AFI grantees reported that by the end of FY 2004, slightly more

than 71,000 individuals attended an orientation session to learn more about the AFI program. Of those who attended the orientation, about 28,990 (41 %) submitted an application and 21,677 (31 %) actually enrolled in the AFI program. A total of 18,651 (26 % of those who attended the orientation) eventually opened an IDA account.

Every dollar in savings deposited into an IDA by a participant is matched: more than 50% of the programs provide a $2 to $1 match while 26 programs provide varying matches based on the asset goal.

From FY’s 1999-2004, participants had opened 21,038 IDA accounts and at the end of FY 2004, 12,627 accounts with a total savings balance of $5.2 million were still open and the average balance among these accounts was $533. For more than half of all grants (54 %), the average balance per account holder is less than $400 but for more than one quarter of grants (28 %), the average balance is over $600.

Participants saved $14.6 million with an average savings amount of $697

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Assets for Independence Participants

The typical AFI participant is female (78%), not currently married (77%), has an income level below 200% of the poverty line (92%), and possesses a high school diploma (85%).

While the majority of participants live in urban areas (45% in large and 36% in minor areas), 19% live in remote areas, which is relatively consistent with the nation’s population dispersion as a whole.

African American’s rate of participation is higher (46%) than their percentage of the population (14%). Caucasians constitute 28% of the savers, Latinos are 16%, Asian Americans are 6%, and Native Americans are 1%.

More than 1/3 of AFI account holders had never used a checking account prior to enrolling in the AFI program and just about ½ had never had a savings account.

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Assets for Independence: Savings Activity

During their first year in the AFI program, the majority of participants saved between $0 and $599, with 28% saving between $200-$399.

By 2004, the majority of participants were saving between $400 and $800+, with 26% saving more than $800.

Average Savings Amount per Participant A

0%5%10%15%20%25%30%35%

$0-$199 $200-$399

$400-$599

$600-$799

$800+

Savings Balances

Pe

rce

nta

ge

of

Sa

ve

rs

2002

2003

2004

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Assets for Independence: Savings Activity

By the end of 2004, 12,529 participants (41%) had withdrawn $7,257,338 from their IDAs.

The average amount withdrawn was $735 per participant. Of those, 3,773 participants (30%) made unqualified

withdrawals (non asset purchases without a match) of $1,533,009 from their own funds.

Roughly 46% of all withdrawals were for the qualified purposes of a home, business, or education.

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Assets for Independence: Home Purchase Home purchases were the

most common asset participants purchased and also accounted for the withdrawals with the largest dollar amounts. 2,120 individuals withdrew $2,465,829.

Homeownership required a greater sacrifice from participants as the average savings per participant was $1,409. The average amount of matching funds was $2,930 and the average total withdrawal plus match was $4,346 per participant.

0%5%10%15%20%25%30%35%40%45%

Percentage of Savers

<$500 $500-$999

$1,000-$1,499

$1,500-$1,999

$2000+

Average Withdrawal Amount

Average Withdrawals for Home Purchase B

2002

2003

2004

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Assets for Independence: Small Business Small business expenses

were the second most frequent type of withdrawal and between 1999 and 2003, 1,564 individuals withdrew $1,376,506.

Average withdrawal amount was $1,041

More than half (54 %) of the projects reported withdrawals of greater than $1,000.

Match funds for small business development averaged $2,435,

the average amount withdrawn from participant savings plus matching funds was $3,571.

0%5%10%15%20%25%30%35%40%45%

Percentage of Savers

<$200 $200-$499

$500-$999

$1,000+ $2,000+

Average Withdrawal Amount

Average Withdrawal for Small Business C

2002

2003

2004

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Assets for Independence: Education 1,829 savers withdrew

$1,194,149 ($943 avg savings and $2,000 match)

Average savings plus match was $2,961.

Almost 2/3 (61%) of postsecondary education withdrawals were between $200 and $999.

0%5%10%15%20%25%30%35%40%45%

Percentage of Savers

<$200 $200-$499

$500-$999

$1,000+ $1,500+

Average Withdrawal Amount

Average Withdrawal for Postsecondary Education D

2002

2003

2004

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Assets for Independence ReauthorizationTechnical changes sought in reauthorization: Allow the critical financial education and economic literacy

components of the AFIA program to be funded as direct program costs instead of being included in the administrative costs.

Allow AFIA grantees full discretion over 20% of the nonfederal funds (up from 15%).

Expand the eligibility standards to include Adjusted Gross Income ($18,000 single filer, $30,000 head of household, $38,000 for joint filers) and Area Median Income (individuals with incomes equal to or less than 65% of Area Median Income (we would prefer 80% which is consistent with other federal programs and necessary for participation in high cost areas).

Remove the requirement that grantees calculate interest earned on match funds (e.g. this is highly complex and time-consuming for very little money).

Other technical changes

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Existing Asset Program:Office of Refugee Resettlement

Individual Development Account Program Between 2004 - 2005, ORR’s IDA program

enrolled 5,420 new refugee participants and helped create over 35 million dollars of combined savings. 

8,731 businesses.  Funding cuts: In the past three years (2004,

2005, 2006), only $1.6 million was made available for new IDA grants. 

Since 2004, only eight new grants were awarded and the continuation funding dropped from a high of $18.4 million in 2004 to $0 in 2006,

This is significantly less than the average of $11.6 million per year for the IDA program for up to 49 grantees during the period 2000-2005. 

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Existing Asset Program: American Dream Downpayment Initiative

ADDI created in 2003 to increase homeownership rate by providing up to $10,000 or 6% of purchase price of home for downpayment and closing cost assistance

Household income less than 80% of AMI Provides grants to 50 states and local PJs Assisted about 40,000 households a year Funding levels vary from $86 million in 2004 to $25 million in 2006. 2007 Budget will be lower

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Existing Asset Program: Affordable Housing Program, FHLB

The Affordable Housing Program of the Federal Home Loan Banks offer the AHP Homeownership Set-Aside Program

47,539 homeowners over ten years, about 9,000 in the past year

$3 million or 25% of its annual AHP contribution Also may establish a First-time Homebuyer Set Aside

Program with additional funding up to the greater of $1.5 million or 10%

Funds can support downpayment, closing costs, rehabilitation or counseling.

Eligible households must have incomes at or below 80% of area median income (AMI), complete a home buying counseling program, agree to a five-year retention agreement on the housing unit,

and be a first-time homebuyer, if applicable, etc.

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Existing Asset Policy: Permanent Saver’s Credit

Included in the Pension Protection Act of 2006 (H.R. 4) Reduces income taxes based on contributions up to

$2,000 to retirement savings of households earning less than $25,000 (single) $50,000 (married) a year. 

Income limits will rise with inflation Match amounts and rates vary between 10%, 25% and

50%. There is no similar indexing of the credit amount, which will therefore lose value over time. 

Not refundable thus limiting its availability to only 5 million out of a possible 61 million households.  Making the credit refundable would have enabled households without a federal income tax liability to be eligible for matches to their retirement account.

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Opt-Out/Automatic IRAs Congress recently included

changes in the Pension Bill that permits employers to let employees “opt-out” rather than “opt-in.”

Opting out means an employer would have to choose NOT to participate in a retirement plan.

A seminal study demonstrated that inertia and choice of the opt-out decision increases participation levels from 38% to 86% for low income workers. This 86% is comparable to higher income workers.

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Existing Policy: Split Refunds

IRS introducing split refunds 2007

Three Account Options

Must provide account number and routing number

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Recommended Asset Policies

Expand Matched Savings Accounts: Make the Saver’s Credit refundable. Enact an IDA Tax Credit Expand the Earned Income Tax Credit

Convert the homeownership deduction to a credit.

Offer fairer and better retirement plan design.

Children’s Savings Accounts

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Proposed Asset Policy: Savings for Working Families, S. 922/HR 4751

Federal tax credit to financial institutions that match the savings of 900,000 adults between ages 18-60.

Federal adjusted gross income does not exceed $20,000 (single), $30,000 (head of household), or $40,000 (married).

accounts restricted to three uses that help low-income families build appreciating assets: (1) buying a first home; (2) receiving post-secondary education; or (3) starting or expanding a small business.

Financial institutions would be reimbursed for the matching funds they provide, plus a limited amount of the program and administrative costs incurred, specifically:

The aggregate amount of dollar-for-dollar match funding provided (up to $500 per person per year for four years), plus

an annual $50 per account credit to maintain the account and provide financial education.

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Proposed Asset Policy: Savings for Working Families, S. 922/HR 4751

Popular and Bipartisan: Annual Commitment of President Bush who includes

the IDA Tax Credit in his budget Strong bi-partisan support: 55 co-sponsors in the

House (27 R, 28 D), 15 co-sponsors in the Senate History of success – passed the Senate twice (2001,

2003) More than 500 constituent letters (provides match,

financial education) History

Passed the Senate twice Six years of advocacy Support of major institutions, firms, and

organizations Major media attention and awareness of IDAs

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